InBev's higher offer likely to get deal done

By Jui Chakravorty Das and Aarthi Sivaraman Guruprasad

NEW YORK (Reuters) - They've called each other names. They've slung mud at each other. One has tried to oust the other's board. But you might expect the two to pop open a can of beer to celebrate a merger. Soon.

According to media reports, InBev NV INTB.BR has raised its offer price to buy Anheuser-Busch Cos Inc (BUD.N) to $70 a share from the $65 it had originally offered -- which Anheuser spurned two weeks ago, saying it "substantially undervalues" the company.

InBev responded by seeking to oust the American brewer's board, while Anheuser accused the Belgian-Brazilian brewer of lying about its financing commitments and even criticized it for having operations in Cuba.

But two weeks later, with an offer that has gone from $46.3 billion to $49.9 billion, things have gone from not-so-friendly to friendly.

The two parties are said to be in talks now with an offer of $70 a share on the table, reflecting a premium of about 33 percent from Anheuser's closing price on May 22, a day before the rumors of the takeover surfaced.

The new offer -- neither too frothy nor too flat -- makes for a compelling case for the board to recommend the deal.

Joel Greenberg, a partner at law firm Kaye Scholer, declined to comment on this specific deal but said: "Typically shareholders will accept a price recommended by the board. Once a deal goes friendly, it's very likely the board recommends it."

According to the New York Times, some of Anheuser's largest shareholders, including Warren Buffet -- who owns a 5-percent stake in the brewer -- are already leaning towards backing the deal with InBev.

Stephen Jarislowsky, chairman and CEO of Jarislowsky, Fraser Ltd, whose firm owned 1.7 million Anheuser shares as of March 31, said he would fully support a $70-a-share offer.

"I think it's perfectly fine. I don't think it's more than I could hope for; I think it's what they can afford."

One banker who declined to be identified said he expects a quick conclusion and a friendly deal.

"At a time when Anheuser wants to be seen as cutting costs to boost share value, it cannot really be spending time, effort and money on what could become a costly and protracted takeover fight," the banker said.

DISTRIBUTORS

Getting a deal done in a friendly manner now is also Anheuser's best chance at keeping its senior management intact and InBev's best shot at avoiding alienating the U.S. brewer's distributors.

"One of the key reasons why Budweiser is so valuable is its distribution network," said Robbert Van Batenburg, head of research at Louis Capital Markets.

"The distributors are in cahoots with the Busch family. If the family is so opposed to this deal, then shareholders may say yes, but a lot of distributors may be less enthusiastic about the deal. You need the family on board," he said.

Some members of the Busch family -- which owns a roughly 4 percent stake in the company -- have been opposed to the deal, including Chief Executive August Busch IV.

But the family is likely to be on board at the new price. Consider the alternatives: spending time and money on a long, drawn-out takeover fight amid rising prices for beer ingredients and a rapidly consolidating beer industry.

And with increasing competition -- SABMiller Plc (SAB.L) and Molson Coors Brewing Co (TAP.N) are merging their U.S. operations -- in a market where customers are shifting toward wine and spirits, Anheuser could do with some help in growing its overseas presence.

POSSIBLE HURDLES?

With tight credit markets, getting the financing in place for deals has become a concern. But InBev, when it launched its bid on June 11, said it had "strong support" from a group of eight banks.

And on Friday, banking sources told Reuters LPC that InBev had launched a $45 billion syndicated loan backing its acquisition of Anheuser. Still, InBev is asking for large commitments in return for high pricing and fees to counter tough and illiquid loan market conditions.

And InBev's business in Cuba, pointed out by Anheuser when things were not-so-friendly, is unlikely to be a cause for concern.

"InBev could care less about Cuba," Ann Gilpin, analyst with Morningstar, said. "Cuba is not going to stand in the way of InBev acquiring a company that owns 50 percent of the most profitable beer market in the world."

(Writing by Jui Chakravorty, reporting by Jui Chakravorty and Aarthi Sivaraman, editing by Gerald E. McCormick)