Stephen Grocer, May 28, 2008, 8:30 am
InBev’s road to St. Louis might include a detour through Omaha.
Omaha is, of course, the Nebraska headquarters of Berkshire Hathaway and Warren Buffett. With almost 5% stake, Berkshire is the second largest shareholder in the iconic American brewer. And for InBev, of Belgium, to succeed in its efforts to combine with Anheuser-Busch, Buffett’s support seems crucial.
Throughout his career, Buffett has played the role both of corporate protector and deal facilitator. For Anheuser’s top brass–which deeply opposes a deal–having Buffett in their corner would go far in beating back activist investors. These investors recently bought into A-B, presumably with the idea of pressuring for a sale. Buffett’s stake, combined with the Busch family’s stake, would mean roughly 9% of the brewer’s shares were opposed to a deal. Buffett hasn’t made his views public yet.
All of that doesn’t mean Berkshire will stymie activist investors or won’t support a sale. In the past few years, some of Berkshire investments have faced activist campaigns that Berkshire didn’t oppose — at least publicly — according to FactSet SharkWatch. Berkshire was invested in Home Depot when Relational Investor’s called for the company to evaluate its strategic direction. More recently, Berkshire was increasing its share in Kraft at the same time Nelson Peltz was pushing Kraft to sell its Post and Maxwell House brands.
Buffett has, in fact, often been a facilitator of deals. For instance, there was the acquisition of ABC by Capital Cities in 1985, as well as Gillette’s sale to Procter & Gamble two decades later.
There is perhaps no better example of Buffett’s dual role of corporate protector and facilitator than Gillette. He acquired $600 million in preferred stock convertible to an 11% stake in the company in 1989. Back then Gillette had just fought off two hostile takeover attempts and Buffett’s investment was interpreted as a measure to protect the razor maker from future approaches. Buffett even wrote at one point in his annual letter to shareholders: “As owners of, say, Coca-Cola or Gillette shares, we think of Berkshire as being a non-managing partner in two extraordinary businesses, in which we measure our success by the long-term progress of the companies rather than by the month-to-month movements of their stocks.” Yet 16 years after that investment, he played a crucial role in Gillette’s sale to P&G, calling it a “dream deal.” He even agreed to buy more shares in Gillette before the deal closed.
One can hardly ignore the similarities between the P&G-Gillette deal and a tie-up of InBev and Anheuser-Busch, in which he began building up his stake in A-B in late 2004. Like P&G and Gillette, the two brewers have some of the strongest brands in the world, and the combined company “would become number one or two in the most populous regions in the world (except Africa),” writes analyst Marc Leemans at Degroof. (It should also be noted that Buffett served on Gillette’s board with Jorge Paulo Lemann, one of InBev’s chief shareholders.)
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