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InBev Looks to Expand Budweiser’s Reach
Tuesday July 15, 2008 11:35 pm ET
By MARK LANDLER

FRANKFURT — Now that a Belgian brewer has conquered the King of Beers, it wants to take Budweiser global.

On Monday, hours after Anheuser-Busch accepted a sweetened $52 billion takeover offer by InBev, ending a monthlong standoff, the Belgian company’s chief executive, Carlos Brito, laid out ambitious plans to expand Budweiser into Europe, Asia and Latin America.

But InBev also seems to have other matters on its mind. Most analysts focused on the cost savings that the company will wring out of Anheuser-Busch, which is based in St. Louis, rather than on the opportunities to expand Budweiser or its sister beer, Bud Light, overseas.

“They don’t need tremendous success with Budweiser around the world,” said Wim Hoste, an analyst at KBC Securities in Brussels. “The transaction can be justified by the synergies on the cost side.”

InBev said putting the brewers together would save $1.5 billion by 2011, the bulk of that from cuts that Anheuser-Busch identified during its campaign to fend off InBev’s unsolicited bid.

In trying to make itself more valuable than InBev’s initial offer of $65 a share, Anheuser planned to cut $1.095 billion in costs by, among other measures, eliminating 1,185 jobs and streamlining its supply chain.

Last week, responding to an overture by Anheuser-Busch, InBev raised its all-cash offer to $70 a share. In talks over the weekend, the two sides resolved other delicate issues like the name of the company, which will be Anheuser-Busch InBev.

InBev pledged not to shut down any of Anheuser-Busch’s 12 breweries in the United States. And it gave two board seats to Anheuser-Busch representatives, one of which will be taken by August A. Busch IV, the scion of the Busch family and the company’s chief executive.

“While the process was at times difficult for all parties,” Mr. Busch said of the negotiations in a conference call with reporters, “in the end, the right outcome happened for everyone.”

Mr. Brito of InBev added, “We’re very happy this transaction turned out to be a friendly one.” He said the company planned to use Anheuser-Busch’s cost-cutting plans as a blueprint for combining the two brewers, saying he was very impressed with how detailed they were.

Shares of Anheuser-Busch rose 37 cents to $66.87 in New York, while InBev fell 3.4 percent in Brussels.

Raising the bid was wise, analysts said, because it might mute a political reaction in the United States, where Budweiser is a celebrated name. InBev’s unsolicited offer had provoked opposition from politicians in Missouri, and Senator Barack Obama, the presumptive Democratic nominee, said he favored keeping the company independent.

Mr. Brito said Anheuser-Busch InBev would be world’s third-largest consumer products company by market value, behind only Procter & Gamble and Nestlé. But he did not put a number on the sales that could be generated by a global Budweiser, saying he wanted to be conservative.

“This deal is not about top-line growth,” said Alexandra Oldroyd, an analyst at Morgan Stanley in London. “It’s about cost savings.”

That may be a relief to shareholders of both companies, because Ms. Oldroyd and other analysts expressed skepticism that InBev could turn Budweiser into a blockbuster global brand.

Budweiser, they said, is different from Stella Artois and Beck’s, with much larger volume and a true-blue American image that may not translate well in some countries, particularly in Europe.

In Europe, Anheuser-Busch has long fought legal disputes over the Budweiser name, which is claimed by a Czech brewer. InBev said it would be able to use the full name in only 16 of 35 European countries. In others, it will have to market Budweiser as Bud or Anheuser-Busch Bud.

Still, Mr. Brito said his company had a record of “transforming local jewels into global brands.” He likened Budweiser’s potential overseas to that of McDonald’s, Pepsi-Cola and Frito-Lay.

Certainly the deal, if approved, would give Anheuser-Busch InBev unrivaled distribution channels in the world’s five largest beer markets: China, the United States, Russia, Brazil and Germany. In the United States, with Budweiser and Bud Lite, it would have half the market; in Brazil, where it owns three popular brands, it would have nearly 70 percent.

The combined company would have sales of $36.4 billion, making it 40 percent larger than its next competitor, SABMiller, with more than twice the profits. Its sales and earnings would be split fairly evenly between industrial and emerging countries, with China playing a linchpin role.

China is the only top-five market where the two brewers have major overlap, though Anheuser-Busch is stronger in the northeastern part of the country — it owns 27 percent of the Chinese premium brand Tsingtao — while InBev is well represented in the southeastern region.

InBev turned Stella Artois, a working-class Belgian brew, into the leading imported brand in Britain. And it used heavy marketing to turn Beck’s of Germany into that country’s No. 1 beer export, sold in 120 countries.

But InBev stumbled when it introduced Brahma, a Brazilian beer, globally. It did not catch on, despite a sexy, hourglass-shaped bottle and a marketing campaign that tied it to Brazilian style.

Analysts said Budweiser might have better prospects in Asia, where tastes run toward thinner brews.

Mr. Brito said InBev had no plans to cut Anheuser-Busch’s huge marketing budget, nor would it seek to dismantle the system of wholesale distributors that undergirds the Budweiser franchise in the United States.

“We respect that, we think it is a very strong pillar, and we have no intention to change that,” he said.



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