Why would a successful company allow itself to be bought by a bigger one?

[ColbertWatcher]

Not to be naive or anything, but I didn't know Anheuser-Busch wasn't big enough to expand into other markets or that there was a need to sell.

Can someone explain the reasoning behind a company that's doing fine allowing itself to be purchased by a bigger company?

What does that do to the stocks? The employees?

I kinda have an idea, but I'd like to have the conversation in light of Budweiser becoming Belgian.

[mrreowwr_kittty]

1. I thought beer sales went up in hard economic times.

You'd think they'd exploit that fact. Nah, I guess their quarterly profits outweighed the long-term ramifications of moving their company offshore. I hope they lose a lot of sales in the US because of it. I sure as shit won't buy any Anheuser-Busch product if I can help it.

[ColbertWatcher]

2. So, to avoid paying American taxes!?

That's probably the best reason I've seen yet.

(ON EDIT)
Not best as in good for everybody, but best as in the one most likely.

[MrModerate]

3. Many (maybe most) shareholders don't really care what the company . . .

They own a piece of actually does, just what it can do for them. That could be (in most cases) dividends or an increase in the share price. AB's shareholders saw an opportunity to make more money by selling than by holding, and so they sold.

[BlooInBloo]

4. Aside from the general business101 question.... Hops have been crazyexpensive for awhile now....

Making life tough for beer-makers.

[ColbertWatcher]

6. So, where did InBev get so much money?

And wouldn't they also be buying those crazyexpensive hops, too?

[BlooInBloo]

7. I'm just guessing, but I would expect hops to cost more, the farther from the source you go.

[ColbertWatcher]

10. True, I just assumed AB...

...owned the land where the hops were grown and made deals for shipment.

Who knows, that may be the excuse they'll use?

That whole InBev-AB deal seemed to come out of nowhere.

[gateley]

5. Money. It's always the money. Even when I don't understand it, it's always the money. nt

[TexasObserver]

8. Stockholders are made an offer they can't refuse.

Stockholders have their own reasons to want to cash out, but many do. When company insiders think the company stock is worth X dollars, and take over company offers 2X for the shares, many insiders want to cash out, as do many shareholders. Many companies are virtually controlled by the top management, and those are real, live humans with human agendas. Most of the key decision makers are over 50 years old in such companies. They know that retirement is not long away, and frankly, they're sick of it all. They want to cash out and retire with a fat account stuffed full of takeover money.

[rwenos]

12. Usually There's A Premium on the Stock Price

Say a company's stock trades at $64 per share. Some big company wants the company, or part of the company. The big company, which has either lots of cash or the credit to raise lots of cash (sometimes with junk bonds), makes an offer to the board of directors of the small company, to pay $75 per share for enough shares to control the company. It could even be an offer at the $7 premium for 100% of the shares.

The bigger company has many possible reasons why it wants the smaller company -- technology, a growing business, assets which can be liquidated. Many reasons.

But the bigger company pays the premium on the market stock price for CONTROL.

It's all about CONTROL in business, baby. Also the money.

[TexasObserver]

16. Correct. The takeover target's by-laws define the % of ownership needed for control.

When a company is targeted for takeover, it must gain the percentage listed in the by laws for absolute control. As you note, they will pay a premium for control, and as you note, it might be 15% or more over the stock's trading price. The tender offer is designed to pull in the requisite % of stocks to effect such control.

It's not uncommon for the directors of the takeover target to start a campaign to resist the takeover, including issuing press releases saying the stock is undervalued, or perhaps starting litigation, alleging inappropriate actions by the company attempting the takeover.

In the case of Busch, the advance of the Euro versus the US dollar has made US companies easy takeover targets for Euro rich European companies.

[Jim Lane]

13. The "human agendas" of the officers and board members can cut the other way

The board has a fiduciary obligation to the shareholders to maximize their value. If the acquiring company offers more than the stock is worth on the market, accepting it might be in the best interests of the shareholders, but it would often mean that officers and directors of the acquired company lose their positions. In situations where the board has rejected a juicy offer, boards have been sued by disgruntled shareholders, who alleged a violation of the directors' fiduciary duties.

With the beer companies, the Anheuser-Busch board rejected InBev's initial offer. InBev tried to take it directly to the shareholders. Litigation ensued. The companies eventually reached agreement on a buyout at a higher price, which will now go to shareholders for approval.

[TexasObserver]

15. You are correct.

I've represented Officers and Directors sued for malfeasance and misfeasance. I've sued Officers and Directors for malfeasance and misfeasance. I've written coverage opinions for insurance companies, advising them of their duties to defend D & O cases pursuant to such policies of insurance.

Your analysis of the beer takeover is accurate, but it demonstrates that the directors and officers often do not take the path that is best for the shareholders, unless someone (through litigation) makes them. My example earlier was purely for example purposes, and I designed it simply, because the questioner needed basic understanding of why a company making money would sell to a bigger company. The answer is: because the directors want to sell. Even if they relent in litigation by settlement, they did it because they wanted to end the litigation and end the grief. Shareholder derivative actions are not very successful, when fiercely defended.

[DaveJ]

9. Maybe Anheuser-Busch isn't doing as well as people believe

I'm neglecting to use my cheat sheet (Google) and recall reading that Americans are becoming more interested in imported beer, wine and hard alcohol. So I guess that regardless of the money involved, it also represents a social trend. I know they've been trying to crack the Chicago market for awhile now and haven't totally managed to do it.

[TexasObserver]

17. The advance of the Euro against the US dollar.

Explains this takeover as well as anything. Their Euros simply buy more US dollars than they have in the past, so US companies are going to be cheaper for them to acquire.

The US economy is likely to be done for the next year or so, so now is a good time to move a company if one wishes to avoid that decline.

[Captain Angry]

11. The dollar is so weak, this is an investment that InBev can't turn down.

If the dollar was at 2000 levels, InBev couldn't have done this. But with the dollar in such a weak state, it's very cheap (relatively speaking) for InBev to make this purchase.

[ColbertWatcher]

14. Ah-ha!

I keep forgetting how fucked up the dollar is compared to everyone else's money.

[On the Road]

18. Several Reasons:

1) A company feels the upfront cash offered by the buyer is a better deal for its stockholders. It may happen when the business is mature and the executives do not see a reasonable chance of growth or higher stock prices in the foreseeable future. Boards are often criticized if they turn down good takeover offers. This is the simplest, and probably the biggest reason for for Anheuser Busch.

2) Large long-term stockholders generally get stock in the new combined company. If prospects for the combined company are better than for the takeover target alone, the stockholder will not only get a premium, but better growth. This may be true of Inbev since it's based in Brazil, where disposable income is growing faster than the US.

3) A small company is sometimes unable to reach their full potential without the finances, distribution channels, or other benefits that a large company can provide. Honest T is a recent example. This is obviously not a factor here.

4) The largest competitor in any industry has a significant advantage in economies of scale, shelf space, advertising, or number of locations, or whatever the specifics are in the industry. For example, by buying Alltel, Verizon will once again become the #1 cellular carrier. Anheuser Busch and Inbev is a powerful combination.

5) Combining parts of the two companies result in advantages that neither company has by itself -- this is the infamous 'synergy' that companies are always touting. Laying off employees can save expenses and increase profits. In this case, Inbev should be able to use Anheuser Busch's distribution to sell some of its own products, and AB should be able to increase its distribution overseas.

[A HERETIC I AM]

19. InBev is based in Belgium, not Brazil.

http://www.inbev.com/go/about_inbev/our_company/in_a_few_words.cfm

Here's a list of their businesses;

http://www.inbev.com/pdf/AR07_GuideBusiness.pdf

They have more brands in Canada and China than they do in Brazil.

Edited to add the .pdf

[On the Road]

20. Thank You for the Correction

I just did a quick search and saw Brazil in the results -- don't know why it was there. Belgium sounds right.

[bean fidhleir]

21. Because management typically has big stock options they can cash out on takeover

that would otherwise depend for their value on management doing a good job over years or even decades. This way, they can take the money and run.