Wednesday, May 28, 2008

Annheuser-Busch's No-Brainer Choice

This week's news in the beer industry has taken on quite the dramatic quality. European brewing giant InBev is planning a bid to buy the dominant US brewer, Annheuser-Busch.

For entertainment purposes, business media outlets, including the Wall Street Journal, are playing up the family angst angles, but it's really a no-brainer for shareholders. Vote for the acquisition, sell your AB shares, whatever.

I should probably provide a quasi-disclaimer. Although I own no AB stock, and never have, I do have some acquaintanceship with the company and family. My undergraduate alma mater is Saint Louis University in Saint Louis, Missouri. That university's student center is named the Busch Center. At the time I was completing my BS in marketing, one of the Busch children was also a student. The city reveres the first family of American brewing. The St. Louis Cardinal baseball team plays in.... Busch Stadium. At least it did. I believe the newly-built field is also named for the team's owners.

Suffice to say, I am well-acquainted with the family's identification with the company whose shares they sold to the public some time in the last century.

As CNBC co-anchor Michelle Caruso-Cabrera stated so clearly earlier this week, as I paraphrase,

'The family wanted capital and went to the public to sell shares. If they wanted full control over the company, they shouldn't have done that.'

She's right.

Further, look at the nearby five-year price chart of AB (ticker symbol BUD) and the S&P500 Index. The brewer has done its shareholders no favors. Clearly, having Busch as your last name doesn't seem to do much for achieving consistently superior returns for shareholders. Over five years, AB hasn't even made it back to a flatline performance, while the S&P has chalked up a +40% return.

The family situation of the Busch's also reads like that of the Ford family. Bloodlines thinned of talent over the generations. Divorces, underperforming sons, distant father-son relationships.

We read that the current CEO, August IV, was basically estranged from his father, by way of divorce. He, the son, went on to become a typical wealthy bad boy in his younger days.

The most chilling passage of the Journal article is its last, which reads, quotes the current CEO as saying, of his relationship with his father, August III,

"Succeeding atop Anheuser is paramount to the relationship, he says. "I honestly do believe if I failed in my professional life, it would be much harder to ever gain his respect," he says."

Meaning, I guess, that the AB shareholders are hostage to whatever it takes August IV to do to gain his father's respect.

Damn the shareholders- focus on dad!

The Journal piece does a fine job cataloguing the company's fending off Miller Brewing in the 1970s and '80s, then eschewing international expansion via mergers or acquisitions. Now, AB is the lone family brewer among large global players, and its performance is hurting.

This Yahoo-sourced price chart of the brewer and the S&P500 from the early 1980s tells an interesting story.

For nearly two decades, the brewer tracked the index, briefly declining to equal the latter's performance by 2001. At that point, the brewer's performance flattened slightly, but, relative to the bubble-bursted index's decline, posted a few years of outperformance. But by 2003, the index was rising again, while the brewer's performance dipped, then flattened.

Hardly laudatory performance by the Busch family on behalf of their public investors, is it?

It's pretty clearly time for a change. For any of the privileged Busch's to see the brewing company as a personal playground for settling family and personal issues is just wrong and unethical.

Looks like it's time for one less headquarters in Saint Louis, and a new division for InBev.

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