Devils Backbone (VA) to AB InBev

Update/Upon Further Consideration (10:48 am)
The one category of interest that these acquisitions bring to mind has to do with strategy, future acquisitions, and timelines. How many breweries does ABI need to complete their "High End" portfolio? What do they plan to do with these beers? How will the US strategy unfold as ABI pairs the High End brands with the flagship mass market lagers? All interesting stuff. We have begun to suspect that ABI is looking to knit together a portfolio of regional breweries, so looking at the map might suggest where they're headed next. We know that they tend not to purchase very large breweries--50,000 to 100,000 seems to be the range.

Another piece I'd add to the calculation is flagship brands. Devil's Backbone is known for lagers and their flagship is the Vienna Lager. They've been buying a lot of breweries that are known for IPAs, and that causes a logjam stylistically; Devil's Backbone doesn't compete with them. I'd bet this is more than a passing consideration for ABI moving forward.

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This is getting to be a boring novel in which all the chapters repeat. There's nothing to say that hasn't been said in the earlier chapters (see: 10 Barrel, Breckenridge, Four Peaks, Elysian), but if you want details, go here for the press release. Funari reports that they brewed 95,000 62,000 barrels last year [with projections for 95k in 2016], which puts them in that ABI sweet spot.

But the news does give me the opportunity to post my updated map of ABI holdings. So there's that.

A Holiday-Buying Spree

Wow. The world's largest brewery has, in just five days, added three new breweries to its craft portfolio. Last Friday it was Arizona's Four Peaks. Yesterday we learned that AB InBev had snapped up London's Camden Town Brewery. Today it was Colorado's Breckenridge:

Anheuser-Busch has made a play for a piece of Colorado's craft brew market, snapping up Breckenridge Brewery for an undisclosed sum, officials announced Tuesday.

Breckenridge, which sells its beers to 35 states, is on track to produce 70,000 barrels of beer in 2015. Earlier this year, Breckenridge departed its downtown-area Denver digs for a 12-acre brewery and restaurant in Littleton. The 25-year-old company is Colorado's sixth largest craft brewer by barrels produced, according to The Brewers Association data.

We were playing a little game on Facebook of trying to guess which brewery would go next. It's possible someone might have rung in with Breckenridge (one commenter was on the right track with Avery and Great Divide), but the damn thing happened too fast for a robust sample to gather. I will leave you with the newly-updated map of the Little Buds and their national distribution:

Various comments/questions. (1) Interesting that ABI seems to be focused on blue states (a fact made more obvious by my use of an electoral college calculator to generate these maps)--does this mean North Carolina or Florida is more likely to be the first southern state than, say, Georgia? (2) Some enterprising young journalist (Bryan Roth?) should look to see what the distribution ramifications are in these states. I continue to believe that's a huge part of this equation. (3) Which brewery is next, and (4) how many breweries do you expect ABI to buy stateside before it feels it has collected enough to make a big push into the craft segment?

Four Peaks Down

And so it goes.

Anheuser-Busch InBev is buying Arizona's largest craft brewer and brewpub owner, Four Peaks Brewing Co. Founded in 1996, Four Peaks produced 70,000 barrels of beer this year. Financial terms of the sale set to close in the first quarter of 2016 were not disclosed. Four Peaks is the sixth brewer to join A-B's craft and imports portfolio, The High End. The other craft brewers A-B has acquired in recent years are: Goose Island Beer Co., Blue Point Brewing Company, 10 Barrel Brewing, Elysian Brewing Company and Golden Road Brewing. 

At this point, the only game worth playing is guessing (1) what AB's ultimate strategy is, and (2) which states they'll target next. Here's the current state-by-state map of Bud Micros (Little Buds?)--and you can see that Four Peaks marks ABI's first foray into a red state. I do find it interesting that their focus has been on the West Coast.

I wonder if this has to do with distribution complexity. Do these states have more distributors? If so, it would make sense that Bud is using the Little Buds to coax their distributors into dropping independent craft breweries. Any theories?

Bud Finds Its Voice (follow-up)

Back in February, AB InBev created an ad for the Super Bowl that mocked craft beer. It created an instant and sustained backlash among the craft types. I blogged about it at the time, taking the view that it was a good move for Bud. This remains a minority view, but Fortune magazine recently followed up on the story and more or less takes my view on things. They point out that, far from backing down, Bud has continued the mockery.

[I]t’d be a mistake to think the company is making these ads recklessly. Every time the craft beer world gets worked into a lather over one of these spots, it helps spread the Budweiser name. The fact that you can get a reaction today at the mere mention of that Super Bowl ad, which (with its lack of humor or cute animals) would likely have been long forgotten by this point, is actually pretty astonishing.

Will the ads convert craft drinkers over to Bud? Of course not. But they could nudge Bud drinkers who were starting to edge toward craft back to macro beers – especially if the reaction of craft drinkers creates an aura of beer snobbery. More importantly, it could keep them away from switching their allegiance to MillerCoors, which, as Fortune recently reported, sold 43 million more cans of Miller Lite in the second half of 2014 than it did in the same period of 2013.)

Fortune concludes by noting that the long-term trends are terrible for Bud, and I agree. They can try to lower casualties, but winning the war is going to be a much tougher challenge. Still, there's no reason to think (yet) that the campaign has been ill-conceived.

A Consolidation Dialectic (or Why Buy-Outs Do Sort of Suck)

A funny thing happened on the way Elysian's public flogging.  There I was, bracing for another round of "Judas" called collectively from the internet.  If 10 Barrel Brewing, a nice outfit but certainly nothing like the beating heart of Bend, could generate a week's worth of existential angst, then authentically beloved Elysian would surely cause Facebook to crash.  Instead, a somewhat large group went immediately on AB InBev defense--or made something like the "meh" argument.  I saw comments like this everywhere, but I'll single out the estimable Jordan St. John, who wrote one of the more entertaining versions on my blog Facebook page.

People buy the narrative of small underdog companies vs large companies and they are intended to do so because it plays on their innate acceptance of binary narrative even though it is patently not the reality of the situation which includes thousands of parts moving independently in a finite market.

Go look at the language in the comments of various websites who have reported this and tell me that the sudden hatred of Elysian on the part of long time loyalists is a rational reaction to the potential that the beer may shift in quality two years from now. It simply isn't. The craft beer narrative of the hero's quest and the idea that the "underdogs" must be the hero because there is an empire that they are up against is collapsing because the lines muddy when faced with what has always been a generational industry. It's the reaction to a hulk hogan heel turn or Anakin turning to the dark side. It's not the reaction to a potential quality shift that may or may not happen eventually.

You don't want AB InBev to own this brewery.  Really.

This leaves us in an interesting place.  The default position holds that buy-outs are bad for diversity, bad for the bought-out brewery, and bad for beer.  But there's a second sentiment, like Jordan's, which argues that it's all business and who cares who owns a brewery so long as the beer is good.  Can these views be reconciled?  In philosophy and logic, there's a concept known as "dialectic," which indicates a train of reasoning that flushes out bad thinking and gets at the truth.  There are many different versions of dialectics (it goes back to the Greeks), and it seems like we need one to interpret consolidation.  Allow me.

1.  AB InBev is not evil, it's just a company.
It's true.  AB InBev is a large company that (like small breweries) sells beer. Beer companies are morally neutral entities, and what they do is sell widgets.  To associate moral value with any brewery is to make the argument that there is a higher way to sell beer, and that's obviously not defensible. 

2.  Little breweries are not virtuous; like multinational conglomerates, they're just companies.
For reasons I shouldn't have to enumerate, I love beer.  But the notion that little companies are doing something categorically different than multinational conglomerates by making and selling beer is absurd.  They're breweries.  Smart people have decided to quit the idea that there's craft beer and then some other, lesser category.  There's beer and then there's, well, beer.  It's all made in breweries of malt, hops, water, and yeast (and increasingly, other things).  Companies that make this substance sell it on open markets.  Some are big companies, some are wee. 

3.  You can't judge the quality of beer by the size of the brewery. 
Fans of American craft beer take it as gospel that big companies make "crap" and little breweries make good beer.  This is not true.  Big breweries make beer that millions buy.  It may not be the beer I love, but that doesn't make it crap.  In many cases, mass market lagers are the cleanest and most consistent beers on the market.  One of the common stories told back in the 1980s was that big breweries used "additives" and chemicals to their beer--it was one of the arguments in favor of small-scale brewing.  I dunno, maybe some did (I'm no historian).  But as far as I can tell now, that's total hogwash.  Oh, and plenty of little breweries make pond water.  Like, literally.  I'm pretty sure I recall finding a pollywog in an ESB once.  Little breweries make plenty of crap.

4.  Big companies have a lot of power in the marketplace and don't love competition.
You have to be willfully forgetful to acquit Anheuser-Busch of being a malignant force in beer diversity in the 21st century.  There were 700 breweries following Prohibition, and A-B (and other giants) ran almost all of them out of business by 1980, when there were only 80 breweries left.  They did this by being bigger and more efficient, sure, but they also used bare-knuckle business tactics to dominate distribution, rig local laws in their favor, and buy out everyone they couldn't drive out.  Given a choice between competing against a few other companies in a stable market and competing against a hugely fragmented competition in a volatile market, they would--they have--chosen the latter.

5.  Local breweries keep traditions alive.
Companies are people.  Here in Portland, I know the majority of brewers in the city.  They're my neighbors and members of my community.  They employ my neighbors and other members of my community.  That alone is reason enough to at least be prejudiced toward local breweries, but there's a much more important reason.  Beer is one of the most varied products on earth, and that diversity comes from the preferences of locals who, say, favor dark ales in Dusseldorf and light lagers in Munich. There was a mass extinction following the Second World War when cheap, commodified beer displaced more expensive local styles.  Dozens of funky, interesting types of beer vanished from the earth.  Here's Frank Boon telling Belgium's story (from an interview I did with him):

“Forty years ago, this was a time when breweries were closing and all the local styles were disappearing.  Everywhere in Belgium.  Louvain white disappeared, Peeterman disappeared, [ascot beers?] disappeared.  In the 1950s and 1960s they switched to cheaper and technically better beer.  In every village and small town, brewers said the only thing we can do is sell the brewery.  There is no future for small breweries.  If gueuze had disappeared in the 1960s, nobody would ever have imagined to make such a beer.  It’s an absolutely crazy way to make beer.” 

There are cases in which the existence of one or two single breweries--Dupont, Schneider, Schlenkerla and Spezial--kept a beer alive.  These are never multinational conglomerates, but family breweries keeping traditions alive.  The more breweries there are--particularly funky little breweries that can make a living by selling niche beer--the more diversity that will survive.  Sometimes people denigrate the support for local breweries as mere sentimentality, but the consequences for losing them are not insignificant.

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To finally get off the ramble, here's the upshot.  Like Jordan says, it's best to avoid thinking of these things in moralistic terms. It's clarifying to recognize that beer is beer. However, that doesn't mean that one beer is as good or valuable as the next.  In the aggregate, we want a market where lots of breweries are competing to make the best beer.  Recent history has shown that consolidation isn't good for good beer.  Each brewery is a node in the diversity of the ecosystem--and some are more important than others.  10 Barrel?  Meh.  I'm not sure that they were really doing anything to increase biodiversity.  But Elysian, which was early on the scene with botanicals, which helped launch (God help us) the annual pumpkin frenzy, and which could make beers like this, had its own, unique flavor.  Those kinds of breweries are important, and it's perfectly reasonable to lament their absorption into a multinational conglomerate.

More Bud Blogging

I wish I had more time to post things like Ezra's 25 Most Influential Oregon Beers--or at least join him with a rebuttal list*.  But alas, you get links. 

First up, a fascinating long piece in US News and World Report on the battle between Budweiser (and later InBev) and Boston Beer.  It expands into a discussion of the direction of the beer market and is more thoughtful and researched than most things you'll read.  Sample pithy passage:

Both Anheuser-Busch InBev and MillerCoors employ "category space analysts," whose job is to visit a store like 7-Eleven and consult them on the optimal placements of beer on the shelves.

"They are doing the sets, they [say to a store]: 'We can do that for you,'" says Koch. "And then they can take my beer from eye level to the top shelf, which drops my sales rate in half."

One thing I have to admit--when the Brewers Association launched the Craft versus Crafty debate, they struck gold.  A few mooks like me gave a raspberry, but the BA effort has launched tons of friendly media reports.  This one in the US News even has a section header labeled "Big Beer Gets Crafty."

In a related piece, Goose Island announces that more production is moving to Bud plants:

To meet increasing demand from the national launch, 312 Urban Wheat Ale, Honker’s Ale, IPA and the seasonal offerings will be produced at Anheuser-Busch breweries in Fort Collins, Colo. and Baldwinsville, N.Y. Led by Goose Island brewmasterBrett Porter , Goose Island brewers will oversee the production of all the beers at the new facilities....

312 Urban Wheat Ale, Honker’s Ale, India Pale Ale (IPA) and a rotating seasonal selection of Mild Winter, Summertime or Harvest Ale are now available on draught nationwide. Additionally, those same beers will be available in bottles nationwide beginning this spring.

Things are going to be getting mighty interesting in the beer biz in the next five years. 


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*I'm not sure there are 25 influential beers in Oregon's short good-beer history, but if there are, the list surely can't include eight pales and IPAs. 

Big Beer, Monastic Beer, Irreverent Beer

Beer news of the world:

1.  How big is too big?
If the Department of Justice has its say, this is:

For more than a decade, the world’s biggest brewers have been swallowing competitor after competitor as they grapple with slowing growth in many markets. Now, the Obama administration wants to cut them off.

The Justice Department on Thursday sued to block Anheuser-Busch InBev’s $20.1 billion deal to buy Grupo Modelo, the Mexican maker of Corona beer, saying that the merger would cement Anheuser-Busch InBev’s control of the market and enable it to continue to raise beer prices. Grupo Modelo is the third-biggest beer company in the United States.

 I'm with the DOJ.  It's not just the size of the beer companies themselves--you have to consider the influence they would wield over hop and malt suppliers, distributors, and retailers.  Half the US market is enough InBud.  Let Modelo go.


2.  Engelszell Stift gets its button.
We were alerted a year ago to the news that an Austrian Trappist monastery had applied for official designation as a Trappist brewery.   I checked back a few times to see if the International Trappist Association had approved, but it's apparently a slooooow process.  (Monks have never been known as speedy deciders.)  I'm not sure when the approval happened--I must have missed the ITA's tweet--but they're in.  Update your records--there are now eight certified Trappist breweries.


3.  Revelations does not mention beer.
This cracked me up: yesterday Double Mountain released a new beer called White Rider of Conquest.  The description:

Revelations, Chap. 6:1: And I saw when Coughlin opened one of the beers, and I heard, as it were the noise of thunder, one of the four beasts saying, Come and see. 6:2: And I saw, and behold a white horse: and he that sat on him had a beer; and a crown was given unto him: and he went forth conquering, with his Ale. 8.7% ABV, 29BU

The actual text is sadly less interesting.  Coughlin, incidentally, is Matt, a DM brewer.  I believe the text, however, was amended by devilish Matt Swihart.

While We're Talking InBev, See Today's Washington Monthly

I got a bit of private blowback on yesterday's post, so I should probably be wary about pointing to another anti-InBev screed.  Ah well, caution has no place on a blog.

The following sections are taken from a long article in the Washington Monthly, a left-leaning political magazine heavy on public policy wonkery.  I emphasize left-leaning, because the article takes a certain view--or any way the author, Tim Heffernan, does.  He thinks US beer regulation, which drives distribution through a third-party, works because it's inefficient.  It keeps prices high and makes market dominion hard.  He compares the US model favorably with the British model which he says drives up consumption and has turned the country into an 18th-century style hellscape:

It’s apparent in their hospitals, where since the 1970s rates of cirrhosis and other liver diseases among the middle-aged have increased by eightfold for men and sevenfold for women. And it’s apparent in their streets, where the carousing, violent “lager lout” is as much a symbol of modern Britain as Adele, Andy Murray, and the London Eye. Busting a bottle across someone’s face in a bar is a bona fide cultural phenomenon—so notorious that it has its own slang term, “glassing,” and so common that at one point the Manchester police called for bottles and beer mugs to be replaced with more shatter-resistant material. In every detail but the style of dress, the alleys of London on a typical Saturday night look like the scenes in William Hogarth’s famous pro-temperance print Gin Lane. It was released in 1751.

So okay, you may not like the set-up.  But the meat of his argument involves consolidation of beer companies at the mass-market end of things and does echoes the points raised in yesterday's post.  Like:

Prior to the 2008 takeover, Anheuser-Busch generally accepted the regulatory regime that had governed the U.S. alcohol industry since the repeal of Prohibition. It didn’t attack the independent wholesalers in control of its supply chain, and generally treated them well. “Tough but fair” is a phrase used by several wholesale-business sources to describe their dealings with the Busch family dynasty. Everyone was making money; there was no need to rock the boat....

Then, after eliminating everything it could at home, the new regime turned to squeezing more out of its increasingly nervous partners, the wholesalers. And, today, with only one remaining real competitor, MillerCoors, the pressure it can put on its wholesalers is extraordinary. A wholesaler who loses its account with either company loses one of its two largest customers, and cannot offer his retail clients the name-brand beers that form the backbone of the market. The Big Two in effect have a captive system by which to bring their goods to market. 

Heffernan goes on to describe some pretty rough tactics InBev used on distributors in Arkansas, and how InBev has skirted the law in California and New York.  I can't actually verify any of this and would of course welcome corrections.  Even if the truth is less dire, I don't think it takes a lot of imagination to envision a world where InBev also owns Modelo and SABMiller--that would surely be catastrophic to competition and would certainly make control of "independent" distributors more likely.  The thing is, except for stockholders and managers at InBev, there's really no one who benefits from monopolies.  It's just bad all around.  Let's hope federal regulators see the danger and nix any further InBev mergers.

The Production of Soulless Beer

The phrase "craft beer" is rightly denounced for its imprecision.  It's hard to say what craft beer is or how it differs from non-craft (size, ownership structure, quality or type of beer?), but this extraordinary article in Businessweek illustrates exactly what it is not--cripplingly soulless beer from which every extraneous cent has been wrung:

For a number-crunching manager like [InBev CEO Carlos] Brito, an old, family-run company like Anheuser-Busch provided plenty of opportunities for cuts. He laid off approximately 1,400 people, about 6 percent of the U.S. workforce. He sold $9.4 billion in assets, including Busch Gardens and SeaWorld. AB InBev also tried to save money on materials. It used smaller labels and thinner glass for its bottles. It tried weaker cardboard for its 12-packs and cases. The old Anheuser-Busch insisted on using whole grains of rice in its beer. AB InBev was fine with the broken kind. “Our purchasing of rice has to do with how fresh the rice is, not whether it is whole or broken,” says Vallis.

And

In a telephone interview from Munich, Willy Buholzer, AB InBev’s director of global hops procurement, cheerfully insists that the company still brews the traditional way with Hallertauer Mittelfrüh. He says the reason that AB InBev stopped buying it was that it has a surplus. “We just have too much right now,” Buholzer says. “We need a break for a couple of years.”

A former top AB InBev executive, who declined to be identified because he didn’t want to get in trouble with his old employer, tells a different story. He says the company saved about $55 million a year substituting cheaper hops in Budweiser and other U.S. beers for more expensive ones like Hallertauer Mittelfrüh.

And of course

So much cash flowed in that by 2011 the company was able to pay down early a significant portion of the $54 billion it had borrowed to finance the Anheuser-Busch takeover. This triggered $1.3 billion in stock-option bonuses for Brito and 39 other executives that year.

The whole piece is a must-read, but--spoiler-alert--as the story unfolds, writer Devin Leonard takes it to its obvious conclusion.  The modern InBev is a shark that makes money by snacking on new acquisitions and wringing savings from them.  That's what motivates InBev's appetite for Modelo and why industry watchers think SABMiller is in their sights as well.  As Leonard points out, the man running the company, Carlos Brito, doesn't make and sell beer, he acquires beer companies.  If you happen to like beer in the portfolio Brito covets, this isn't good news.  (The article details violence done to Beck's and Bass, in addition to Budweiser.)

I don't know exactly how we should think about "good beer" and "macro" or "industrial" beer.  But I do know that we should think very poorly indeed about breweries mishandled like this.  It's a debased, degraded product and it's offered with contempt to consumers.  If you have friends or relatives who still drink Budweiser, forward them the article and tell them to switch to Yuengling or Sam Adams instead. 

With Modelo, Will AB InBev Have a Monopoly?

The impending merger of Grupo Modelo and Anheuser-Busch InBev has aroused certain anxieties:

[T]he $20 billion buyout of Grupo Modelo, which has an estimated 6% of the U.S. market, would push AB InBev’s share to well over half of all U.S. beer sales....  It’s now the world’s largest brewer, controlling about a quarter of the global beer market with its 200 brands.... The volume of beer produced by the companies would increase from 300 million to 350 million barrels annually with the deal, which would also make the company bigger than SABMiller and Heineken — AB InBev’s two closest competitors — combined.

For the average American beer drinker, the growth of InBev could be bad news. Competition within the beer industry is slowly eroding, and anytime there’s less competition, higher prices are likely to follow.  AB InBev could also decide that it ultimately wants to own fewer brands so it can reduce its marketing costs, and that could give customers fewer mainstream beer options.

I don't know how economists define monopolies, but I'm not particularly concerned about InBev's rapid gigantism.  The danger with monopolies is that, absent competition, they can fix prices or lower quality and the customer has no recourse.  There are several forces at work in the beer industry that make me think this is unlikely.

• Prices.  Bud's going to have to do a lot better than 53% to affect prices.  Mass-market beer is very price sensitive, and if AB raises its prices on Bud Light, it will give the number two and three beers in the country a big leg up.  (Particularly given that the companies aren't competing on flavor.)
• Brands.  Yeah, AB could dump Natural Light or Bud Ice or something, but it really doesn't control that many brands.  A lot of InBev's portfolio includes foreign beers that don't sell a huge amount in the US (but do well elsewhere).  And regulators should stop AB from dumping Natty Light?  Nyet.
• Distribution.  AB's secret weapon used to be a very powerful network of distributors who could control the flow of beer in a city.  That's why Redhook and Widmer originally signed up with AB--to get easy access to markets in other states.  But craft brewing on the one end and market consolidation on the other have weakened AB's distribution.  They are no longer gatekeepers, and even small breweries have access to the market.
• Changing market.  This is probably the biggest issue.  As I argued earlier, the reason for this consolidation is market weakness, not strength.  People are consuming ever less industrial pale lager, and diversity in the craft market is insane.  If InBev could somehow snap up Boston Beer, Sierra Nevada, and New Belgium, it would destabilize the craft market.  But unlike the macro segment, craft beer is very profitable, and these companies have no reason to sell.  They can see the potential five years down the road as well as InBev can. 

Some folks are worried that InBev will keep gobbling up craft breweries, but even this isn't especially worrisome. Craft brewing is a different market.  A big part of its success is born from the fact that consumers believe it's handmade with care and attention.  When InBev bought Goose Island, it didn't buy the brands and shift them to an AB plant; that would have defeated the purpose.  Instead, Goose Island must compete in the competitive craft market, where flavor is paramount.  Investments and growth will give Goose Island a price advantage, but only to a point.  And in any case, this is no model for replacing lost market share.  When AB's brands slide a percent or two in a year, that means millions of lost barrels of beer.  You can't easily replace that with a patchwork of 100,000-barrel craft breweries.

So let 'em merge.  There's no monopoly and no immediate threat to the status quo--which is exactly InBev's American problem.

Zero Percent Beer: Tasty!

Proof that, even to the small-beer fan, you can carry a good thing too far:

What the company did want to talk about was the new alcohol-free drink rolled out by home unit InBev Belgium, the Hoegaarden 0.0...

Under CEO Carlos Brito, AB Inbev invests considerably in flashy marketing. And the Hoegaarden 0.0 is stylish, with design centered around a Gothic rendition of “0.0”, that looks like two ghost eyes, printed on a light yellow can with white wheat germs.

The verdict on taste was mixed. Your correspondent found the drink akin to a watered-down lemon Fanta. OK — refreshing even — if you know what you’re getting.

I sense a winning ad campaign: "For those who find Lemon fanta too intense!" I don't believe it will be available in America, which is probably a wise strategy.

InBev-Anheuser Busch Deal Back On

Hmmm...

The King of Beers is moving closer to wearing a foreign crown. After a week of contentious wrangling that included lawsuits and Securities and Exchange Commission filings, Anheuser-Busch, according to published reports and people who have been briefed, has engaged Belgian brewing giant InBev on a $70-per-share, nearly $50 billion deal to buy the company.

The St. Louis-based parent of Budweiser beer has been working for six weeks in a campaign to discourage InBev (BusinessWeek.com, 7/10/08), line up politicians to oppose the deal, and convince shareholders that a takeover by InBev, which markets brands like Stella Artois, Bass, and Beck's, is not in the best interest of the company or their investments. But a sweetened offer and mounting pressure on A-B management have brought the two companies to actual negotiations.

The Busch family, who own only 4% of the stock, are helpless to stop it. Analysts expect the deal to be done this weekend. As I've mentioned before, this seems uniformly like a bad thing. Strangely, as I read the news, my mind went to Nelson Muntz, perhaps meanly. "Ha Ha, you failed to protect your quintessentially American brand and now a bunch of Flemish-speaking Belgians have purchased your corporation!"

Sympathy for the Devil?

InBev has a lot of chutzpah. They make a hostile takeover bid for Anheuser-Busch, a bigger company, and then have the temerity to get pissed off when Bud doesn't fall in line:

Yesterday, InBev CEO Carlos Brito sent an annoyed letter to Anheuser-Busch’s board, complaining about A-B’s talks to take over the rest of Grupo Modelo. Brito warned, “In light of the reports, we believe it is important for you and your Board to understand that our proposal to combine with Anheuser-Busch by means of acquiring all Anheuser-Busch outstanding shares for $65 per share in cash is made on the basis of Anheuser-Busch’s current assets, business and capital structure.”

The issue is this: if Bud buys the Modelo Group, it will be too big for InBev to swallow. (Mainly because InBev has to go $40 bil in debt to swing the deal in the first place.) I have no idea what the shareholders will think, but putting the Modelo deal on the table is certainly a wise--it puts control back in A-B's hands and gives the company options. The irony is that InBev here is playing the American role--invading a company, but telling the invadees it's for their own good. Makes you sort of root for Bud, doesn't it? Sort of.

Amusing.

Borrowed Money--Wait, isn't that as American as apple pie?

This is sort of interesting. Despite a tight credit market, InBev managed to score forty billion (or 86.4% of the total) of its $46 billion offer on credit.

InBev, the brewer of Stella Artois and Beck's, said it would finance its $46.3 billion bid for Anheuser-Busch with at least $40 billion in debt and a combination of non-core asset sales and equity financing.

"This is going to be one of the top five global consumer companies. People want to hold the debt," said a source familiar with the InBev offer. "For the right deal in the right industry, banks will come up with the money."

That's one kinghell of a bet. InBev really thinks Bud is a great company, don't they? Interestingly, A-B could block the deal by getting bigger:

Something that may play a role in whether or not the deal goes through is Anheuser-Busch's joint venture with Grupo Modelo, brewer of the Mexican beer Corona. Modelo might see the Inbev proposal as a chance to buy back Anheuser's half of the joint venture, but it is unlikely that Bud would go for it, said Douglas Cogen, co-chair of the mergers and acquisitions group at Fenwick & West.

If Anheuser-Busch, on the other hand, purchased Modelo's half of the profitable joint venture, something that is rumored to happen, it would add $10.0 billion to $15.0 billion to its value, making it more difficult for InBev to follow through with the deal.

I know, I know, you don't care about this deal. Still, I can't stop myself from telling you one more thing. In reaction to this deal, wherein Belgians (who speakFrench!) gain the reigns of an American behemoth, nationalists are in a tizzy.

The Save AB website, which has garnered more than 8,000 signatures, compares the Budweiser brewer's place in the American pysche to “baseball and apple pie”, adding: “With your help we can fight the foreign invasion of AB. We will fight to protect this American treasure. We will take to the internet, to the streets, to the marble halls of our capitals, whatever it takes to stop the invasion.”

A $47 BILLION Bud? That's What InBev Will Pay

The rockin' huge news of the day--sorry, I'm late posting on it--is Belgian beer behemoth InBev's unsolicited bid to buy out Anheuser-Busch. (As penance, there's some value-added analysis below.) The deal:

BRUSSELS -(Dow Jones)- InBev (INB.BT) wants to turn Budweiser into its "global flagship brand" as part of the Belgian brewer's plan to buy Anheuser-Busch & Co. (BUD) for $47 billion, InBev executives said on a conference call Thursday.

The merger, which values of Anheuser at $65 a share, would create the first global beer company, combining InBev's sales in Western Europe, Latin America and Canada with Anheuser's dominant position in the U.S. market.

InBev, maker of Stella Artois, Beck's and Brahma, will use its global distribution networks to boost sales of Budweiser, the iconic U.S. beer, in places such as China, Canada and Latin America, InBev executives said on the conference call. The goal is to capitalize on a growing demand for imported beers that can be sold as premium products.

"Budweiser is known by consumers but it's not available in many cases," said InBev chief executive Carlos Brito.

Brito and Chief Financial Officer Felipe Dutra downplayed the role that cost- cutting will play in the merger, focusing instead on opportunities to boost sales of Budweiser and other Anheuser brands outside the U.S. and InBev brands in the U.S. The merged company won't close Anheuser's U.S. breweries, which Brito called "highly efficient."

Background
First: who the hell is InBev? InBev is the result of extremely aggressive growth by a Belgian company called Interbrew that started gobbling up cool little breweries back in the late 80s--including a whole raft of venerable and exquisite Belgian labels. It's big national brand was Stella Artois, which it started to turn into an international brand during this massive growth spurt. In 1995 it bought Labatt's and later snapped up England's Bass (2000) and Germany's Beck's (2001). The big change came in 2004, when it bought Brazil's AmBev (becoming ImBev) and became the world's second-largest brewery--after A-B. Now it has over 200 brands, including large holdings across Europe. It seemed to be very successful at snapping up post-Soviet breweries, too, and has a number of labels from the Czech Republic, Ukraine, Russia, etc.

Business Aspects of the Deal
For A-B, it probably means "streamlining"--creating efficiencies by cutting jobs and consolidating management. This is a regular feature of the now-familiar InBev method. It means taking A-B international, which brewery analysts criticize Bud for not having focused on. The Budweiser label may enjoy greater international fame, but residents of St. Louis are not happy:

Calling the offer to buy Anheuser-Busch deeply troubling, [Missouri Governor Matt] Blunt conceded that he lacked any immediate way to block such a sale. He called the St. Louis-based brewer “a great employer, a great corporate citizen and the maker of great products that are enjoyed in Missouri and around the world.”

For other US macros, it's terrible news. SABMiller was courting InBev and now has to confront a titan with twice the institutional advantage. As many of you know, macros have flatlined in recent years, leading to consolidation as the mini-macros (Miller and Coors) try to compete with A-B. This would further weaken their position--and probably lead to further consolidation.

Craft Aspects of the Deal
This could be a biggie, and we dive now into fully speculative waters. As the hops and barley crisis have shown, small breweries can be seriously affected by brands against whom they don't compete. The hops markets, in particular, are global, so the Lucky Labs of the world have a stake in this thing. Craft breweries have left juice to swing deals for hops, and many of the little guys are left on the outside. With InBev controlling some massive percentage of the world's beer production, this seems like a scary proposal.

Then there's the institutional advantages afforded by having such a huge stake in the market. Recall my recent post on distributors--InBev's bid would make A-B distribution deals all that much sweeter. In markets on the West Coast this won't be as big a deal as it will in smaller markets.

Finally, what about breweries in other countries? If InBev is trying to increas Bud's reach internationally, that means aggressive marketing that will overwhelm many small, venerable national brands elsewhere. One of my favorite things about international travel is sitting down with the local beer and seeing how regional tastes have evolved to suit the culture and climates there. The Buddification of the world is a nasty thought.

Local Aspects of the Deal
Bud has a stake in Widmer and Redhook--two locals who are in the process of merging right now. My guess is that it won't much affect their operations or the merger. A-B's stake is a minority one, and they haven't been involved in day-to-day operations. But I sent an email to the brewery, so I'll report back when I hear.

Could be storm clouds passing, but all things considered, I don't see any upside in this development.

[Update: No comment from Rob Widmer.]