The Inbev – Anheuser Busch Merger
The merger of the Belgian beer maker Inbev and the American beer giant Anheuser-Busch in 2008 made world headlines. It was the coming together of two beer manufacturing giants, Inbev of Belgium and Anheuser-Busch of the USA. Inbev headquartered in Leuven, Belgium boasted worldwide net sales of $ 16.7 billion in 2007 through sales of its key products like Stella Artois, Beck’s, etc. (Birnbaum 2008). Anheuser-Busch headquartered in St Louis boasts of brand names like Bud Light, Budweiser, etc. While Inbev took over Anheuser-Busch after a concerted effort by its acquisition team, initially Anheuser-Busch took the takeover initiative as a hostile bid. Lawsuits were filed by both companies in the process. But when the merger happened, the merged entity with its headquarters at St Louis was estimated to have annual net sales of around $ 36.4 billion and the price tag of Anheuser-Busch was around $ 52 billion (The Indian Express July 2008). Inbev paid $ 70 per share in the other beer maker for closing the dealing. The takeover was regarded as the third largest takeover by a foreign firm of an American company.
Influence of Government on Company Business Strategy
With the repeal of the Prohibition under the 21st Amendment to the US Constitution in 1933, the states got the power to “regulate production, importation, distribution, sale, and consumption of alcoholic beverages within their own borders” (NYSBWA 2009). The system of regulation then introduced to control the alcoholic industry in the US was the Three-Tier System which envisaged three distinct tiers, namely, the manufacturer, the distributor, and the retailer. This meant that beer could be sold only through intermediate independent distributors.
This system was more or less implemented along similar lines in each state. Also, other regulatory laws were put in force. For instance, beer sales on credit and sales on consignment were banned. The objectives of such a system were to preclude the aggressive marketing or sales promotions that could otherwise have been resorted to by beer sellers and manufacturers, to facilitate the control over manufacture and sale of all types of alcoholic beverages, restrict consumption of alcohol to moderate quantities and also to help generate revenues for the government in the form of taxes from the beer industry (NYSBWA 2009). As per the Clayton Act, Sec 7, “beer is considered as a line of commerce and also a relevant product market”. Also, the US federal government was driven by the constitutional requirement to see that the competition in the beer market was not minimized by mergers of companies.
In the backdrop of the strict federal and state legislation for controlling the manufacture, sale, and distribution of beer in the US markets, the company Inbev needed to tailor its business strategy so that its takeover of Anheuser-Busch as also the continuing operations of the future merged new entity would be viable and smooth. However, any action by the government installing such a merger process was perceived by knowledgeable sources as also company insiders in Inbev as unlikely or even token. The sources felt that only antitrust issues could be a deciding factor in allowing or not allowing the merger process under the US laws. The relevant US legislation in this regard is the Antitrust Procedures and Penalties Act of 1974 also termed the Tunney Act [Antitrust Procedures and Penalties Act, 15 U.S.C. 16(b) – (h)]. Section 7 of the Clayton Act, 15 U.S.C. 18 is also the defining legislation in as much as the Courts considered that the merger of the two companies would substantially reduce competition for the sale of beer in Buffalo, Rochester, and Syracuse (New York) metropolitan areas and hence needed to be addressed for ensuring fair competition.
Since competition appeared to be the main concern for the US Government and the company perceived that Anheuser-Busch could be bought out by offering a minimum as its share price, the Inbev strategy managers concentrated on the point that Inbev would operate in different geographical markets through its breweries and the merger would not diminish the competition, and hence would not violate the antitrust laws. Also, the company maintained that they would not close down existing Anheuser-Busch breweries so that no job cuts were envisioned. The byelaws of Anheuser-Busch also permitted such a move in case it was supported by even 25 percent of the board members. The two companies also did not have a substantial clash of interests and served as major players in their different geographical markets. The Inbev management also perceived that the shares of their target company were also in a two-year low on the stock exchanges and that a share price offer in the range above $ 60 apiece was quite attractive for that company. (www.usatoday.com 2008)
Role of Policymakers in the Process
Although the states play a major role in the company merger process and the decision to allow it, the federal government also has an important part in it. The US Bureau of Alcohol, Tobacco, and Firearms (BATF) was constituted solely to provide licensing regime as also regulate the packaging, labeling, and advertising of tobacco, beer, etc. The US Food and Drug Administration attends to the purity and cleanliness checking of alcoholic beverages sold in the US. The BATF collects the higher federal taxes on alcoholic beverages. The federal government also restricts the sale of alcohol to military reservations. The state governments control the retail sales within the states. The states also charge a special excise tax on retail sales. The states were thus empowered for the most part by the 21st Amendment to the US Constitution.
Besides these, there are also agencies called as Alcoholic Beverage Control Board in most states, that frame rules for implementing the ABC laws and sets rules on the density, location, etc through licensing regimes. The agencies thus license outlets that sell alcoholic beverages. Additionally, ABCs also enforce fair trade laws. “States influence alcohol prices through fair trade laws (in all but a few license states) and set them by administrative fiat in monopoly states” (National Research Council 1981)
Politicians’ Reactions to the Merger
Politicians were generally appalled by the news that Inbev wanted to acquire Anheuser-Busch. While some perceived the merger as hurting national sentiments and did not want a foreign company to acquire their very own international branded beer maker even seen as a national icon, others felt that such merger would concentrate competition among a selected group of big companies to invite prosecution under the strict antitrust act provisions of the US. Among the first to react were the two senators of Missouri, where the proposed merged company would be based in. They publicly opposed the deal. Senator Kit Bond, R-Mo sent a letter to the Attorney General to carefully study the acquisition deal. Here, the superior powers of the Attorney General in such cases can be perceived. The letter mentioned that the proposed merger could violate the stringent US antitrust laws since such a merger would mean that a major part of the US beer market would be under the control of a select few competitors.
The other senator, Claire McCaskill stated her intention of sending a letter to the Anheuser-Busch management asking them to reject the deal. Even Republican Gov. Blunt opined that he was against the deal and sent a letter to the State Department of Economic Development regarding the issue. The issue invited such extreme reaction that a former Chief of Staff co-founded a website named www.SaveAB.com and where numerous petitions to the federal lawmakers to halt the merger were electronically published. Many rallies were also held in downtown St Louis. Even President Obama appears to have been against the merger. Even some other Congressmen like Republicans Lincoln and Mario Diaz-Balart were against the deal since they felt that Inbev was a company that sold Cuban beer and hence was a collaborator of the Cuban dictatorship regime. But the US Treasury Department itself did not state at any time that the company would be affected by its operations in the US due to the US embargo on Cuba (www.guardian.co.uk 2009). However, even though most politicians, both Democrats and Republicans were against the proposed merger, it did not appear at all to even the most critical observers that, other than antitrust issues, the government could advance any reason whatsoever for stalling the merger (The Huffington Post Apr 2009).
Inbev’s Reactions to Legislators’ and Policymakers’ Decisions
Inbev CEO, Carlos Brito followed the political opposition and legal considerations in the US by organizing various consultations with noted politicians, congressmen, and other authorities. He also organized conferences where he laid bare his company’s plans and stated that the US or Anheuser-Busch had nothing to fear from the takeover. In his view, the merged entity would become the largest manufacturer of beer in the world. He also stated at the conferences that employment at Anheuser-Busch would not be curtailed and no jobs would be lost in the process. He then stated that the company did not feel that such a merger would violate the US antitrust provisions. Since, Inbev and Busch catered to different geographical markets and sold different branded products in those markets, without any conflict to one another, each could hold on to its own product identity and brand image as also hope to enhance the overall profitability when merged.
No breweries of the acquired company would be closed down at all, said Britto. After the court case filed by the SU government against the merger on grounds of violation of the US antitrust provisions were overturned by the Court, the merger could take place and as per the court order, if Anheuser-Busch could be convinced of the benefits of the merger. Ultimately, Inbev arrived at the share value of $ 70 for each of the shares that it would acquire from Busch and this proved to be an enticing offer that the acquired company could not refuse, given that its market price could not hope to breach the $ 65 mark even, going by the prevailing trends of the stock market. Inbev offered to keep the HQ of the merged entity at St Louis, all its breweries open, and all jobs intact. Also, Inbev promised to make the Budweiser brand of Busch a global and popular brand like Coke or Pepsi.
Inbev even hired four leading PR firms to help it in the acquisition of the US beer maker. Additionally, Inbev’s team contacted local politicians to convince them that their reasons for acquiring Busch were above board and that everything would work in favor of both companies. In such efforts, it was coordinated by a leading local communications firm called Brunswick Group whose team then explained to all that Inbev would preserve the American heritage nature of Anheuser-Busch even after the acquisition. To the question of Cuba, Inbev kept silent and did not say anything that could harm its prospects in the US since it was aware of how strongly Americans felt on the issue. But Inbev clarified that its operations did not in any way violate any US, EU, or international laws at all.
However, in keeping with the Justice Department recommendations and as directed by the Court, Inbev promised to sell off its subsidiary Labatt USA to get the required regulatory approval for the merger. The Justice Department stated this condition since it felt that otherwise, the merger would increase the prices of beer in the metropolitan Buffalo, Rochester, and Syracuse (NY) markets owing to the decreased competition (www.manufacturing.net Nov 2008). Perhaps the greatest leeway that Inbev ultimately granted was by way of raising its purchase price of shares in Anheuser-Busch to $ 70 per share and also to the US government by agreeing to sell its US subsidiary, which was making and selling Labatt beers.
Conclusion and Takeaways
While governments impose some regulations on businesses and maintain strict control over their functioning in their country, politicians raise various issues before the general public and the country’s citizens. In such actions, they may either be prejudiced or may help in highlighting a real problem issue. But companies and their managements are driven by the profit instinct. The set of legislative, executive, and judicial measures and procedures in any country serve to both implement and propagate the social and political objectives of the government of the day. The government itself can only perform within the binding framework of the country’s constitution. This however is true only in the case of a free democracy like the USA. The US has as its supreme structure the US Constitution as amended through the various Amendments made from time to time. The Judiciary is also independent of the Executive and the Legislative. But all three Branches of government pursue some common goals as enshrined in the US Constitution. They complement each other and the system of checks and controls vests various powers of one over the others so that each does not go beyond their authority or against the common objectives.
In the given situation, when firms like Inbev wish to enter the market by acquiring a major national company like Anheuser-Busch, the foreign acquirer invariably needs to plan its business strategy beforehand and also vary the same in terms of issues and happenings that may take place in course of such business entry process. The process itself may take several months, depending on the local perceptions or opposition to the acquisition, national and cultural characteristics, how the company being acquired perceives such acquisition, etc. But the political class in that country can mold public opinion in favor or against the interests of the foreign company. Hence, that company’s management needs to take into confidence both the US citizens as also the politicians and regulators, so that the acquisition and business operations can be conducted smoothly. Since the government, the federal government, and the state government, function according to the constitutional framework, the rule and process of legal and other procedures need to be followed in the country by foreign businesses. In this regard, the influence of the State is of vital importance and non-market strategy too assumes significance to the management of the foreign company.
It was Baron (1995) who stated that “non-market strategy could often be used more broadly so as to structure the market competition”. According to Baron, “the non-market environment consisting of social, political, and legal arrangements help structure the firm’s interactions outside of, and in conjunction with, markets and it could be said to exhibit four principal features-issues, interests, institutions, and information”. Baron advised the “integration of a non-market analysis and strategy formulation into a competitive strategy process, where the ongoing process was controlled by a high-level executive of the firm who could effectively assess the prevailing environment (government, interests, activists, public), identify and classify issues, define the firm objectives, make plans depending upon the agendas of stakeholders, and evolve suitable non-market strategy that could be successful”.
Baron’s non-market strategy appears to have been very well followed by the Inbev management in the entire acquisition process. The Inbev management even employed the services of lawyers, PR firms, etc to effectively present their viewpoints to the various stakeholders including the state (US government). They had a very focused and long-term view. Their political strategy also appears to have been strong since they could successfully appeal to the general public, acquired the company’s management and shareholders, government, judiciary, politicians, etc., and also successfully target the most influential stakeholders and customers, like politicians and judiciary. The Inbev management also resorted to lobbying in the form of conferences and PR campaigns that they arranged for addressing the stakeholders and clarifying their viewpoints and company objectives in such an acquisition process. Inbev, additionally, was also responsive to the concerns of government, US citizens, and trade unions on the question of possible unemployment at Anheuser-Busch because of the merger and also tried to assuage fears in this regard. It rightly perceived the political clout that organized labor unions could have. It was well aware of the power of collective bargaining that unions enjoyed, particularly in the US where this was sought to be protected and free labor practices were enforced by legislation. Also, Inbev management had an idea of the amount of financing that private companies in the US, including Anheuser-Busch, made into either Democrats’ or Republicans’ election coffers and which fact was important in turning politicians against Inbev.
The Anheuser-Busch Inbev merger may be regarded as a good lesson in evolving successful business strategy based on the prevailing social, political, legal, and another environment present in a country. The case can be cited as an instance where the top management of Inbev led from the front in tackling hostile opposition to their taking over of a company perceived by many Americans as their national icon and treasure and not available for foreign ownership or control in their perception. The Inbev bosses also implemented sound judgment and took recourse to established principles of strategic planning after careful study of business and political conditions in the US. They simply evolved their actions as they went along, and their strategy was both dynamic and positive in outlook and result.
References
Baron, D.P., 1995, Integrated Strategies: Market and Non-market Components California Management Review. 37, 2: 47-65.
Birnbaum, Jeffrey H. 2008. Inbev Anheuser-Busch battle in Washington The Washington Post.
National Research Council, 1981, Moore Mark H. and D R Gerstein, (Editors), Alcohol and Public Policy: Beyond the Shadow of Prohibition Panel on Alternative Policies Affecting the Prevention of Alcohol Abuse and Alcoholism, Committee on Substance Abuse and Habitual Behavior, Assembly of Behavioral and Social Sciences, ISBN: 0-309-55748-8, 463 pages, Web.
New York State Beer Sellers Association (NYBSA), 2009, Three Tier System, NYSBSA, Web.
United States v. Inbev NV/SA, Inbev USA LLC, and Anheuser-Busch Companies, Inc, 2009, Response to Public Comments on the Proposed Final Judgment, 2009.
The Guardian, 2008, Anheuser merger may cause problems for John McCain World News. The Guardian, Web.
Jordan, Lara Jakes and Emily Fredrix, 2008, Justice Department OKs Anheuser-Inbev Merger, Associated Press Writers, Web.
Leonard, C., Dec 2008, Politicians oppose Belgian bid for Anheuser-Busch, The Associated Press, Web.
The Huffington Post, April 13, 2009, Politicians Line Up To Save Anheuser-Busch Shareholders from Profits, Inbev.
Biz Publications, 2008, Inbev to buy Anheuser for $50 billion The Indian Express Limited, Web.