Chapter 8 Case Study: InBev Buys an American Icon for $52 Billion
Explain InBev’s motives for acquiring Anheuser Busch? Be specific.
Answer: InBev was motivated to acquire the American icon Anheuer Busch to capture dominant market share in one of the largest and fastest growing beer markets in the world. The acquisition also promised substantial cost savings by enabling InBev to realize significantly larger purchasing discounts. However, InBev downplayed the potential for cost savings to defuse local criticism of the move by noting that the acquisition would be highly complementary in broadening the combined firms’ product offering. Presumably, InBev will be able to increase the sales of its brands by selling such beers through Anheuser Busch’s vast distribution network.
What unusual hurdles did InBev have to overcome in acquiring Anheuser Busch? Be specific.
Answer: Anheuser Busch is a well-known American brand with deep historical and cultural roots. InBev had to be very careful not to create a local and national backlash against the takeover of a national “treasure” by a foreign firm. InBev knew in advance that Anheuser Busch’ management would use this emotionalism to attempt to ward off a takeover attempt or to demand a higher offer price.
Why did InBev initially undertake a friendly takeover of Anheuser Busch? Be specific.
Answer: A friendly approach in which they would seek to get management and board support was undertaken to minimize the expected emotional reaction to the proposed takeover. However, when they were rebuffed, they quickly adopted more aggressive tactics to complete the transaction. Such tactics included a campaign to remove Anheuser’s board and to replace it with its own candidates, including a Busch family member. InBev also raised its bid in order to encourage additional Anheuser Busch shareholder support.
What developments in 2009 suggest that InBev may have overpaid significantly for Anheuser Busch?
Answer: Escalating commodity prices were given as a key reason for InBev to have undertaken the acquisition. However, with the benefit of hindsight, falling commodity prices in late 2008 and throughout 2009 suggest that the potential for cost savings at least in the short-run will be considerably less than first assumed.
How might certain concessions made by InBev to close the deal make it difficult for the firm to reach its desired financial returns? Be specific.
Answer: InBev agreed to keep the firm’s headquarters in St. Louis and to establish it as the firm’s North American headquarters. In addition, InBev pledged to keep open twelve U.S. breweries. Such commitments could limit InBev’s ability to realize significant cost savings.