InBev, Anheuser-Busch shares rise on merger report

LONDON/BRUSSELS (Reuters) - Shares in the world's top brewer InBev INTB.BR hit a record high on Thursday after a Brazilian newspaper reported the Belgium-based company was in merger talks with Anheuser-Busch Cos. Inc. BUD.N.

The headquarters of InBev is pictured here in Leuven, near Brussels February 25, 2006. InBev shares were up more than 6 percent on talk about a report in Brazillian newspaper Valor Economico that the brewer was in merger talks with Anheuser-Busch, traders said. REUTERS/Stringer

Shares in InBev, maker of Stella Artois, Beck’s and Brahma, were at 53.05 euros, up 4.5 percent, at 1545 GMT, off a high of 55.70 euros.

Stock in Anheuser-Busch, which brews Budweiser and Michelob, was up 3.3 percent in early U.S. trading, having hit a two-year high of $52.25.

Valor Economico said talks between InBev and Anheuser-Busch were still at a preliminary stage, citing a source it described as close to three Brazilians on the InBev board.

The paper also cited an unnamed investment banker as saying a merger between the two had “big chances of happening one day”.

Both InBev and Anheuser-Busch declined to comment.

One trader said that the report seemed tenuous but could not be discounted.

“What it could do is force the other players in the beverage sector to do deals, similar to what we’ve seen with tobacco consolidations,” the trader said.

Other European brewers also rose on the report, with Heineken HEIN.AS, Carlsberg CARLb.CO and SABMiller SAB.L up 2 percent or more. Scottish & Newcastle SCTN.L added 1 percent.

Valor said at the end of 2006 InBev’s market cap at $40.3 billion was higher than $37.7 billion for Anheuser and cited the source saying this would give InBev the possibility of negotiating a merger with Anheuser in better conditions.


Analysts, however, questioned the value of a potential deal.

If size and image alone were decisive, it would make perfect sense. InBev is the world’s largest brewer by volume, Anheuser the leader by sales.

“Global domination of the beer industry is a prime target for InBev,” said Dresdner Kleinwort analyst Andrew Holland.

However, InBev would require synergy benefits and cost savings to justify such a move.

JP Morgan analyst Simon Hales said such a merger could not be ruled out, particularly given the trend for consolidation in the global brewing market.

A lack of overlap might also encourage regulators to allow such a deal, but would limit synergies, particularly given Anheuser already distributes InBev’s import beers in the United States, he added.

Analysts said the 2004 merger of Interbrew and Ambev that created InBev also had little geographical overlap, but the companies promised 280 million euros of combined synergies.

Procurement deals could yield some benefits, while InBev would gain by being able to offer Budweiser to a wider market.

InBev has proved effective at spreading its zero-based-budgeting (ZBB) savings scheme from Brazil to western Europe, with plans to trim costs globally.

Analysts said InBev could reap rewards by bringing ZBB to Anheuser.

“There’s a big opportunity for a fresh pair of eyes on cost savings,” said Holland.

However, Anheuser might need InBev more than InBev needs Anheuser, given the latter’s limited global range.

The U.S. market, representing some 82 percent of Anheuser’s own-brand volumes, would offer InBev little growth potential.

Brewers have been rushing into emerging markets, notably China. With its dominance in Brazil, Latin America accounted for 43 percent of InBev’s volumes in the first nine months of 2006 and 44 percent of core earnings.

Additional reporting by Axel Bugge in Lisbon with Elzio Barreto and Todd Benson in Sao Paolo