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05.23.2008 5:34 pm

The scary number: $1.4 billion in A-B cost cuts

St. Louis Post-Dispatch
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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.

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28 comments

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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.

— Chris Corrie
10:11 am May 27th, 2008

A-B, just like many former StL companies was so focused on the status quo, i.e., ignored international expansion for many years and the world passed them by. (That’s why they are not the largest brewers in the world.) The Busch family only owns 4% of the shares, so they aren’t going to “rescue” the company for St. Louis. The world won’t end, the beer will still be made.

— DenverDean
1:16 pm May 27th, 2008

Dean, AB is the largest brewer in the world, InBev is #3. Look up the numbers (at least the ones InBev chooses to make public). AB has a better ROI and gross profit. IMHO any stockholder thinking it would be a good move to own shares of a company so whose operations are so opaque is planning on selling anyway.

— Exile Mike
1:40 pm May 27th, 2008

that would be catastrophic for St.Louis , this is not a major city nor a atriuary city but smaller, regardless of what u think this is the fact of life, lose this to a non american co. would all but kill St.louis, we would be ….. well ghost town like Lubick Tx. or the such, sure we have others but there are over 25,000 jobs that would be lost in the A-B and it vendors of such + the people that have jobs that cater to these people ( total 25k job lost in St.Louis.)

If you have stock Vote no, or be prepared for the worst case that St.louis has ever in its history faced.

— only me
4:14 pm May 29th, 2008

As soon as we heard the news of this possible merger/buyout, our hearts sank. My husband and I are not from St Louis, don’t have family who work for A-B but strongly believe in keeping this company american owned and operated. For several years now, we have been an Anheuser-Busch only household, not for the beer but for the company and what they stand for. There are so many good things that they do for our economy, our military, our environment and our pride it would be hard to fathom this company being Belgium owned.

Go to http://www.savebudweiser.com and sign the petition to keep Anheuser-Busch here!

— AmericanGirl
8:31 pm May 31st, 2008

let’s not forget about the thousands of people that work indirectly for AB. The ad agencies, printers, etc.

— LB
2:30 am June 1st, 2008

The cost cutting has already begun at AB. No matter what happens with this buy-out thing, AB will, and is, instituting the cost cutting programs rumored. Look for layoffs this summer in staggering numbers. If you are an AB person who has a job that does not relate directly to selling or making beer, get a new job NOW!

— Greg
5:08 pm June 2nd, 2008

I certainly hope this takeover does not take place. It would be terrible for this area. I have long admired the good things that AB has done for this area…. Grants Farm in particular.

When this takeover happens it will be years of bad decisions (like only owning 4% of the company) that led to their demise.

— Mike
3:58 pm June 3rd, 2008

This is unreal. At what point is someone in the “right position” going to put their foot down for the United States and keeping our f’ing jobs? It is unbelievable the many changes that are happening in “our world” and all it seems that the government cares about are the “other worlds”. I don’t have a problem with us helping other countries but we should just step in, make our difference and get out!! We need to keep our jobs or we won’t have any ownership over here which is scarey!!!!!!!!

God bless and good luck to the AB family!!

— Cynthia
7:42 am June 5th, 2008

I am a new employee to Anheuser-Busch, and completely new to St Louis, MO. I have a young family, loving wife, and three amazing young children. I received an offer from A-B just 3 months ago to become a member of their family and help run systems in their I.T. Department. We were in no way interested in moving away from all of our family and friends back in Tulsa, OK. But after allot of research in A-B, we fell in love with what the company stands for.

One of the last large businesses that do anything they can to support what our nation used to live by. People came in the thousands to the US for not just more work, but a better life for their family. A stronger community to raise their children in. The idea that there was somewhere better out there that would make them proud of who they are, and what they are a part of.

Anheuser-Busch started their company with all of these ethics back in the 1800’s, and I can tell you after becoming a part of the family here, it is still very much alive. I have never seen such a large body of people that are genuinely happy with were they work, management that is more focused on your quality of life than your performance.

A-B is constantly promoting local and national charities. They rose over $103,000 last year locally to support the cure against breast cancer. They spent millions during the Super Bowl after the attack on the twin towers, simply to run a commercial that gave respects to those that were lost.

You can feel this since of pride resonating throughout the entire city of St Louis. The kind of pride that encourages people to risk their life fighting to protect. The kind of pride that makes men want to become better fathers and husbands. This pride helps us become the leaders that other feel compelled to follow.

This is what Anheuser-Busch stands for, and it is all in jeopardy. August Busch IV stands against this merger, because he realizes it will rip out the heart of their families company. Unfortunately, there are other controlling interests that are led by money and not the since of pride that built this business. If this company falls, and many loose their jobs to cut backs and financial restructuring, it will be these people that walk away with full pockets.

Just like so many times in the past, our family’s futures lie in the hands of those who do not care for our well being, but their own. I pray that I’m not just another statistic in this merger that looses his job due to cutbacks. Only 3 months in, I fear that I may be left with nothing if this merger takes place and everyone starts getting laid off to cut costs.

I hope this in some way helps everyone see that there is much more at stake than money, when a business is sold and cut up to make a profit. I wish my best to all those out there working to build good lives for their families as well. God Bless.

Jonathan J. Sanders
Anheuser-Busch

— Jonathan S., A-B Employee (Contractor)
9:03 am June 5th, 2008

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