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Saturday, June 21, 2008

Bud Less Filling ??? ( Barrons Articale )


This Bud's for All of You
By CHRISTOPHER C. WILLIAMS
If InBev buys Anheuser, other brewers will cheer -- with one exception.

ANHEUSER-BUSCH COULD HAVE A NEW DRINKING BUDDY if Belgian-Brazilian rival InBev succeeds in its planned $46 billion takeover of the St. Louis beer king. Many Anheuser (ticker: BUD) shareholders are toasting the $65-a-share, all-cash bid, a 14% premium to the stock's close on June 10, which also promises to increase shareholder value for other brewers, as well, as the industry consolidates. InBev (INB.Belgium) has offered a hefty 13 times Ebitda, or earnings before interest, taxes, depreciation and amortization, for Anheuser, yet another boost to industry values.

London-based SABMiller (SAB.UK) could be a winner if a distracted Anheuser allows MillerCoors, a joint venture of Miller and Molson Coors (TAP), to make inroads in the U.S. Fomento Economico Mexicano (FMX) could be the next merger target and fetch as much as 80 a share, almost double its current price of 42 per American depositary receipt. But Dutch brewer Heineken (HINKY), No. 4 in volume worldwide, could become increasingly isolated as rivals consolidate.
A spokesman for SABMiller said "the effect could be positive for our joint venture in the U.S. The effect outside the U.S. is entirely neutral." Representatives of Femsa were unavailable for comment; Heineken also declined to comment.
Anheuser's shares have rallied 7%, to 61, since InBev made its affections known; the stock is up 60% since Barron's first recommended the brewer in a cover story ("King of Beers," Oct. 31, 2005). Anheuser is frothy at a current 20 times earnings, but InBev may have to pay as much as $70 a share to get the deal done.
If the bid falls apart, Anheuser could fall back into the mid-50s or high-40s, analysts say. Long-time holders might be wise to take some profits here, or trade into stocks such as Femsa that promise better growth at a lower price. "We are contemplating selling at least half our position looking for a possible $70...to get this done," says Anheuser investor Todd Lowenstein of HighMark Capital Management.
Table: Bottled-Up Value
InBev's bid is the latest in a long line of big mergers and joint ventures in the beer business, as companies seek to capitalize on stronger growth in emerging markets.Wines and spirits continue to eat beer's lunch in the U.S., but the American market is the world's most profitable. Anheuser has 48% of the U.S. market, and Bud Light is the world's top-selling brew.
InBev, formed by the '04 merger of Belgium's Interbrew and Brazil's AmBev, has long coveted Anheuser. The marriage of the industry's No. 2 and No. 3 would create the world's largest brewer, with net sales of $36 billion.
Anheuser management, led by the Busch family, which controls less than 4% of the company, reportedly is trying to buy the 50% of Grupo Modelo (GMODELOC. Mexico) it doesn't own, to make itself too expensive for InBev. Warren Buffett, with almost 36 million shares Anheuser's No. 2 shareholder, reportedly is backing the InBev deal.
FEMSA, MODELO AND SABMILLER could benefit most from InBev's interest in Anheuser, says Credit Suisse analyst Carlos Laboy. He figures SABMiller would be the most suitable buyer of Femsa, and notes the MillerCoors venture could provide Femsa, which markets Sol and Dos Equis, with more brands to counter a Budweiser incursion in northern Mexico. Femsa has gained 9% since Barron's highlighted the company's prospects in February ("Cheers! With a Twist..." Feb. 11, 2008.)
Heineken has been somewhat hamstrung in the takeover game, missing out on valuable targets because it prefers to use cash rather than equity in buying companies. Plus, Heineken's recent buy of British brewer Scottish & Newcastle has hurt the stock, as the deal increases Heineken's exposure to slow-growing developed markets.
The Bottom Line
InBev may have to pay as much as $70 a share for Anheuser-Busch. SABMiller could make a run at Femsa, worth about $80.
Lowenstein of HighMark argues Heineken needs to act before all valuable assets vanish. But even absent a deal, the company has much to recommend it, including a healthy outlook for Heineken Premium Light, introduced last year, and ADRs that sells for 25.40, or only 13 times this year's projected earnings.
They're down 18% since Barron's penned a positive follow-up last fall ("For Heineken...," Sept. 10, 2007). Investor Thomas Russo of Gardner Russo & Gardner thinks Heineken also could benefit from the more rational U.S. beer market that an InBev-Anheuser merger would foster.
We'll drink to that.
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