The fight between Anheuser-Busch Companies, Inc. (NYSE: BUD) and InBev over the proposed $65.00 merger is one that is about to get more heated rather than one that looks more amicable. Anheuser-Busch doesn’t want to sell, InBev wants to force a sale.
Anheuser-Busch is apparently suing to block the InBev offer. InBev is demanding, or certain Anheuser-Busch shareholders are, a record date for the "as of" dates for the offer and other issues. The plot to this story is likely to thicken before it thins. InBev is also going after the board of directors to replace them, and it has even taken the case up in a St. Louis newspaper full page advertisement.
If InBev really wants to win the favor of the company’s board and many of the concerned shareholders out there, it is likely going to have to pony up more cash. The stock isn’t worth $70.00 today to an American, Latin, or Asian buyer, but to Europeans they would be getting the company for a song when you consider the added Euro strength that has gone to the far end of the spectrum and beyond.
Despite this being a $46+ Billion acquisition, we think that InBev is ultimately going to have to pay up if it really wants to acquire the King of Beers. There is a premium around Anheuser-Busch shares, but nowhere near the premium in other mergers. If the board of directors fights off a buyout and gets to go back to a business-as-usual operation without a hostile bidder, we think this will drop to $57.00 on the high side or down to as low as the low-$50 handles. That is not a shareholder reward at all, but it isn’t representative of a board like a certain #2 Internet search engine giant that seems hellbent on destroying shareholder values.
If you are sitting on long-term gains here as a result of the pop, looking at the SEP08 $60 PUTS at $2.60 per contract might have offer significant protection for your gains here. We don’t know what the board plans ultimately, but our one cautionary word after studying special situation investing for years and years would be as follows:
- "Protecting your position is key in special situations. Management with its back up against the wall often makes decisions that inadvertently put major shareholder value at risk."
Sorry to point this out, but don’t all the Europeans say Budweiser hardly counts as beer?
Jon C. Ogg
July 8, 2008
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