INVESTING: Why Anheuser-Busch bid resonates in Indianapolis

June 30, 2008

One of our sister Midwestern cities is locked in a fight for its corporate identity. A n h e u s e r- B u s c h , maker and distributor of Budweiser brand beers-and the corporate icon of St. Louis-is engaged in a $46.3 billion takeover battle for its survival as a U.S.-based company. The would-be acquirer is Belgium-based InBev, the second-largest brewer by volume in the world. London-based SABMiller, who in 2002 bought Miller Brewing in Milwaukee, is slightly larger.

Predictably, there is much consternation among local citizens, not-for-profits and politicians as to what foreign ownership of the business that forms the heart and soul of St. Louis would mean for the future of the city. InBev has assured all constituents that St. Louis would remain home to Budweiser and that AB would serve as the company's North American headquarters.

Citizens of Indianapolis may want to pay close attention to all facets of the AB/InBev deal and its aftermath, for one day we may wake up to an announcement that our own corporate titan-Eli Lilly and Co.-has been targeted by an acquirer. There are certainly similarities between the two cities and the two corporate monarchs.

As with the domestic beer business, growth rates among the big pharmaceutical companies have slowed significantly. Large, cash-generating companies can find it difficult to maintain high rates of growth, simply because of the scale new megaproducts must attain to move the sales and profits needle. Thus, to compete and thrive in the global economy, companies may rely more on building a competitive advantage in things like global distribution systems, combined with cost cutting, to boost profits.

There is no denying the emotions that accompany the acquisition of a company closely wedded to its populace. Reading the editorials, you see the range of reactions. Some people are resigned to the fact that we can't turn the clock back on global capitalism. On the other hand, some locals feel as though the world has come to an end.

Politicians in Missouri have gone into a "We can't let this happen" mode. Yet one can point to government policies that are to blame for an environment that has made acquisitions by foreign companies a no-brainer. With the decline in the value of the U.S. dollar and massive amounts of U.S. government debt held by foreign investors, we should expect to see even more U.S. companies gobbled up.

The Busch family owns only 4.5 percent of AB, making it difficult to block InBev's offer. Some family members even have expressed interest in accepting what appears to be a fair price for the company. The pressure now rests with the board.

Contrast this with Lilly, where the largest holder is Lilly Endowment Inc., at 12.1 percent of shares outstanding. And while the $43 billion AB acquisition is large, a deal to combine any of the global drug companies would be much larger. Industry behemoth Pfizer has a market value of $122 billion, with Lilly ranking in the lower range of the drug giants with a current market value of $54 billion.

If that day does arrive for Indianapolis, we may take solace that Milwaukee and St. Louis have continued to thrive, just as we survived the 1990s banking industry consolidation.

Skarbeck is managing partner of Indianapolis-based Aldebaran Capital LLC, a money-management firm. Views expressed are his own. He can be reached at 818-7827 or ken@aldebarancapital.com.
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