LONDON (Reuters) - Bold moves are what created brewing giant InBev INTB.BR and it needs one more as analysts say its bid for Budweiser maker Anheuser-Busch (BUD.N) will likely have to rise by more than $3 billion to succeed.
InBev took aim at the St Louis-based brewer last week with a bid at $65 a share or $46.3 billion and attempted to woo its shareholders into a friendly deal to create the world’s largest brewer, making a quarter of the world’s beer.
Anheuser is keeping its options open, only saying it would evaluate the proposal, and InBev over the weekend urged Anheuser to fully explore its offer before considering any possible alternative deal with Mexico’s Modelo GMODELOC.MX.
Reports have suggested Anheuser is looking at a possible link-up with Mexico’s biggest brewer, in which it owns 50.2 percent, to help thwart the InBev bid, but analysts say Modelo is unlikely to seek closer ties.
Analysts also see few other places for the U.S. company to turn, as there no obvious rival bidder for it and Anheuser shareholders including Warren Buffett may see a bid from InBev as attractive after a sluggish five years for the stock.
Analysts say the focus is on how InBev handles the Modelo maneuvering and what impact it may have on the price it pays, with most seeing InBev having to pay $70 a share.
“InBev may be tempted to go over a face-saving additional bid premium of say $5/share,” says Trevor Stirling at Bernstein, but added InBev’s management and controlling shareholders are so linked to InBev for their personal finances that they will be reluctant to pay more than absolutely necessary.
Around two-thirds of InBev’s shares are held by the Interbrew families and AmBev’s key three shareholders after the Belgian and Brazilian brewing groups formed InBev in 2004.
Other analysts say InBev sees good value in the Modelo stake which could be worth $12-15 billion, or InBev may look to work more closely with the Mexican group which makes Corona, the number one imported beer in the U.S. market.
“Potential talks with Modelo would motivate InBev to consider a higher bid,” said analyst Bryan Spillane at Bank of America, while noting that it was unclear whether Anheuser would offer enough of a premium for Modelo to give up control.
Analyst William Pecoriello at Morgan Stanley also said $70 was possible given premiums paid in other takeovers in the sector.
“If BUD ultimately agrees to a buyout, we believe it will look for a higher price — at least $70/share,” Pecoriello said.
He noted the $65 bid is worth 11.4 times historic EBITDA core earnings while a $70 bid would bring that to 11.9, similar to the multiple which Heineken (HEIN.AS) paid for the mature market assets in Britain, Finland and Portugal earlier this year in the breakup of Scottish and Newcastle.
A $70 bid by the InBev would push the price to $49.9 billion for the 156-year old U.S. brewer, which also makes Bud Light and Michelob, before taking into account the group’s debt of around $9.1 billion.
A union of the world’s second and fourth largest brewers would make InBev number one in four of the world’s five biggest markets — China, U.S., Brazil and Germany — and number two in the third biggest, Russia.
InBev Chief Executive Carlos Brito hinted in March he was keen on “transformational deals” and noted the group had already done two.
The first was between Brazilian brewers Brahma and Antartica in 1999 to form AmBev and the second between AmBev and Belgium’s Interbrew to form InBev, which was the world’s biggest brewer until it lost that crown to SABMiller SAB.L earlier this year.
Brito was careful to point out that no price premium was effectively paid, so both sets of shareholders benefited from these deals, and then the combined companies implemented best practices across the enlarged group to create value.
The then Interbrew put itself on the world brewing map in 1995 with its takeover of Canada’s Labatt and in 2000 snapped up the beer interests of Whitbread and Bass, although it later had to sell Bass’s English breweries to please British regulators.
A rumored deal in 2001 to merger with the then South African Breweries never materialized.
InBev is being advised by Lazard and JP Morgan and Anheuser by Goldman Sachs and Citi. InBev has lined up eight banks to provide at least $40 billion in debt for the deal, meaning that many investment banks are restricted on making comments.
Reporting by David Jones; Editing by Jason Neely