Philadelphia/New York, July 14 - InBev NV, armed with financing and promises to protect Anheuser-Busch Cos Inc's heritage, pursued its $52 billion target as a chess game with the final checkmate victory foreseen from the first move.
"The speed and efficiency with which InBev mounted its attack on A-B and got a deal done just $5 (per share) above its initial bid price is impressive," Credit Suisse beverage analyst Carlos Laboy wrote in a research note on Monday.
InBev moved gently from the start, meeting with Anheuser Chief Executive August Busch IV in June 2 in Tampa to discuss a possible combination. It followed with an unsolicited offer on June 11 that included several concessions to soothe any pain for Anheuser-Busch.
Among the concessions in the initial $65 per share bid, InBev offered Anheuser seats on the combined company's board; promised to keep Anheuser's St. Louis, Missouri, home as the North American headquarters; and have the merged company's name reflect the heritage of the more than 150-year-old U.S. brewer.
InBev also said it would keep Anheuser's U.S. breweries open. The Belgian-based company kept all of those promises in the final agreement to buy Anheuser for $70 per share, creating the world's largest brewer which would be named Anheuser-Busch InBev.
"It was pretty much the standard example of how to acquire a company in an agreed deal when they weren't up for sale. The AB board did well, but the InBev tactics were spot-on in that they didn't have to face a messy, long drawn-out battle," said one source close to the deal.
"On the financing side in these difficult markets, they did well to pull together a high-class bank group," the source said.
FINANCING, POLITICS, LAWSUITS
Immediately after news of the possible deal leaked in the press, InBev's Chief Executive Carlos Brito met with U.S. politicians to ease any concerns about an international company buying the American icon and brewer of Budweiser beer.
"The InBev team played a good game in Washington. The first thing Brito did after it was leaked was to get over there and see the relevant senators," the source said. "Even though (Democratic presidential candidate Barack) Obama came out and spoke against it, that was contained."
InBev, though, reiterating through the month-long battle that it wanted to negotiate a friendly deal, showed that it would also push hard and set the stage to try to replace Anheuser's board. InBev proposed a slate of nominees that included Adolphus Busch IV, an uncle of Anheuser-Busch's current chief executive.
BUD'S WEAK SPOTS
Although some analysts credit InBev with running a smart campaign, others said that Anheuser had few defenses and was ripe for takeover given the slow growth of the U.S. beer market, the founding family's small stake and the brewer's weak performance.
"BUD made big missteps, but it made them two years ago when they declassified the board. Once BUD did that, they were always a sitting duck," said Andy Baker, a special situations analyst with Jefferies & Co Inc. "InBev won because all the pieces lined up."
Anheuser-Busch let their poison pill expire in 2004, and they declassified their board in 2006, according to FactSet MergerMetrics.
The firm gave Anheuser-Busch a "bullet proof" rating of 1.25, far weaker than the mean bullet proof rating for the Standard & Poors 500 of 3.7.
InBev and Anheuser traded lawsuits over the efforts by the Belgian brewer to challenge Anheuser's board. Anheuser also called the InBev takeover attempt an "illegal plan and scheme" to acquire Anheuser "at a bargain price."
The Anheuser lawsuit said InBev failed to disclose information about its Cuban business, an assertion that was mocked by analysts as a weak tactic to cast a negative light over InBev.
"If A-B had played its hand quite differently, we are certain that Brito would have run up as high as $75. Brito wanted the deal that badly," said Tom Pirko, president of California-based Bevmark, an industry consulting firm.
"A-B made a large mistake by alienating everyone with its legal machismo -- all pointless. It had no realistic defenses," Pirko said.
Anheuser also faltered by unveiling an alternative plan to deliver more than $1 billion in annual savings, adding that it would cut jobs, raise prices and boost share buybacks. Its stock failed to respond.
IT'S ALL ABOUT MONEY
Of course, money talks. InBev lured Anheuser to the bargaining table last week by raising its offer to $70 per share from $65 per share, a 27 percent premium over Anheuser's record-high stock price in October 2002.
August Busch IV had told a meeting of beer distributors that the brewer his family has controlled for more than a century would not be sold "on my watch." He'd now be on the board of the combined company.
"Some family firms have a tendency to be protective and August Busch once talked about how he was still trying to win his dad's respect," said Eleanor Bloxham, chief executive of Corporate Governance Alliance.
"Once you've gone public, the dynamic has changed and your obligation is to shareholders. It's best to be prepared for that," Bloxham said.
In the end, Anheuser accepted a friendly deal with a company it already knew and respected due to existing distribution agreements. It became a smart business move to allow InBev, which can expand Anheuser's brand in more international markets, to take over, analysts said.
"I credit the board of BUD for recognizing the situation and doing what was best for their shareholders. They did the right thing and said 'We'll swallow our pride. Swallow our home town pride,'" Baker said.