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…