This Bid's For You

An international beer war is brewing. On June 11, InBev, the behemoth formed by the 2004 merger of Brazilian brewer AmBev and Belgium-based InterBrew, offered a hefty premium to buy Anheuser-Busch, the dominant and iconic U.S. beer-maker. InBev, which is run by a Brazilian, Carlos Brito, is eager to add Budweiser to its international portfolio of brands.

Anheuser-Busch's board and chief executive officer, August A. Busch IV, the sixth  generation of his family to run the brewer, dismissed the unwelcome offer as inadequate. Bud partisans, especially in and around St. Louis, have reacted with even more vigor. Both of Missouri's senators, Republican Kit Bond and Democrat Claire McCaskill, oppose the deal, with McCaskill saying it is "patriotic" to do so. In a letter to Anheuser-Busch's board, McCaskill writes, "do not hesitate to contact me to discuss ways that I and community leaders can work with you to improve the company without changing its ownership."

Opposition to InBev's takeover is rooted in national and regional pride and, perhaps more important, in the overarching anxiety about the role of America in the global economy. So far this decade, two of America's Big Three beer-makers have been sold to foreign buyers. Second-place Miller was sold in 2002 to SABMiller, a company with roots in South Africa and headquarters in London. Canada's Molson acquired third-place Coors in 2005. (Combined, the Big Three have 78 percent of the U.S. market, with Anheuser-Busch holding down about 50 percent.)

Officially, Anheuser-Busch's principal resistance is financial. On Thursday, it charged that InBev's $65 per share "does not reflect the strength of Anheuser-Busch's global, iconic brands Bud Light and Budweiser, the two top-selling beer brands in the world. … The proposal also undervalues the earnings growth actions that the company had already planned, which have significant potential for shareholder value creation; the company's market position in the United States, the most-profitable beer market in the world; and the high value of its existing strategic investments."

This rhetoric, which could merely be a negotiating ploy to get InBev to boost its offer, highlights the very reasons Anheuser-Busch is in danger of being taken over. Yes, the company does own iconic brands that have a global presence. But Bud is different than other global brands such as Coca-Cola or McDonald's, which developed distinctly American consumer experiences that didn't face much resistance when they entered foreign markets. Today, they derive the vast majority of sales from abroad. But beer isn't an American invention, and in virtually every market, strong local brands proliferate. And so, while it sells Bud in scores of foreign markets and has linked up with brewers in Mexico, China and India, Anheuser-Busch has remained largely dependent on the massive U.S. market, where it has about a 50 percent market share. In the first quarter of 2008, 83 percent of the sales of Anheuser-Busch brands were in the U.S.

Historically, that's been a blessing. Today, with boomers aging, the rage against carbohydrates and an exhausted consumer, it's a curse. According to "Beer Marketers Insights," between 1997 and 2007, U.S. beer shipments have barely kept up with population growth, rising just 9 percent. For Anheuser-Busch, in the first quarter of 2008, the volume of shipments to wholesalers grew by 0.4 percent from the first quarter of 2007, while "sales-to-retailers for Anheuser-Busch produced brands, excluding imports, declined 1.4 percent." (This state of affairs isn't unique to Bud. InBev's first quarter results also had declining volumes.)

The problem for Anheuser-Busch's board and current management is that stock investors want growth. And this year, as in the last several years, virtually all the growth in the beer market will take place outside the U.S. In addition, the weak dollar makes it A) more expensive for Anheuser-Busch to buy growth through acquiring brewers in developing markets; and B) cheaper for foreign buyers to snap up U.S. trophy properties like Anheuser-Busch.

What's going to happen? Investors responded to the offer, which tops the stock's 2004 10-year high by 20 percent, by pushing Anheuser-Busch's stock close to the bid. Warren Buffett, who owns about 5 percent of the company, could easily end this by stating a preference. But the bridge player is keeping his cards close to his vest. When I (warning: egregious name-drop coming) had lunch with Buffett yesterday (OK, there were about 20 other people around the table, but I did get to chat with the Oracle of Omaha for a few minutes), he affirmed that he hasn't picked a side in this battle between August Busch and Carlos Brito. (It might be worth pointing out that Buffett has made lots of money recently betting on the financial management skills of Brazilians.) Still, you don't have to have Buffett's acumen to believe that this offer is a good one.