Anheuser-Busch at all-time high on Pershing story

By Brad Dorfman

CHICAGO (Reuters) - Shares of Anheuser-Busch Cos. Inc. (BUD.N) hit an all-time high on Tuesday after a newspaper story said the largest U.S. brewer could be targeted for a shake-up by hedge fund Pershing Square Capital Management.

The New York Post reported that Pershing, led by founder William Ackman, has raised $2 billion for a fund that will be dedicated to targeting a shareholder activism assault on "one specific, iconic, American company."

The story cited potential investors in the fund as saying the company Ackman will target has a division that has "to have its value unlocked," a division to be sold and one division that is "is misunderstood."

The story said of names that a potential investor said met the criteria, Anheuser-Busch has the most-iconic brand and has a large real estate exposure from its theme park unit. Other companies mentioned were Kraft Foods Inc. (KFT.N), Starwood Hotels & Resorts Worldwide Inc. (HOT.N) and Marriott International Inc. (MAR.N).

Ackman declined to comment about the story, via an email message. Anheuser-Busch also declined comment.

Shares of Anheuser-Busch, maker of Budweiser and Michelob beers, traded as high as $55.19 on Tuesday on the New York Stock Exchange and were up 62 cents, or 1.2 percent, at $53.77 on Tuesday afternoon.

Aside from the Ackman story, the stock has also rallied in recent days on talk of some sort of merger between Anheuser-Busch and Belgium's InBev INTB.BR.

PRIOR SUCCESS

Ackman has been successful in the past in pushing management of companies in which Pershing invests to take steps to enhance shareholder value, including pushing Wendy's International Inc. (WEN.N) to spin off its Tim Hortons Inc.(THI.TO) chain.

But one fund manager said that Anheuser-Busch's problems are tied to weakness in the overall U.S. beer market, where consumers are eschewing domestic beer for wine, spirits or higher-priced imported beer.

"In a normal situation, an activist can sort of shake up management to do something," Charles Norton, portfolio manager of the Vice Fund, which holds 15,500 Anheuser-Busch shares. "I think BUD's problems are more deeply rooted than management decisions. BUD is on the wrong end of some major macro issues." Roughly three-quarters of Anheuser-Busch's sales in 2006 came from its domestic beer business.

He also noted that billionaire investor Warren Buffett's Berkshire Hathaway Inc. (BRKa.N) holds about a 5 percent stake in the company.

"I don't know if Ackman is going to have any success where Buffett doesn't," Norton said.

Options analysts also noted heavy call buying in Anheuser-Busch, especially in contracts giving investors the right to buy the company's shares at $55 each in June, July and September.

In all, Tuesday afternoon option volume in Anheuser Busch stood at 64,650 contracts, dominated by 53,591 calls, six times more than normal option turnover, according to market research firm Track Data.

(Additional reporting by Doris Frankel)