Question

Problem 1
a) On June 11, 2008, Anheuser-Busch received a $46.4 billion ($65 a share) takeover offer from Belgium’s InBev. Anheuser-Busch lacks some common defenses against takeover offers. Its board is no longer staggered, meaning all its directors are up for re-election in any given year. And the Busch family does not control the company through supervoting shares, as is the case with some other family businesses that are publicly held. A deal would probably remove Anheuser-Busch from the hands of the Anheuser and Busch families. Still, the family doesn't own enough shares to sway a shareholder vote on the board. Directors and executives hold only 4.5 percent of the company's shares, according to a regulatory filing earlier this year.
After the rejection of InBev’s offer by Anheuser-Busch’s board on June 26, 2008,   InBev, said it would launch a hostile bid . InBev, meanwhile, asked the court earlier in the day, for a declaratory ruling that would confirm the shareholders’ right to remove all 13 of Anheuser’s board members, without giving cause. The brewer is asking for clarification of the legal status of five of the directors appointed in 2006, before changes were made that allow the removal of board directors by written consent.
Anheuser-Busch may announce plans to lower costs and sell off divisions to increase its stock price so it doesn't need to be acquired. One of Anheuser-Busch’s potential countermoves would involve buying the 50 percent of Mexico’s Grupo Modelo that it does not already own. That would raise Anheuser-Busch’s price tag, potentially deterring a suitor.
i. Identify the takeover tactics employed by InBev and explain why each was used.

ii. Identify the takeover defenses employed by Anheuser and explain why each was used.

Answer 1

i. Identify the takeover tactics employed by InBev and explain why each was used.

Sol) Initially, InBev used the Hostile Takeover Tender Offer strategy. In a tender offer, an acquirer (here InBev) offers to purchase shares of a target company (here Anheuser-Busch) at a premium to the prevailing market price. Hence, InBev offered $46.4B to take over the company all at once.

Now, coming to why? The company did not have a staggered board. A staggered board means that only 1/3rd of the board can be removed in a year. But since the clause does not prevail, InBev can acquire the company and remove the existing board of directors all at once and a new board of InBev would take over. Secondly, Anheuser-Busch are not in the super-majority provision, i.e., they do not own significant stake in the company (likes of 60-70%) to sway away the offer.

The second strategy used by InBev was involving the target in Litigation. Filing a suit against the target and defaming the same. A legal suit sums up to a huge cost a company has to bear and so in order to save the 5 Board members from quitting the board and to save the costs of the suit, the target might give up and accept the offer.

So, the two strategies were: Tender Offer and Litigation.

ii. Identify the takeover defenses employed by Anheuser and explain why each was used.

The first strategy employed by Anheuser by selling of division is called Crown Jewels strategy. In this strategy, the target firm sells valuable assets or divisions of the firm so that the acquirer is no more interested in taking over. Selling off a valuable division may cause a negative effect in the markets but it depends on the fundamentals of the company, the management, the Board overseeing them and most importantly, expectations and believes of the current and potential stakeholders.

The second strategy employed by Anheuser is acquiring some other potential target firm which is within the reach of Anheuser. This move will increase both the book value and the market value of Anheuser after consolidation with the target (here Mexico’s Grupo Modelo). Also, 50% stake means voting and other controls. This implies that Anheuser will have a super majority in case Mexico's is ever offered a takeover. So, InBev has to make a revised counter offer which will induce further premium to acquire the firm(s).

Hence, the two strategies by Anheuser are Crown Jewels and Acquisition of another firm.