New York, October 24, 2008 - As the closing date for InBev NV's $52 billion takeover of Anheuser-Busch Cos Inc nears, some investors fear they may be forced to renegotiate or even shelve the debt-financed deal to create the world's largest brewer.
A banking industry meltdown and corresponding market volatility has already caused the Belgium-based brewer to postpone a $13.4 billion rights issue it planned in connection with the deal. Analysts say there could be more changes in store.
Some possibilities include offering a stock component in return for Anheuser shares, instead of the current cash deal terms, as well as trying to persuade its merger partner to accept a lower deal price as tumbling stock markets wipe out trillions of dollars of assets worldwide.
"If you combine the amount of money they're raising and the uncertainties in the credit markets ... I think common sense will tell you there's reason to be somewhat concerned," said Edward Jones analyst Jack Russo.
"Could this thing get delayed? Could it get restructured? These are all possibilities," Russo said, adding that he expects the deal to close within days of a scheduled November 12 vote by Anheuser shareholders.
An InBev spokeswoman said this week that the deal remains on track to close by the end of the year.
Russo also cited cigarette maker Altria Group Inc, which said earlier this month it may delay buying UST Inc until next year.
InBev, which makes Stella Artois and Beck's, has repeatedly said the deal remains on track. But Anheuser's shares have remained well below the $70 deal price, proving at least some investors are skeptical.
Anheuser is now worth closer to $58 or $60 per share, said beverage industry consultant Tom Pirko of Bevmark LLC. He said InBev may benefit from returning to the bargaining table.
"Right now, considering what's happened with the financial meltdown, it's just a really serious situation," Pirko said. "If they are able to close a deal at the current terms, they're going to be handicapped for years. It's very much in their interest to try to renegotiate."
InBev planned to take a $45 billion jumbo loan to finance the deal, along with other debt.
Lenders signed up for a first round of funding in August, but a second round of loan syndication has been going more slowly in recent weeks due to the global financial crisis, sources told Reuters.
WORTH LESS?
Other analysts agree that InBev's offer now values the U.S. maker of Budweiser and Michelob too highly, especially if consumers worldwide are less likely to open a cold one.
In a recent example, private equity buyers of radio station operator Clear Channel Communications negotiated a lower deal price in May after debt financing costs surged and their lenders balked at the transaction. That was before a wider financial crisis erupted in September.
"I do think (the deal) will go through, but I am cautious that it won't," said Morningstar analyst Ann Gilpin. "If banks are not lending, they're not lending. And if InBev can't get the loan, it can't do the deal."
InBev could also renegotiate the deal so some or all of it could be paid in InBev shares, rather than cash, she said.
Anheuser shares closed on Thursday at $58.13 in a 17 percent spread Edward Jones' Russo said is bigger than he would expect.
But on the other hand, Anheuser shares are up more than 10 percent from where they were in May before merger speculation sent them soaring. The two companies agreed on a deal in July.
"The market is more confident than not that the deal is going to go through," said Jefferies arbitrage analyst Andy Baker, explaining that if investors saw the deal as doomed, the shares would behave more like the wider market.
The Standard & Poor's 500 Index .SPX is down 35 percent over the same period. InBev shares closed at 28.68 euros, down 43 percent from that same day in May.
Without a pending deal, Anheuser shares would trade in the mid-$30s said Stifel Nicolaus analyst Mark Swartzberg.
Another needle in InBev's side is Mexico's Grupo Modelo, which is half-owned by Anheuser.
Modelo, which makes Corona, has begun arbitration against Anheuser, claiming Anheuser did not consult it about the deal, even though Modelo has a right to choose its partner.
Anheuser and InBev have both said Modelo's claims lacked merit and would not interrupt the deal. A Modelo spokeswoman said that for now, the brewer just wants its rights to be respected.
"Once the arbitration process is resolved, we will study all our alternatives," she said.