Friday, October 24, 2008

Another Bump on the Road to InBud

From a Financial Times story on Carlsberg's problems with the weakening Russian rouble (Carlsberg gets about 40% of their profits from their biz in Russia, so it's a big deal for them), comes this further dose of bad news for prospects of the InBud deal:

Currency declines have...hurt the stock of...InBev. The Belgo-Brazilian brewer's stock fell 34 per cent over the past month, closing at €28.68 on Thursday amid fears over its exposure to the sliding Brazilian real (Brazil accounts for about half of InBev's profits.)
The lower InBev's stock falls, the more risky its planned takeover of US brewer Anheuser-Busch becomes. The brewer has already postponed a $9.8bn rights issue to help pay for the takeover, blaming volatile equity markets.
When the deal was announced in July, InBev's shares were trading at €45 and the company would have needed to issue around 196 million new shares to raise the $9.8bn, investment bank Dresdner Kleinwort said. It would now need to issue more than 320 million shares - and find people to buy them.
Anheuser's stock was trading at about $58 on Thursday, some 17 per cent below InBev's offer price of $70 per share.

So when I asked my old college buddy in a local investment firm back in May, what's all the financial activity around BUD mean, he told me that investors were betting that A-B was going to get bought. If BUD is trading 17% below the price shareholders are supposed to reap when InBev buys them out... One of you financial whizzes wanna explain all this?

6 comments:

thbeer said...

Right now the volume of share traded is about 5x what it was one year ago. A lot of the traders may like to see BUD at a 17% discount if they feel the deal will still go through. Informed sources still say it is 90% still a go, so I would be glad to buy at 58 to sell at 70. If the deal is anything like my adjustable mortgage it won't cost InBev anything more until the first adjustment. By then InBev will divest some non-core AB assets to cover short term costs associated with the deal. Bottom line, InBev still gets want they want but make a little less on the deal.

Lew Bryson said...

See, that's what I don't get. A 90% sure thing to make $70 on a $58 investment in a matter of months sounds like something I'd want a piece of; hell, if it weren't that I'd told my financial advisor not to invest in booze stocks because of conflict of interest, I'd be on it myself. If people are snapping that up, why isn't the price going up?

---Guy said...

I'm no financial expert but I do believe this deal is doomed. With the worldwide meltdown in the financial markets, what looked like a good deal at $70 a few months ago now looks way over-priced.

I predict InBev will find a way to wiggle out of this transaction.

Baums said...

There is a flip side. Even if the deal were 90% certain, there would be a 10% chance that the deal falls through and BUD's price would then likely fall to something bad.

How bad is "something bad"? Well, before the InBev deal BUD was trading at ~$45, and since then the S&P and DOW have dropped about 1/3. Without the deal then, one might guess that BUD would track the market and be valued at... $30?

Possibilities like that are figured into the price the market sets.

Phillip J. Birmingham said...

One of the main factors driving BUD shares down, as I understand it, is concern about whether or not InBev will be able to finance this deal with the credit situation as it is. InBev claims to have this locked down, but who knows for certain?

JP said...

Slumping equity at inbev(driven by crappy fundamentals) makes the rights issue less and less attractive sort of a vicious cycle the discount necessary to get it done has to be lower which pusehs the stock down more. Also as we talked about in your earlier post on the subject realy really hard to get a bond deal done in this market. Thus 2 things happen INBEV renegotiates deal at a lower price, or pays the breakup fee to walk away leaving BUD onwers sort of hanging out there at these levels.