jeff: would the Busch's be able to resist if the stockholders who for some unknown reason think that this was a good idea?

dnicklaus: First of all, the Busch family controls less than 4 percent of the stock. So, ultimately, they may not be able to control the company's fate. However, August Busch IV is the chief executive, and the directors probably all feel some loyalty to the Busch family. As CEO, he'll have to convince the board and the shareholders that, over the long term, Anheuser-Busch can be worth more as an independent company.

DPF: Do you see AB making a counter offer to purchase InBev or parts of it? Besides the purchase of Groupo Modelo, are there any other potential acquisitions out there that AB might benifit from?

dnicklaus: No, DPF, I don't think a counter offer for Inbev is in the cards. First of all, Inbev has a complex ownership structure that would make a bid for it difficult. Second, the weak dollar/strong euro would make a counterbid tremendously expensive for A-B.
There are other companies A-B could try to buy in order to become a more global player -- Heineken, for instance. But, there again Heineken has strong takeover protections in place. Given the existing relationship with Modelo, that's the possibility analysts seem to be focusing on.

mark: So AB could buy the remaining half of Modelo and theoretically make itself too big for InBev to swallow. Does it make business sense or is it purely a defensive move? If it's a good business decision, why hasn't AB already pulled the trigger?

Thanks.

dnicklaus: Great question, Mark. I have to confess that I haven't done a lot of reporting about Modelo, and I'm relying heavily on an analysts' report by Carlos Laboy of Credit Suisse. He says that Modelo's board is controlled by a 90-year-old patriarch and that A-B's strategy has been a long-term, patient one. It has a 50 percent interest now, and has always assumed it will acquire more in the natural course of things. Laboy says that "if pushed," A-B might make an "exceptional" offer to gain 100 percent control. The upside from that: A-B will operational control of Modelo, which Laboy calls "glacially slow and inefficient." If a team from St. Louis could bring state-of-the art financial, operational and marketing techniques to the Mexican market, the long-run payoff could be big.

Debbie: How could a company that is a legacy in St. Louis let someone come in and buy them out?
Does't family members still have controlling stock in the company?
If not, how did they let that happen?
If they do..... don't they want the family business to continue in a tradition future generations can be proud to be a part of?

dnicklaus: Thanks, Debbie. Like you, I think a lot of St. Louisans think of A-B as "our" company. But it's not even the Busches' company. As I mentioned before, the family owns only about 4 percent. Like a lot of old-line families, the Busches sold shares to others over the years, partly to raise money for the business and partly to diversify their portfolios and support their lifestyles.
All reports indicate that August Busch IV and his father do feel strongly about continuing the family brewing tradition. We'll have to wait and see whether they're able to do that.

Rico: I am curious as to how much the Berkshire Hathaway (Warren Buffet) ownership of a flailing stock is involved here. Did they start this process? To be honest when I learned of the 20% stake AB sold him to help prop up the company I sensed a sale was imminent.

When this transaction is complete, what will become of the theme park division? I can't see InBev in that business. Is a breakup a likely conclusion to the acquisition?

dnicklaus: Buffett doesn't buy companies to flip them, Rico. Generally he buys in because he believes in the management and the strategy, and he intends to be a long-term holder. I think he will be courted by both sides, but you're exaggerating the size of his investment. Berkshire Hathaway first disclosed its Anheuser-Busch investment in 2005, and it built up a stake that was a little over 5 percent. Berkshire's latest SEC filing, as of March 31, puts its stake at 4.99 percent. And, by the way, Berkshire bought those shares on the open market; it didn't buy them directly from A-B.

Herbert Willis Sr: As a retiree from Anheuser-Busch, I am concerned about my medical and Prescription Benefits. I opted for a IRA Rollover for my monetary benefits
in 1993, but I am concerned about my fellow employees who retired in later years. The question is whether they will lose benefits.

dnicklaus: Herbert, I showed your question to Mary Jo Feldstein, our health care reporter. Here's her answer:

Hello. You're right to be concerned about whether retiree medical and prescription drug benefits could go away under a new company. It's a definite possibility. But those benefits could also disappear if A-B stays on its own. Another possibility is your premiums, deductibles or copays could rise.
Only about a third of large employers still offered retiree health benefits in 2006. That's the most recent research available. Seventy-four percent of companies increased premiums for new retirees under age 65 that year. The average jump was more than 15 percent.
Unlike pension benefits, retiree health benefits are not gauranteed, especially if the promises weren't made under a union contract. But there is a bright spot. Health insurance is mandatory in Belgium and employers contribute to the public system that pays for it. Maybe Inbev would bring that philosophy to St. Louis.

bmhea4: What are your feelings about operations in St Louis? I doubt a Belgium company would care much about St Louis, MO. They may leave it open for a few years for PR purposes, similar to Macy's. However, ulitmately they would want their people controlling their factories. Your thoughts.

Jeremiah McWilliams: It's an excellent question, and a difficult one to answer. Obviously, there is a lot of expertise built up at Anheuser-Busch's brewing operations. If InBev took over A-B, InBev might be reluctant to part with good A-B employees, provided the A-B workers "buy in" to the new management. InBev would need a big North American headquarters, presumably -- it's possible that they would keep a major presence in St. Louis. St. Louis is A-B's biggest brewery, and it sends beer to many states throughout the midwest. In other words, it would not be easily parted with. The brewing formula of Budweiser could certainly be changed, although whether a new owner would want to do that is questionable. There is a lot of goodwill and prestige built up in that brand, even though it's struggled for some time in the U.S.

Steve Jagels: I thought A-B was the world's largest brewer, but apparently Inbev now is. Is that true? Or is A-B only the largest in the US?

Also, to what extent would you say this buyout is based on the low value of the US dollar vs. fundamental weaknesses in A-B as a company?

dnicklaus: Steve, as the chart on page 1 of today's paper shows, Inbev is No. 1 in the world, SABMiller is No. 2 and Anheuser-Busch is No. 3. A-B is biggest in the U.S., with nearly 50% of the market, and at one time it could claim to be biggest in the world. The other companies, Inbev and SABMiller, have grown through acquisitions.
The dollar is an important factor here. I looked up both companies' market cap figures (the total value of all shares outstanding) for 2004 and now. A-B's is essentially unchanged, $40 billion in 2004, $39 billion now. Inbev's market cap, in euros, has gone from 16 billion to 30 billion, partly because the merger of Interbrew (Belgium) and AmBev (Brazil) has been so successful. But the euro's appreciation magnifies that sucess. Calculated in dollars, Inbev is worth $46 billion now, against just $22 billion in 2004.

Ryan: Let's suppose the deal goes through at the proposed 65 dollar per share figure. Would InBev be expected to keep AB's headquarters here in St. Louis?

Could they change the brewing formula of Budweiser?

Going forward would you expect this joint venture to be more or less profitable? How would you compare the abilities of InBev management versus current AB management?

Jeremiah McWilliams: It's a good question, and a hard one to answer. If InBev took over A-B, the new company would presumably need a big North American headquarters. St. Louis might fit the bill -- or it might not. The St. Louis brewery is A-B's biggest, and sends beer throughout the Midwest. So it would not be easy to part with, despite InBev's legendary cost-cutting. In terms of changing the Budweiser formulation, this could certainly be done. The question would be, would a new owner want to do this. The brand has a lot of goodwill and heritage built up, despite having struggled to grow in the U.S. for about 20 years.

winston: what does it mean for the city?

Jeremiah McWilliams: What impact a deal would have on St. Louis remains to be seen, especially since the deal is not officially on the table. The local impact would depend on the level of autonomy InBev would give A-B, and whether A-B would be run as as a somewhat independent entity. The company has about 6,000 local employees, pays millions in tax revenue and contracts with a number of local advertising agencies. It's one of St. Louis' most profitable companies. Plus, it contributes to groups like the Red Cross and the United Way.

In the long term, the psychological effect of having the city's most iconic company bought out could be just as serious as the economic impact. A-B has been wrapped up with the history of the city for more than a century and a half.

Dan: For long time holders of A-B the quick price pop of a sale has to be weighed against making it a taxable event now (on your entire gain since you bought the stock) rather than in the future. It also matters whether you think there is a stronger possible gain by A-B going on a nice growth run on its own over the next few years. Warren Buffett has been a buyer in the last 2 years because it is very undervalued, why not stay as a shareholder of A-B and continue to get the nice payoff over time. I do not work for A-B and do not own shares myself.

dnicklaus: Dan, we don't know whether Inbev will offer cash, stock, or a combination of both. In a cash deal, as you say, shareholders would owe taxes on their gains. But keep in mind that the top capital gains rate rises from 15% to 20% on Dec. 31, 2010. So that may be an argument for doing a deal sooner rather than later. If the offer is all stock, it would be tax-free, but only if you continued to hold the InBev shares. In a lot of deals, that turns out not to be a good idea. Just ask the A.G. Edwards shareholders who received Wachovia shares as part of their buyout.

kdunlap: I may not be a Warren Buffet, but it seems to me that when you see these mega mergers/buyouts like this they never seem to work out like the buyer thinks they will.
1. They inquire a significant amount of debt to pull the deal off, which has to be paid off. This then affects the bottom line.
2. They have to cut costs all over the place to recoup their costs which in turn seems to affect the sales of the company not to mention employee morale of those who are left, which shrinks the bottom line even further.

I can see this exact same scenerio happening here. AB did not get to where they are because they DO NOT know how to sell/market beer. I see Inbev cutting marketing/sales and in the long run the "new" company if worse off than before the buy out.
Is my thinking out of wack?

Jeremiah McWilliams: Your thinking is in line with a number of different folks who watch the beer industry for a living. The fear is that InBev would pay such a high price -- and take on so much debt to pull off the deal -- that they will have to cut like crazy to make the deal worthwhile. A-B is not profligate with its spending, but executives are certainly not shy about spending on marketing, promotions and other things to grow sales. If InBev takes over, that culture could be ripped out by the roots (or at least that's what the skeptics fear).

A-B has been putting more "boots on the ground" -- extra salespeople to get Budweiser and other brands into key accounts like urban clubs and restaurants. The company has been boasting of some success. Would InBev value that effort and continue to support A-B's sales infrastructure (600 wholesalers), or would it cut to the bone? I don't know. But it does appear that InBev's main strength is cost-cutting, rather than the brand-building that A-B is known for.

employee: Do you think it will be a merge? If so, i thought it might be that Inbev has disdribution in the International Market of AB products and AB has distribution rights of Inbev products in US. What do you think?

dnicklaus: The distribution agreements are an interesting point. A-B's deal to distribute Inbev brands contributed to volume growth in the first quarter, and Inbev's first-quarter report also mentioned the U.S. distribution as a positive. I believe that Inbev also distributes Budweiser in Canada. If there's a friendly deal, these companies' familiarity with each other's brands could be a good thing. If Inbev makes a hostile offer, though, it could be hurting itself in the U.S. market. Its not likely that A-B would ask its distributors to make extraordinary efforts on behalf of Beck's and Labatt's if its engaged in a hostile takeover battle with the owner of those brands.

davulture24: If a takeover does happen, what will the effect be for A-B subsidiaries, most notably the theme parks such as SeaWorld and Busch Gardens?

Jeremiah McWilliams: There is some speculation on Wall Street that InBev would spin off Busch Entertainment, which is the country's No. 2 theme park operator but a relatively small part of A-B's total business. It's hard to say at this point, and would depend on the valuation of the parks. to my knowledge, InBev has no experience with running parks. But A-B likes owning the parks partly because they help the company burnish its image while contributing to the bottom line.

Frank: Jeremiah:
David:

Thanks for sharing your knowledge -- on the hottest story in town. (And maybe in the USA and beyond...) I'm told that August III (although "retired") has remained very much a part of "every" major decision on Pestalozzi St. even as the command structure slowly transitions to August IV. 1) Understanding his "tenacious" reputation as a businessman -- and the family history involved -- I find it hard to believe that the executive team at AB is going to (voluntarily) give up their independence. (I'll bet none of them had a "holiday" weekend.) Having said that -- all sources seem to indicate that AB can not continue to survive (independently) with the slow growth rates remaining in the US domestic beer market. Any chance that this deal could be "flipped" and AB could make a play for InBev or another significant foreign brewer? Either way -- they could stop InBev in their tracks. (I'm confident the Busch family wants to "lead" not "follow".) Thanks again!

dnicklaus: Thanks for joining us, Frank. I'll take a stab at your questions. The Wall Street Journal had a well-sourced piece yesterday about the relationship between August III and August IV. It seems that August III has recently stepped back a bit to become more of an adviser and less of a meddler. Certainly, as you say, the elder Busch's experience and tenacity would be great assets in a takeover fight.
The deck is stacked against A-B as far as global growth at the moment. Other large brewers, like Heineken, don't seem to be for sale and have significant takeover protection. Small ones may be possible -- I've seen speculation about a Turkish brewer possibly going up for sale, and about Asahi of Japan, although the Japanese market isn't a growth market right now. Taking full control of Grupo Modelo, as I mentioned earlier, seems to be the best opportunity available.

jjanuska: Since InBev's main goal is profitability and cost cutting to obtain these goals do you see A-B employees continuing with their present wage/benefit package or do you foresee a reduction in wages and benefits.

dnicklaus: Hi, jjanuska. There could be changes in benefits, but I don't think that's a main factor in Inbev's cost-cutting plans. Benefits changes are more significant when two domestic companies merge and one has significantly richer benefits than the other. Inbev really doesn't have much of a U.S. presence now. I think they'd be looking at reducing head count more than at trimming wages and benefits.

Mary Smith: I know this is probably a selfish and unimportant question - but if the sale goes thru - what will happen to Grants Farm? I live in Affton, drive by it every day and can't imagine it not being there.

Jeremiah McWilliams: Mary, that's not selfish or unimportant. Grant's Farm is actually not owned by the company. The company leases the property (about 267 acres) from a trust established for heirs of August A. Busch Jr., and from Grant’s Farm Manor Inc. Anheuser-Busch uses the farm for advertising and public relations purposes, public tours and for corporate entertaining.

If InBev bought A-B, I'm not sure what would happen to that leasing arrangement. But the actual control of the property would presumably not change hands.

To your second comment: you're right, the distribution system that A-B has built in the U.S. would be a massive draw for any company looking to buy A-B. The company has about 600 wholesalers in the U.S., more than half of which carry only A-B's beers and those of partners (including InBev, interestingly enough). That distribution network outpaces rivals like Coors and Miller, and gives A-B the heft to get tap handles in bars and space on store shelves.

You make a good point about InBev's ability to make beer cheaply. I'm not sure how InBev would shift around manufacturing of beer if it took over A-B, but you would have to assume this would be on the table. Remember, though, that A-B is not a slouch itself at keeping costs down -- A-B's superior cost structure is one reason Miller and Coors are trying to combine in the U.S.

Steve Jagels: What would happen to Grant's Farm? Would Inbev sell it? Also, the Busch mansion at Grant's Farm (I'm assuming the family still lives there) - does A-B own the mansion? And if so, would InBev sell both Grant's Farm and the mansion?

Jeremiah McWilliams: Thanks for the question -- please see my response to Mary Smith's similar query. In brief, A-B does not actually own Grant's Farm, although it leases the property for a number of special occasions. InBev would presumably not take over the farm, even if it took over A-B.

Mike: Someone please explain how this can be better for consumers?! Year after year we see government allowing companies to merge thusly squeezing out smaller competition. This was point of enacting anti-trust laws to protect the consumer and force business to compete with each other over pricing. Beer and liquor distributing already have some of the most shady business practices of all industries. If this does occur...I plan on boycotting all AB products.

dnicklaus: Consumers, of course, don't get to vote on any merger. But if Inbev wants A-B primarily because of its dominant market share, it probably isn't going to make any product or distribution changes that will drive customers away. Antitrust law shouldn't be much of an issue for Inbev and A-B. Inbev has only a tiny presence in the U.S., and Budweiser has very minor market shares in the countries where Inbev is large.

brad stamulis: So form what i hear InBev likes to "Trim the fat" of the companies it buys. Does this mean semi-massive layoffs. Even more importantly i work in advertising locally, and although AB is not one of my clients it is for about 10-15 other agencies and I would have to imagine that inBev would outsource it's creative talent or at least to bigger agencies in an effort to not become ethnocentric.

Jeremiah McWilliams: Brad, InBev likes to do "zero-based budgeting," which primarily means that every area of expense has to be justified every year, without regard to previous investment. From what I understand, it means pay cuts, although employees may get bigger stakes in the acquired companies to give them more reason to improve performance.

In terms of the creative work, I'm not sure what InBev typically does -- whether it outsources its creative talent. They have so many local brands spread across the world (about 200 of them) that it might be difficult to centralize all that work. And Budweiser and Bud Light are massive brands that get a lot of advertising and marketing support. Whether InBev would want to blow up the existing system of farming out creative work, or just tweak it...I don't know.

Spitler: If there is a buy out, how will that effect the pension of those that have already retired?

dnicklaus: That's one thing you shouldn't have to worry about, Spitler. A pension is a contractual obligation, and there's no way to get out of it short of bankruptcy.

mike: My question: What, if anything, can we do as a community to stop the sale of AB? Clearly, if In-Bev offers $65 a share, it will be hard to keep shareholders from pouncing on that offer. The long term result will be very very bad for St. Louis and probably In-Bev as they will have overpaid. The only thing worse than seeing all of that tradition go down the drain would be to see it go down the drain only to find out a few years later that it was a huge mistake.

Also, any chance the federal government steps in on antitrust grounds?

dnicklaus: Mike, I know that many people feel helpless when rumors like this pop up, but there's really nothing the community can do. This will be decided by board members, shareholders and Wall Street financiers.
As I said in an earlier answer, I don't really see any antitrust problems with an InBev-Anheuser-Busch combination.

davulture24: A takeover may cause significant distribution problems for A-B brands and partnership brands. What will happen to the wholesaler contracts, especially A-B exclusive companies?

Jeremiah McWilliams: A-B has devoted a lot of effort to keep its wholesalers focused on its own brands -- not an easy task, since until recently the company's contracts with the wholesalers barred the wholesalers from carrying a lot of fast-growing imports and craft beers.

I can't tell you exactly what will happen if InBev took over. It could cause a bunch of wholesalers to just "go it alone" -- start carrying whatever they want and forget about being tied to Anheuser-Busch aka InBev. Or, InBev could try really hard to win the allegiance of the A-B wholesalers, and make it worth their while to stick with the new company. Good question.

Rich: I sent a detailed response to letters@... . But, the gist is that the bean counters are missing the boat on this whole transaction. AB brands is not the target ... the marketing & distribution is the InBev target. They have the vast resources to manufacture the beer/brands anywhere, and at a cheaper cost. The international advertising brand name, especially in sports, is worth much more as well as the successful, established distribution network. Ultimately, many lost manufacturing jobs in St. Louis and other producing cities.

Jeremiah McWilliams: Rich, I'm sorry -- I tried to answer your question in Mary Smith's area. I hope it was helpful.

Allen Gilliard III: Do you think a sale of Anheuser-Busch would mean that Grants Farm and the other theme parks would be sold or closed?

Jeremiah McWilliams: Allen, some analysts think the theme parks would be sold. They contribute to A-B's sales and profits, but are obviously not the company's primary focus. (Busch Entertainment's HQ was recently moved to Orlando from St. Louis, which illustrates its status as a semi-independent company within Anheuser-Busch Cos.). The company actually does not own Grant's Farm, contrary to common belief.

Jill English: The talk I hear from the industry analysts about "rationalization" and cost cutting should sound a warning to AB employees. If this merger takes place the St. Louis brewery as well as all back office operations at AB are in jeopardy.

Jeremiah McWilliams: Jill, thanks for your comment. It's probably the No. 1 fear right now -- that A-B's whole St. Louis operations would be in question if InBev took over.

Kevin: If there is going to be a merger, wouldn't it make more sense for A-B to acquire In-Bev? While In-Bev is larger, I believe A-B is in better financial condition to make a purchase.

dnicklaus: As I've mentioned earlier, Kevin, it would be tough for A-B to make a run at InBev. The Belgian/Brazilian company has a complicated ownership structure, involving some family trusts. It also would be hugely expensive deal for a company using a weak currency (the dollar) to buy shares that trade in a strong currency (the euro).
There are a lot of ways to measure financial strength, but InBev is by no means a weakling. Its 12/31 balance sheet shows less long-term debt, and more shareholder equity, than Anheuser-Busch's.

Carol Dungan: And how will this help St. Louis? And my family, because my Dad worked at A-B retired from A-B in the 70's and now my husband works for A-B

I do not want to see this happen at all

Thanks

dnicklaus: Thanks for your comment, Carol. I'm sure you speak for many other St. Louisans as well.

John Jacobsmeyer: How has Anheuser Busch, more specifically, August Busch 111 & 1V, set themselves up for a position for a hostile takeover? Wouldn't greater ownership of their family's 155 year business been the more appropriate situation? Thanks

Jeremiah McWilliams: John, it's hard to say. The Busch family has actually been able to exercise a massive amount of influence for years, despite not owning a controlling stake. They've built up a lot of credibility as brewers and beer marketers, so shareholders have gone along with the succession without too much of a problem. (It also helps that A-B has bought back a lot of stock and bumped up its dividend to keep shareholders happy).

So how did we get to this point? A-B sat out on a wave of consolidation that created global beer behemoths like SABMiller and InBev, both of which have passed A-B in size. A-B is very dependent on the U.S. -- to a much greater extent than SABMiller or InBev -- but it has not grown fast here for several years. Executives have acknowledged that the best defense against a takeover is to grow faster, but that's easier said than done. Because of the weak dollar compared to the Euro, InBev has additional heft right now that it could bring to bear on A-B.

The company has also let go of a number of takeover protections, like staggered board elections. I am told that next year, the entire board will be up for re-election. Thus, it's not easy to beat off a generous takeover proposal.

Jeremiah McWilliams: Folks,

I very much appreciate the level of interest in this story, and your informed questions. I hope the discussion was informative and helpful. Unfortunately, there are too many questions for Dave and me to answer in the given time. We will try to find a timely way to re-open the discussion and answer your questions. In the meantime, please feel free to contact me directly at jmcwilliams@post-dispatch.com, or 314-340-8372. Thanks!

Jeremiah McWilliams

Jeremiah McWilliams: In another leftover question from last week, Corby0712 asks: "Do you think that InBev would disband some of the wholesalers if they buy out A-B??"

In general, no. A-B's strong wholesaler network is one thing that makes it attractive, and InBev knows this because its own brands are now sold through A-B wholesalers. Of course, if InBev wins a drawn-out takeover battle, there may be issues with some specific wholesalers, such as those owned by Busch family members.