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.
(2 votes, average: 5 out of 5)
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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. 
In response to “JE”’s comment about layers of excess management being cut….You have obviously never been through an acquisition yourself. If you had, you’d know that executives are not the only ones to go. This acquisition will impact all layers of employees at AB, from accounting to sales to IT. Thousands of hardworking people are going to lose their jobs and their livelihoods over this. You say this will “improve the performance of our brewery”. Not sure how you mean, exactly. Perhaps you haven’t considered all the implications of this, such as the millions AB donates to local charities and organizations, the tax revenue AB provides for this city, or the thousands of people whose livelihoods depend on the company’s independent survival. Please, do your homework. I wonder how you’d feel if you stood to lose your job, or if you could glimpse into the potential future of St. Louis should AB go…
As a native St. Louisian, I am proud of the fact that St. Louis is the home of Anheuser-Busch; however, you cannot change the fact that this transaction makes economic sense. Considering the fact that AB has had significant problems growing in any market outside of the US (especially Europe) and InBev’s only significant market without a presence is the US, a merger of these too companies will provide excellent synergies.
If you are an investor making this decision, seeing limited realistic growth opportunities for AB, what would you do? Also considering that 67% of AB stock is held with institutional investors and mutual funds and that they are under significant pressure to produce earning in a slowing economy, it is hard for me to believe this deal would not be approved.
So what is InBev looking to get out of this acquisition? They are only interested in AB’s brands and distribution network, therefore, all of the corporate functions and manufacturing plants will be at risk for restructuring. Considering InBev’s previous experience, the AB presents (corporate and manufacturing) in St. Louis will be a shell of it’s former self.
What does this mean for St. Louis? This will add to the trend of high paying corporate jobs leaving the city. Any current recession in St. Louis will be extended with the loss of some many high paying jobs, and the future of the city will be significantly comprised. The city is slowly dieing and none of the politicians in St. Louis or the state has provided a solution to reverse this trend.
It’s only doom and gloom for St. Louis and that’s why I have moved from the city.
If I were a Budweiser employee I would be worried.They may not close
plants or lay anyone off [not at first] but their cost cutting would
mean lower wages or bringing in cheap labor from Brazil. Fight them
if you can.
i can’t see the problem with Budweiser falling into foreign hands. every time i see someone drinking a bud it’s in foreign hands, anyway.
Guys
Don’t worry. As a brazilian guy, I’ve seen lots of our companies being acquired by american ones. Ok, some jobs will be lost, but only your pride will really suffer. Welcome to the world! I didn’t hear anything from you when the move was in the opposite direction. Now that the game has changed, it may be time to drink your own poison. And I can tell you: it does not taste as good as Bud!
This deal would not only affect St Louis, but would eventually hurt every town/city/state in the country which houses a distribution or theme park currently run by A/B. It’s not all about whether or not the beer will still be made (re: DEAN’s comment) That is a given considering the company is a beverage company. The more important part is the THOUSANDS of AMERICANS the company employs all over the country, ie: Sea World, Busch Gardens, Grants Farm, ect. I have spoken to quite a few people who work for AB and all of them said the Theme parks would be the first to go to cut cost and maximize profit…including the HORSES! (which I personally can’t even imagine a Football season without a new Clydesdale commercial) This to me is devastating, and I will never knowingly consume an A/B product again if this deal goes thru
I worked for AB and hated it. WHY? Because im not a redneck. I dont enjoy getting loaded on lunch. AB has become fat in many ways. Ive never seen so many people making so much money for doing so little.. But I guess thats the “American Way”.
What does that mean for employees who have been there for more than 30 + years?