The Financial Times’ blog Alphaville on Friday broke the rumor of a possible acquisition of Anheuser Busch (BUD) by the giant Belgian brewer InBev SA [INB.BT] InBev—the world’s second largest beer producer by volume—is interested in purchasing BUD—the world’s largest--for $65 per share or $46 billion total.

Last October, rumors of merger discussions between InBev and BUD began to ferment, but BUD’s newly-named CEO August Busch IV, adamantly opposed the idea. He wanted to take a shot at improving BUD’s sluggish stock performance under his predecessor. The stock was trading at $48 when he took over as CEO and was trading above $52 before the merger rumor broke this morning.

For InBev, this acquisition would fill the remaining piece of the geographic puzzle-- the U.S. market. The combined footprint of InBev and Anheuser Busch would be nearly evenly split between developed markets and emerging markets. The timing appears to be favorable for InBev as the currency exchange gives the primarily Euro driven InBev a relatively cheap purchase price because of the weakened dollar. BUD is also experiencing a profit margin squeeze because of increased material costs. (For example, it buys 7% of all of the rice produced in the U.S. to make beer.) The timing also indicates that InBev would like to get this deal on the table now, fearing potentially greater regulatory hurdles if a Democrat wins the White House in November.

It will be very interesting to see how CEO August Busch IV will handle the offer. As stated earlier, he was very opposed to the idea of a merger in October, and recently was quoted as saying about a takeover, “we have a defense, if you will, ready to go in the event of an event". Busch alone will not be able to stop a deal on his own but he may have enough influence over the board. If the board rejects such a deal, InBev will have a choice to make. They could try to make a hostile bid, but that is a risky proposition for an American icon such as Budweiser. InBev will likely try to woo some activist shareholders to put pressure on the board and Busch.

Given the stance of August Busch and the fact that InBev probably does not want to engage in a hostile bid, we doubt that this deal will actually transpire. It would certainly be a good acquisition for InBev, but the tradition of the Busch family as an American success story could be a hurdle too high to clear.

Disclosure: none

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