Talking Head - Out to pasture
Will equine icons go the way of Spuds McKenzie?
The beer world in general, and the city of St. Louis in particular, is all in a twist at the prospect of losing the last great American-owned megabrewery to the tiny postage stamp of a country where Tom Shane and the World Court hang out. Belgium-based InBev, the largest beer producer in the world, has offered to buy Anheuser-Busch, the world's fourth largest brewer, for $65 a share, a significant premium over the recent trading price, and a deal valued at about $46 billion, the largest merger of brewing interests and the second largest purchase of a consumer products company in history. InBev itself is a conglomerate formed by the merger of Belgian beer moguls Interbrew and Brazilian megacorp AmBev. Anheuser-Busch, maker of the world's most popular beer brand in Bud Light, currently distributes InBev's portfolio in America, which includes Stella Artois, Beck's and Leffe.
America's second and third largest breweries, Miller and Coors respectively, have already fallen to global finance and are now known as SAB Miller and Molson Coors, so what's the big deal about losing Anheuser-Busch? Apparently InBev's reputation as a ruthless cost-cutter precedes it, and industry insiders are predicting that the new owners are likely to cut jobs, close plants, muck with the beers and, perhaps most shocking of all, reduce non-beer-related expenses like charitable donations, stadium naming rights and maybe even the iconic Budweiser Clydesdales, which delivered a case of beer to the White House soon after Prohibition. If that happens, the terrorists have already won.
Foreign interests have bought out a number of American institutions recently as a result of the weak dollar, but this one really seems to hit Americans in the jugular. At the recently launched website www.SaveAB.com (http://saveab.com) you can view a video tribute to 9/11 featuring the Clydesdales, as well as sign a petition to stop "the foreign invasion of A-B." More than 54,000 people have signed so far. Spuds McKenzie must be wondering why nobody ever put up such a fuss for him.
InBev CEO Carlos Brito, who does not drive a company car and eschews the usual perks of corporate executives, has expressed assurances that St. Louis will remain the headquarters of Anheuser-Busch's North American operations and that the tradition and heritage of the company will be respected. "We understand that St. Louis is such an integral part of what the brand is about, the roots, the Clydesdales, the museum, the Pestalozzi Street brewery, One Busch Place," says Brito in a video interview on the company's website (http://www.inbev.com). "Budweiser the beer will continue to be brewed in the same breweries by the same people according to the same recipe. We understand that is so key to the business, the brands and the consumer, and therefore to us."
Comforting words, but many breweries have suffered ignoble fates at the hands of global giants.
InBev was not so conciliatory to Canadian brewer Labatt. After acquiring the company in 2002, they closed a plant, laid off workers and eliminated perks like first-class airfare.
So will the Busch family fly coach? Most members of the royal family of American suds are reportedly opposed to the deal, and current Busch CEO Augustus Busch IV, aka The Fourth, reportedly told distributors at a meeting in April that no buyout would happen "on my watch." The family does not own enough stock in its own company to block the takeover bid, however. Warren Buffett, whose Berkshire Hathaway owns the second largest piece of the company at 5 percent, has already expressed his support for the bid, and Barclays Global Investors, which owns more than 6 percent, is likely to follow suit. The Fourth has stated in response to the offer that the company will act in the best interests of its shareholders, and it seems certain that the shareholders and the board would be happy to sell out an American icon for something around a 24 percent premium.
So what's it all mean for beer drinkers, be it Joe Six-Pack or Bobby Beer Geek? That's hard to say. InBev has very little presence in the United States, and Budweiser has struggled to make inroads internationally, so the combined company could help both entities expand their reach. It would seem beyond foolish to tinker with the formula for Budweiser or Bud Light, two of the best-selling beers in the world. But who knows? Purists insist that Hoegaarden, the famous Belgian witbier originally brewed by Pierre Celis, has not been the same since InBev moved operations to one of its existing breweries in Belgium. Brito has to finance his acquisition somehow, and it will be hard to resist cutting corners for a man who prides himself on not having an office and sharing his table with his vice presidents. Maybe beechwood aging is a bit too expensive and most people can't tell the difference; maybe a shorter lagering period can reduce costs. Budweiser may not be the best beer in the world, but its taste is familiar and distinctive, achieving an ethereal lightness and crispness derived from the use of copious amounts of rice as an adjunct.
For craft beer drinkers, the big issue is market control. Anheuser-Busch has been seeking to extend its control over the craft beer market in recent years by purchasing stakes in successful regional brands such as Widmer and Redhook, introducing new products such as Bare Knuckle Stout and Beach Bum Blonde Ale aimed at the popular end of the craft market, and distributing craft beer offerings from Kona, Magic Hat, Goose Island and some of InBev's brands. It also owns or has an equity interest in international brands Corona, Harbin, Tsingtao and Armstrong (India). Combined with InBev's international brands from Europe and Latin America and Anheuser-Busch's leading distribution network in the United States, the new company would own and distribute a huge proportion of the world's leading beer brands as well as many of its niche brands. With A-B and InBev offering so many brands, many of which appeal to those looking to move up from their usual domestic brew, the combined company's overall presence in retail outlets could overwhelm the independent and local craft breweries that are fighting for shelf space in a crowded market.
The combined purchasing power of InBev and A-B could also affect the already volatile commodities market for brewing ingredients. As the world's largest purchaser of barley and hops, the company could negotiate the best prices and secure contracts on the limited supply of ingredients, making it impossible for smaller breweries to compete. A lack of competition is rarely a good thing, but regulators are likely to approve the InBev acquisition since the two companies do not have significant overlap in their markets.
It might be that the Clydesdales have already left the stall on this one, but if you are a fan of Budweiser, there is probably no need to cry in your beer. Expect the trucks to continue rolling into your town loaded down with your favorite ice cold beverage for at least the foreseeable future.
Correction: Hoegaarden is still brewed in the town of the same name by InBev. The company had announced plans to move operations to its facility in Jupille, in southern Belgium, in 2005, but the move was never completed. In 2007, InBev decided to continue production at the brewery in Hoegaarden and invest in improvements to the facility.