“The good Lord was sold out for 30 pieces of silver. We were sold out for $70 a share.”
- Dave Liszewski, longtime Anheuser-Busch employee
What to make of the Budweiser buyout, now that the Anheuser-Busch (NYSE:BUD) family has accepted Inbev’s (EBR:INB) sweetened $52 billion offer?
It’s a sign of the times for an American icon to fall into the hands of a cash-rich foreign buyer. There is a lot of emotion here, as the harsh words of 30-year employee Dave Liszweski show. But there are some pragmatic lessons for investors, too.
In St. Louis, the home of Bud since 1876, the reaction is deeply personal. There is great concern that the city’s health and well-being will be affected by the new owner’s cost-cutting. Plants could be shut down... jobs lost... local outreach programs and long-standing traditions gone.
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Opal Henderson, a 78-year-old salvage yard owner, asks the question on many Arch City residents’ minds: “Why can’t those foreigners just stay at home and leave us what we have?”
Henderson channels the broader reaction of Bud drinkers everywhere. From a certain point of view, we are all from St. Louis on this. How could something so local, so basic, so fundamentally American, wind up in the hands of those frou-frou Europeans?
Older Than You Think
But from another point of view the ranting is overdone, and a bit hypocritical to boot. There is a certain irony in Bud going back to Europe, for example, because that’s where it came from in the first place.
The name “Budweiser,” known as Budweis to the Germans, goes all the way back to a little Czech town called Ceske Budovice. Beer has been brewed there for more than 740 years -- ever since the middle ages -- and has been casually referred to as Budweiser for most of that time. (In the Czech Republic, it’s normal practice for beer to be referred to by town or region of origin.)
So as you can see, the Budweiser name has a little bit of age to it. When the American version came into existence in 1876 -- roughly six centuries after the Czechs got it going -- the new brewers had the good sense to pay homage to the old. (Having studied in the Czech Republic in the mid-‘90s, I can furthermore assure you -- eight centuries of practice have paid off. The Czechs truly know how to make the best beer in the world. For a poor college student, it tasted even better at 50 cents a glass.)
Just Business
I asked Sara Nunnally, our globetrotting foreign markets expert, what she thought of the deal from an international perspective. How does this thing look from Belgium (where Inbev, the acquirer, is based)?
“Well, you know, Justice,” Sara replied, “$52 billion just ain’t as much as it used to be. You've heard the news about the dollar hitting a record low against the euro, right? So that $52 billion is now only 32.5 billion euros. Just last year, this deal would have cost InBev 37.7 billion euros.”
Taking advantage of a strong euro made sense. But what else? I asked Sara why she thought Inbev wanted Anheuser-Busch so badly.
“My honest opinion?” she replied again. “InBev doesn't care as much about Bud as it does about marketing its own signature beers here in the U.S. Not to mention the ‘back door’ into Asian markets with Anheuser-Busch's stake in Chinese brewer Tsingtao (SHA:600600). And even though InBev has already made inroads in Latin American markets, Busch's stake in Grupo Modelo, makers of Corona and Modelo beers, certainly makes up a big part of those synergies the suits have been talking about.”
Ah, yes. So it’s all about profits and market expansion... using Bud’s massive U.S. distribution network to get more upscale European beers into the hands of pretentious American drinkers. And maybe about using the economies of scale that come from being the biggest brewer in the world. (A combined Anheuser/Inbev would take that crown; it currently rests with SABMiller (LON:SAB) in London.)
That all made perfect sense to me, being one of those pretentious upscale types myself. I’ll take a Pilsner Urquel or a Stella Artois over the rest of the pack any day. Not for the label, you see, but for the taste. (I’ll stop there before the pro-Bud hate mail starts rolling in...)
King of Fears
It’s not a new thing for foreign buyers to scoop up U.S. assets. The trend has been steadily building, and most of us just haven’t noticed it. Every once in a while there’s a high-profile case that grabs the media’s attention -- like China’s attempt to buy Unocal a few years back, or the flap over Dubai Ports World. At other times the big buys slip under the radar. (Does anyone really care, for instance, that Abu Dhabi is buying the Chrysler Building? Maybe they get a free pass for all those billions they pumped into Citigroup (NYSE:C)...)
An iconic brewing company isn’t exactly a strategic asset, but emotionally it cuts close to home. The King of Beers has reignited the “King of Fears”: the worry that America’s crown jewels are being sold out from under it. Warren Buffett expressed this concern a few years ago, worrying out loud that America was on the path to becoming a “sharecropper society.” In a country where all the assets have been sold off, the workers toil for masters in far-off lands.
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A Trillion IOUs
For better or worse, the U.S. has gotten into this “sharecropper” situation by way of the trade deficit. Fiat currency, as you probably know, is little more than an IOU -- a good-faith note, backed by a government, that can be exchanged for products, goods or services.
And so, by printing up so many dollars and sending them out into the world, America has given its creditors trillions of IOUs to cash in.
With the U.S. economy in its current state, and free-market principles being what they are, it’s neither logical nor sensible for us to say no to deep-pocketed buyers coming back to us with those IOUs. The value of a currency is based on trust, and changing the rules of the game is something trustworthy countries just don’t do… not without turning their currencies into confetti, anyway. (Something we’re already working on, but I digress.)
Good News for Investors
Even with all the fear and concern over how rapidly America is selling the family silver, there is good news in all this. If you’re a BUD shareholder, the buyout is a pretty sweet deal (as the chart below shows).
And at the end of the day, should it really matter where the headquarters are located? Doesn’t it matter more that a company be profitable, well managed and well appreciated by its customers? The bottom line for investors is that it’s good news, not bad news, that there are still plenty of players out there with deep pockets and mountains of dollars to spend.
Thanks to a profusion of strong buyers, the U.S. economic downturn will be viewed as a rich source of buying opportunities, rather than a reason for the world to get depressed.
In fact, think how much worse things would be if there weren’t well financed players out there ready to spend tens of billions (or even hundreds of billions) on attractive assets.
Without big buyers, it would be easier for pessimism to get a stranglehold. Many great companies would see their values sink to irrational depths. As it is now, there is a floor under most well-run businesses, because the market knows that savvy buyers who can write big checks are on the prowl, waiting to scoop them up.
As investors, the lesson here is to be pragmatic. Instead of worrying too much about things we can’t control -- like how long the downturn lasts, how much of America’s family silver gets sold, and so on -- we should focus on the things we can control, like where we put our personal investment dollars.
With that kind of approach, big acquirers like Inbev can inspire optimism rather than fear... as they take big stakes in companies and industries that smart investors own.
Warm Regards,
JL
