In this battered and volatile market few companies are really safe: just ask the stockholders of Anheuser-Busch.
On July 13, 2008, Anheuser-Busch and InBev said they have agreed to a deal, pending shareholder and regulatory approval, for InBev to purchase the American icon Anheuser-Busch at $70 per share, creating a new company to be named Anheuser-Busch InBev. The all-cash agreement, almost $52 billion in total equity, would create the world’s largest brewer, uniting the maker of Budweiser and Michelob with the producer of Stella Artois, Hoegaarden, Leffe and Beck's, Bass, Labatt and Brahma. The two companies would have yearly sales of more than $36.4 billion, surpassing the current No. 1 brewer, London-based SABMiller.
Despite the $70 agreement, BUD trades at around $63. Why? Because InBev is financing the deal.
Great timing!
Yet, the news has been positive for BUD shareholders who are paying attention and who agreed to the merger last week. InBev has been lining up an executive team and has stressed that there is no financing problem.
The market is obviously skeptical.
I am not. Beer will not go significantly down in a recessionary period. In fact, if anything budget beer will probably go up! Meanwhile, the world governements have stepped in to bailout the banks with major cash infusions. Why would they turn down InBev after promising financing?
Here is the risk reward: $63 to $70 within a month and a half - which is the timeframe mentioned by most analysts and the companies. That's an 11% return in only a month and a half! The risk is that the deal somehow falls apart and the stock drops to around $50, a 20% loss. I see a 95% chance it goes up 11% and a 5% chance it drops 20% - a pretty spectacular risk reward. And I think only in this crazy market would this stock be so cheap right before the acquisition.
Barring a complete market and financial sector meltdown, I think this deal will go through. It will represent the easiest 11% I will ever make. I strongly recommend doing your own research and looking to park your money into this stock before it gets up to the high 60s.
