The InBev deal is bad for the US
Jul15
To start off, I am a St. Louisan, and I think the InBev deal is bad for the city. I do understand that for the most part, InBev plans to keep things “business as usual” for the city and the company’s breweries. But, that doesn’t change the fact that the company has a responsibility to its shareholders, and as a result, will have to reduce operating inefficiencies to cut expenses. That means job cuts where there is redundancy. When choosing to cut jobs in St. Louis or Belgium, which do you think is more likely? My money is on St. Louis jobs.
Moreover, I think this deal is bad for the US. Sure, $70 a share seems like a good deal. But, if you consider that the dollar has decreased by nearly 14% when compared to the Euro over the last year, InBev is actually paying the equivalent of $60/share (in last year equivalent dollars) by taking advantage of currency arbitrage. And, the deal gets better day-by-day as the USD to EURO gap widens. What is even more troubling is that for the most part, AB is not a struggling company. AB is stagnant. But, what company has not been stagnant in the current economy? Allowing a foreign company to take advantage of currency arbitrage to purchase a perfectly stable US company is a bad precedent for our government to set.
Now, I am not a financial expert. But, I do think that when you factor in the currency delta, this looks like a bad deal. What do you think?
July 15th, 2008 at 2:32 pm
I would have to agree with you. It is a bad deal all the way around.
July 17th, 2008 at 12:05 pm
Well it’s not a good deal for St. Louis in any way. Unless you count the local investors who will now be flush with cash and hopefully willing to reinvest that money.
Arbitrage has been factored into this deal. That’s one reason they pushed for $70 a share when the company wasn’t actually worth that much. I think it’s a fair reality. It’s the same if you would go and invest in India or Brazil or another emerging market right now.
July 17th, 2008 at 12:39 pm
While, I can agree that currency arbitrage was factored into the increased purchase price, it is hard to value the effects of a poor economy and currency issues on the ability for AB to generate growth. Between December 2007 and March 2008, the company’s stock price fell nearly 14%. I do believe that in a healthy economy, $70/share would have been a stretch. It would only be about a 20% premium over the 2007 price.
And, sure, if you bought the stock at its low in March at $45, you are looking at a 35% increase. But, I am sure a lot of the stock holders DCA’d it at around $50. This is closer to a 30% return. Considering decreasing currency values, that is really only about 16% if they cashed out right now. And really, that is probably only covering losses from all other investments in the current market.
Regardless, I am less disappointed at small investors. They really weren’t given a choice. I am disappointed at the large shareholders (I am looking at you, Busch family) who didn’t really put up a fight. In the end, greed won out. And, that will be the lasting legacy of the Busch family.