(Adds details, August Busch quote, analyst, company comments;
updates share activity)
By Brad Dorfman and Philip Blenkinsop
CHICAGO/BRUSSELS, June 27 Anheuser-Busch Cos
Inc (BUD.N) on Friday laid out a plan to cut $1 billion in
costs and improve earnings as it tries to convince investors
that InBev NV's INTB.BR $46.3 billion offer for the largest
U.S. brewer was too low.
The program, which the company calls "Blue Ocean" was made
even as InBev said on Friday it was mulling what steps to take
next after Anheuser-Busch rejected its $65-a-share offer on
The plan includes cutting 10 to 15 percent of its salaried
workforce through early retirement and attrition, speeding up
price hikes to cope with rising commodity costs, and setting
earnings forecasts that exceed Wall Street's expectations.
The company also said it planned to repurchase a total of
$7 billion in shares this year and next, up from its previous
repurchase target of $3.8 billion.
"We believe we can create much more value than the $65 a
share over the course of time, and we believe also that the $65
a share significantly undervalues the iconic brands that we
have," August Busch IV, president and chief executive, told
Reuters in an interview.
He declined to give a specific value for Anheuser's total
value, but did say that its new 2009 earnings-per-share
forecast of $3.90, multiplied by 18 times -- the stock's
multiple before the InBev offer -- suggested a $70 value even
before considering the double-digit earnings increases it
projects after 2009.
The blueprint does not include selling the company's
packaging unit or its SeaWorld and Busch Gardens theme parks --
two businesses that some analysts thought the company might
divest in order to focus on its main brewing business.
Anheuser-Busch shares were 1.8 percent higher to $62.48 on
Friday afternoon on the New York Stock Exchange but were still
below InBev's $65-a-share offer.
A BIRD IN THE HAND?
But some analysts questioned whether Anheuser's plan would
do much to boost investors' spirits.
"A bird in the hand is worth two in the bush," said
Morningstar analyst Ann Gilpin. "Are you going to take your bet
that maybe the stock price can go up and management can
deliver, or are you going to take $65 (a share) in cash
Brian Rogers, chairman and chief investment officer of T.
Rowe Price Group, questioned whether Anheuser-Busch could
generate a plan that would raise its shares to $65 and said he
would probably sell the shares at $63 to $64. T. Rowe price
owned 17.4 million shares at the end of March and was
Anheuser-Busch's fifth-largest shareholder.
"I don't think the company can come up with a plan to get
the stock up there and keep it up there," he said. "Even a
leveraged recap I can't imagine would get it to $65 and keep it
there." Rogers was not commenting specifically on the plan the
company announced when he spoke to reporters on the sidelines
of Morningstar's annual investment conference.
The maker of Budweiser and Michelob beer wrote to reject
InBev's takeover bid on Thursday, but left the door open to a
higher bid that would create the world's largest beer maker.
InBev, which makes Beck's and Stella Artois beer, was
mulling its next move after filing a lawsuit on Thursday to try
to establish that Anheuser-Busch shareholders could remove
Anheuser's entire board of directors.
"We will carefully study the letter and will respond in due
course," an InBev spokeswoman said.
Anheuser-Busch executives said they would "challenge"
InBev's claim that the board could be removed without cause.
Anheuser-Busch forecast earnings in 2008 of $3.13 per share
before one-time items, Chief Financial Officer W. Randolph
Baker said. The company also forecast 2009 earnings of $3.90 a
share, followed by double-digit percentage increases.
Analysts, on average, forecast earnings of $3.02 a share in
2008 and $3.29 in 2009.
The company, which like many food and beverage makers has
been hit by soaring commodity costs, said it will raise prices
in September and October on about 85 percent of its beers,
rather than in 2009 as planned, Baker said.
Between price increases and a shift in sales to
higher-priced products, the company expects revenue per barrel
to increase 4 percent in both 2008 and 2009, he said.
The company also expects a slight increase in gross margin
in 2008 and a larger one in 2009, he said.
The $1 billion in cost savings could be reached by 2010,
with the bulk coming by next year, the company said. Aside from
job cuts, other steps the company plans include cutting items
to reduce supply chain costs and reducing reliance on natural
gas and fuel oil.
The company will take an estimated charge of $300 million
to $400 million this year for costs associated with early
retirement, Busch said.
Anheuser-Busch management said InBev's offer was low on a
multiple basis when compared with other recent beer industry
deals, like the split up of Scottish & Newcastle by Carlsberg
A/S (CARLb.CO) and Heineken NV (HEIN.AS) in April.
Analysts said InBev will not likely give up its bid for
Anheuser-Busch and say it can afford to pay more if required --
certainly $70 a share and possibly up to $75.
KBS Securities analyst Wim Hoste said InBev had two
options: raise its offer toward $70 per share or go hostile at
the existing $65.
"I can imagine they might try through informal contact to
see if there is scope to talk about an offer. If not, then they
could take the hostile route," he said. "But the friendly
approach is clearly better for public opinion and the
workforce. The company is a U.S. icon."
Meanwhile, executives declined to comment on its
relationship with Mexican brewer Grupo Modelo SAB de CV
InBev shares ended Friday trading down 1.9 percent at 44.14
euros, extending their decline from a high of 51.70 euros on
June 12, just after it announced its bid for Anheuser.
(Additional reporting by Aarthi Sivaraman in New York and
Muralikumar Anantharaman and Erin Zureick in Chicago; Editing
by Brian Moss and Tim Dobbyn)