The scary number: $1.4 billion in A-B cost cuts
The St. Louis business community has been abuzz today about the $65-a-share offer that Inbev is rumored to be preparing for Anheuser-Busch. Much of the attention has focused on that headline number — $65 a share equals $46 billion for all of A-B, which may prove extremely tempting to shareholders.
In St. Louis, though, another number in the original FT Alphaville report should give folks pause: InBev reportedly thinks it can cut costs at A-B by $1.4 billion a year.
Mark Swartzberg, a Stifel Nicolaus analyst, crunched the numbers too, and he agrees that $1.4 billion in cuts would be necessary to make the deal pay off. That’s a huge number, equal to about 35 percent of A-B’s earnings before interest and taxes, he notes in a research note published today. But it’s probably considered achievable by InBev’s bottom-line-focused executives, Swartzberg says:
We believe execution risk achieving such a number is high, but $1.4 bn is approximately $10.70 per wholly-owned AB barrel and would lift AB’s OI (operating income) per barrel to approximately $34 per barrel. That’s an amount in line with InBev’s OI per barrel, which is in the $30s.
Sounds to me like a cost savings of that magnitude would be extremely bad news for the 6,000 or so A-B employees in St. Louis.



David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page.
INBEV will have to try to do this deal as a hostile takeover at the $65 price. It has a current value of $65 per share based on forecasted earnings per share, forecasted earnings growth, profitability, interest and inflation rates. There is a premium for this stock on top of the $65 per share based on brand value, distribution system, trademarks and cost cutting opportunities. In my view, the brand value alone should be worth another 30% minimum in share price as this is the biggest “asset” any brewer has. The distribution system should also drive a premium of 20 - 25%. This pushes the share value closer to $100 - $110 per share. Shareholders would be unwise to even think about the current offer.