In this battered and volatile market few companies are really
safe: just ask the stockholders of Anheuser-Busch.
On July 13, 2008, Anheuser-Busch and InBev said they have agreed
to a deal, pending shareholder and regulatory approval, for InBev
to purchase the American icon Anheuser-Busch at $70 per share,
creating a new company to be named Anheuser-Busch InBev. The
all-cash agreement, almost $52 billion in total equity, would
create the world’s largest brewer, uniting the maker of
Budweiser and Michelob with the producer of Stella Artois,
Hoegaarden, Leffe and Beck's, Bass, Labatt and Brahma. The two
companies would have yearly sales of more than $36.4 billion,
surpassing the current No. 1 brewer, London-based SABMiller.
Despite the $70 agreement, BUD trades at around $63.
Why? Because InBev is financing the deal.
Great timing!
Yet, the news has been positive for BUD shareholders who are
paying attention and who agreed to the merger last week.
InBev has been lining up an executive team and has stressed that
there is no financing problem.
The market is obviously skeptical.
I am not. Beer will not go significantly down in a
recessionary period. In fact, if anything budget beer will
probably go up! Meanwhile, the world governements have
stepped in to bailout the banks with major cash infusions.
Why would they turn down InBev after promising financing?
Here is the risk reward: $63 to $70 within a month and a half -
which is the timeframe mentioned by most analysts and the
companies. That's an 11% return in only a month and a
half! The risk is that the deal somehow falls apart and the
stock drops to around $50, a 20% loss. I see a…
