InBev and Anheuser Busch: Befriending the King of Beers

By Paul A. Harris

St. Louis, July 11 - Although hard news about InBev NV's bid to acquire Anheuser-Busch Companies, Inc. remained scarce on Friday, shares of both companies rallied significantly as what had been a hostile bid was widely believed to have transformed into friendly negotiations.

A special situations equities analyst, citing a story in the Wall Street Journal that InBev has raised its offer to $70 per share from $65, with a merger agreement possibly to be announced over the weekend, cautioned that as the U.S. markets were closing late Friday afternoon InBev had not yet confirmed the higher bid.

Nevertheless, the analyst said, the perception that the per-share offer has gone up and the hostile bid has evolved into negotiations seemed widespread late Friday.

Shares of Anheuser-Busch (NYSE: BUD) jumped 8.64% to $66.50 - topping the extant $65 per share InBev bid by a buck fifty - and $5.29 over Thursday's close.

The special situations equities source also cautioned that, even if Friday's reports prove true and a deal is announced over the weekend, it not only faces rugged regulatory scrutiny but also the scorn of politicians - especially the Missouri congressional delegation - keen to keep the Anheuser-Busch brand in the United States, and the jobs in the company's present world headquarters, St. Louis.

Pressure to complete it

Meanwhile Sachin Shah, special situations analyst for ICAP Securities, wrote in a Friday email to Prospect News that the hedge funds and the banks need InBev/Anheuser-Busch deal to go through, and added that the bid is not likely to go too much higher than $70, half a dollar to two dollars a share if anything.

In the run-up to the Independence Day holiday ICAP initiated coverage of Anheuser-Busch with a "buy" recommendation and a $71 per share price target.

"The pressure is on all around to complete this one," Shah wrote.

InBev also higher

InBev (EBR: INB) shares, meanwhile, also caught a robust tailwind on Friday, climbing 7.36%, or €3.05, to close at €44.50.

The fact that InBev shares pulsed on the buzz came as no surprise to a special situations equities analyst who spoke on background.

"People think that there are synergies, here, and that InBev will be able to put Budweiser through it's distribution network, and so forth," the analyst said, adding that a friendly deal, while not likely to save InBev money, will go a long way to smooth the eventual transition.

"Budweiser is the king of beers, and InBev wants to retain the talent that has been managing that company," the analyst said.

"InBev will be trimming fat, but there are human capital assets that they want to remain on board.

"That's the benefit of the friendly offer."

The analyst, who looks for an agreement at the higher offer, does not expect the bid to go higher than $70.

Meanwhile the only hard news in the deal on Friday came out of Europe, according to market sources who said that InBev has launched a $45 billion syndicated loan which is expected to wrap with an initial interest rate of Libor plus 175 basis points.

Ashland to acquire Hercules

Ashland Inc. announced Friday that it will acquire Hercules Inc. for $18.60 cash and 0.093 of a share of Ashland stock for each share of Hercules stock.

The total transaction value is approximately $3.3 billion, or $23.01 per Hercules share based on Ashland's July 10 closing stock price and including $0.7 billion of net assumed debt.

The merger is conditioned upon the approval of Hercules' shareholders and other customary closing conditions, and is expected to close by the end of the year.

The cash portion of the deal will be funded through a combination of cash on hand and committed debt financing from Bank of America and Scotia Capital.

Under the terms of the definitive merger agreement, Hercules would be required to pay Ashland a fee of $77.5 million under certain circumstances including if Hercules terminates the merger agreement to accept a superior offer, and Ashland would be required to pay Hercules a fee in the same amount if the transaction is not completed due to a failure to obtain financing.

Ashland expects to realize annualized run-rate cost savings of at least $50 million by the third year following the transaction's close by eliminating redundancies and capturing operational efficiencies. In the first year following the transaction's close, while the combination is modestly dilutive to earnings per share on a reported basis, it is expected to be significantly accretive to Ashland's earnings per share excluding merger costs and non-cash depreciation and amortization charges resulting from the transaction, according to a Friday press release.

Hercules (NYSE: HPC) jumped 25.93%, or $4.32 per share, to close Friday at $20.98, $2.03 below the estimated $23.01 all-in bid.

Meanwhile Ashland (NYSE: ASH) shares fell by 13.29%, or $6.30, to close at $41.11.

Friday's situations unfolded against a backdrop of retreating U.S. stock indexes.

The Dow Jones Industrial Average disgorged 1.14%, or 128.48 points, to close at 11,100.54.

The S&P 500 fell by 1.11% to 1,239.49, down 13.9 points on the day.

The Nasdaq, meanwhile, dropped by 0.83%, or 18.77 points, to close at 2,239.08.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.