Anheuser-Busch Chooses to Mimic Yahoo’s Rebuff Strategy

After seeing that Yahoo (YHOO) was able to reject a hostile bid from Microsoft (MSFT), claiming the offer was “inadequate” despite the fact that it clearly was quite adequate, Anheuser-Busch (BUD) has apparently decided to use the same approach in its battle with InBev. BUD officially rejected the deal yesterday, and in a conference call with employees today outlined its own plan to boost shareholder value.

BUD will seek to cut 10 to 15 percent of its workforce through attrition and early retirement offers, as part of a plan to cut costs by $1 billion over the next two years, twice the amount originally planned before InBev’s bid. The company forecasted 2008 earnings per share of $3.13 (roughly in line with current estimates of $3.10), but offered a 2009 target of $3.90 per share, far above the current consensus of about $3.30. As a result, BUD stock is up today, in a down market, to $62 and change.

Does all of this remind anyone of Yahoo? I think both companies were not really being run with shareholders’ interest being of utmost importance. As a result, a hostile bidder came along, knowing full well they could reap some serious operational improvement from the target company. In order to fend off the offer, the target firms claims the offer is inadequate and all of the sudden come up with all kinds of new ways to boost shareholder value.

The frustrating thing about this from an investor standpoint is that both Yahoo and Anheuser-Busch saw no reason to boost shareholder value on their own, despite the fact that such a goal is supposed to be their chief mandate. If A-B can really earn $3.90 next year by reducing its workforce and cutting costs, then why didn’t they announce plans to do so before this InBev bid came along? If you can earn $3.90 and not tarnish your company, then why not do it?

Without InBev, BUD shares hovered around $50 for years. All of the sudden, BUD thinks it can earn $3.90 in 2009, instead of $3.30. If that is actually true (promising something when your company is under attack is different from delivering on the promise), you can easily argue that BUD stock is worth $60 on a standalone basis (15-16 times earnings). All of the sudden InBev’s $65 offer is not as overwhelming as it appears to be.

Why it takes hostile takeover offers to get some management teams to do their jobs is beyond me, but it is quite frustrating to say the least.

Full Disclosure: Peridot clients owned BUD shares prior to InBev’s hostile bid. Since the bid was made, some of those shares have been sold, but partial long positions remained in those clients’ accounts at the time of writing.

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