InBev's announcement late yesterday (11 June) that it has made an offer to acquire Anheuser-Busch comes as little surprise. Speculation of a tie-up between the brewers has surfaced over the last 18 months or so. But the amount offered - US$65 per share - certainly looks enticing to A-B's shareholders. So, it's a done deal, yes? Olly Wehring takes a closer look at the offer.

InBev's "friendly" approach to A-B, which values the US brewer at $46.3bn, will certainly prove tempting to A-B. In its letter to August Busch IV, A-B's president and CEO, InBev outlined just how good a deal this appears. "A price of $65 per share would deliver to your shareholders an immediate cash premium of 35% over the 30-day average share price prior to recent market speculation and 18% over the previous all-time high achieved in October 2002," wrote InBev's CEO, Carlos Brito.

Not only is the price a strong persuader, InBev maintains, but the future prospects for a combined company also look rather bright. A combination would create the global leader in the beer industry and one of the world's top five consumer products companies. On a pro-forma basis for 2007, the combined company would generate global beer volumes of 460m hectolitres, net sales of $36.4bn, and EBITDA of $10.7bn.

InBev also said it sees "significant opportunities" to internationalise A-B's key brands and would position Budweiser as the combined company's flagship brand. At the same time, the combined company would be geographically diversified, with leading positions in key countries around the world and balanced exposure to developed and developing markets, InBev says. One report today highlights the potential in China, where the combined company would become the biggest brewer overnight. "InBev is involved with a number of smaller breweries all across the country," one analyst told Reuters, "so a combination of InBev plus A-B would serve the market well, in the way that consolidation can move forward sooner rather than later."

Tsingtao Brewery, which posted a 216% leap in profits for the first three months of this year, is 27%-owned by A-B, while InBev has partnerships with smaller Chinese players including Zhejiang Shiliang Brewery, and owns 100% of Fujian Sedrin Brewery. So, in China alone, InBev would be cheering a successful takeover.

In the US, meanwhile, InBev has given A-B what it hopes are perceived as a range of reassurances. The city of St. Louis, which could be renamed 'A-B City' with little local objection, would be the headquarters for the North American region and the "global home" of the flagship Budweiser brand, InBev says. In addition, InBev has proposed to name the combined company to "evoke A-B's heritage". A number of A-B directors would also be invited to join the board of the combined company, and "key members" of A-B's management team would be retained across the organisation. "Given the limited geographical overlap between the two businesses and the efficiency of A-B's brewery footprint in the US," the Belgium-based brewer adds, "InBev would maintain all of A-B's US breweries."

The two companies already appear to be working together satisfactorily in the US, Canada and South Korea, where InBev and A-B have distribution partnerships. So, despite concerns that the two companies approach the same business in very different ways, there can be little doubt that a middle way has been found in the past. And, with the offer being made up solely of cash, it's the hardest kind of offer to reject. Indeed, as Brito says: "If you take the time to read (our proposal), it's very hard not to get excited about it."

On paper, then, this looks pretty straightforward. But then, as discussed here, there are some very powerful negatives in this equation, in the form of national and cultural differences.

The starkest difference between InBev and A-B, however, is their approaches to costs. Since InBev was created, through the merger of Interbrew and AmBev in 2004, the Belgium-based company has seen a steady flow of executives from AmBev's ranks in Brazil. Their approach has been to cut costs and maximise efficiencies as ruthlessly as possible. Indeed, one analyst highlighted this approach to just-drinks only last month. "Were the two companies to team up, I can see A-B getting a much-needed insight into how to run a brewing company as efficiently as possible," the analyst said. The issue remains, however, that this may jar somewhat with A-B's keenness to build its brands wherever possible - a 'spend' rather than 'save' approach.

Another analyst's view is that, with the absence of a 'white knight' to offer A-B an alternate future, the US brewer has little choice but to sit and discuss the offer with InBev. One final question, however, is, with the two brewers already working closely together in three markets, why has the offer to start dialogue been made public? Have private overtures been tried and, if so, did they prove fruitless? Considering the somewhat closed nature of InBev and A-B, when it comes to the media, we may never know. Whatever, the ball is now in A-B's shareholders' court. The choice is theirs.