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— Deals —
In a sea of broken megadeals, InBev SA's $52.2 billion takeover of Anheuser-Busch Cos. sailed through at full speed. Any number of problems might have undone it. Financing a deal of its magnitude under daunting credit conditions was one. Add to that antitrust worries, political opposition to a foreign entity buying an iconic American brand and potential rancor with the Busch family management, not to mention the sheer legal complexity of a mammoth cross-border transaction. Call it bravado on the part of InBev. The Belgian beer producer deftly navigated its way by first raising its bid by $5 per share -- to $70 per share, or 27% above Anheuser's all-time high in October 2002, before any hostilities could arise, and crafting a pitch-perfect financing package to ensure certainty of closing by November. Antitrust was hardly a hiccup since the brewers had almost no geographic overlap, though Anheuser does have to sell its Labatt brand in the U.S.
The stakes were undeniably high for InBev, anxious to gain the leading spot in the U.S. beer market, with the coveted Mexican and Chinese markets thrown in for good measure. Anheuser held 48% of the U.S. beer market as well as 50% of Mexico's top beer seller, Grupo Modelo SAB de CV, a 27% stake in China's Tsingtao Brewery Co. Ltd. and 100% of Chinese brewer Harbin Brewery Group Ltd. The combined entity would control 25% of the global beer market, bumping SABMiller plc to No. 2, and perhaps forcing SABMiller to get acquisitive to stay competitive. Anheuser's unconfirmed attempt to buy the 50% of Corona beer producer Grupo Modelo it didn't already own could have been a setback, but it never materialized. Anheuser CEO August Busch IV did have to be appeased. Just weeks before InBev's initial bid, Busch reportedly told beer distributors the company would not be taken over "on my watch." But even Busch and his father, with only about 1.7% of the company, didn't take much convincing. Having water-tight financing was crucial to InBev's bidding strategy, says Frank Aquila, a partner at Sullivan & Cromwell LLP. Early on, InBev tapped an array of European and U.S. banks trying to think several steps ahead in terms of commitments. By the time it announced the deal in July, InBev had definitive loan documentation in place with 10 banks, says Antonio Weiss, lead banker on the Lazard team that advised InBev. InBev lined up large institutions "with major syndicating capacity and sufficient capital to withstand the financial crisis," he adds. InBev took extra precautions. Borrowing from U.K. law, to which European banks adhere, InBev chose a "certain funds" standard, creating a deal with limited financing conditions and early funding commitments. "The facility had to look like cash, with the only conditions having to do with deal completion," Weiss says. The banks were comfortable financing the deal amid frozen credit
markets because the combined company "is not in any sort of traditional
sense really highly leveraged," Aquila adds. InBev locked up $54.8
billion in funding commitments, including a $12 billion bridge to
capital markets loan, a $13 billion three-year bank loan, a $13 billion
five-year loan, and a $7 billion bridge loan for noncore asset
disposals from It also obtained $9.8 billion in additional bridge financing, which gave InBev flexibility on an equity offering for up to six months after the deal closed. InBev also plans to pay down the debt over five years. Indeed, the combined entity, Anheuser Busch InBev NV, has reportedly put its South Korean brewer Oriental Brewery Co. on the block to help cover some short-term debt. For its part, Anheuser sought advisers' help on an "air-tight agreement," says Paul Schnell, lead partner at Skadden, Arps, Slate, Meagher & Flom LLP. Provisions included the right to compel InBev to force its banks to come up with the financing, plus unlimited money damages from InBev if it failed. Skadden believed that the standard 2% to 3% termination fee was not enough to cover shareholders' damages in a deal with a $15 billion premium. InBev set out with the goal of a transformative and "wonderfully value-creating strategic transaction," which gave Anheuser some leverage to demand stringent deal terms, Schnell says. Remarkably, both sides pulled it off. |
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