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What's keeping A-B stock under InBev offer?

Although Anheuser-Busch's stock has steadily risen to all-time highs since reports of InBev's takeover bid first surfaced, now that the Belgian-Brazilian brewer has formally put its offer on the table, the shares seem to have stalled at a bit more than 5% under the $65 bid price.

On Thursday, Anheuser-Busch added 5.2% to close at $61.40 after cracking to a high of $62.72 on the day after the public disclosure of the all-cash offer that value the St. Louis-based brewer at about $46 billion. In March, it was trading at $45 and change.

The disparity between that and the $65 could reflect considerable investor sentiment that the deal may not go through and/or worries that even it does, it will be a long enough and messy enough affair that any extra returns to be made now are not worth the wait.

"I think there are two reasons that the stock has not moved closer to $65," said Ann Gilpin, an analyst with Morningstar. "First, there is the time value of the money: It could take such along time to go through that you have to discount it."

InBev has said it sees no reason it could not be concluded "promptly" but their offer has set off a public outcry - especially in A-B's home state of Missouri - about the possibility of the last large American brewer falling into foreign hands the way that Miller and Coors ended up under British/South African and Canadian umbrellas. And while InBev has promised not to shut down any breweries and to retain some key management employees, the political pressure could slow it to a crawl.

Second, Gilpin said, "there is some skepticism that it will go through. The [company's] board could do something dilutive" to make it a less attractive target, increasing its leverage by buying the part of Mexico's Grupo Modelo they don't already own.

Late Thursday, there was a published report, citing unnamed sources, that A-B is in early talks with Modelo about a possible combination of the companies.

Or, there might even be a stab at a governmental remedy like the one Pennsylvania employed with Wrigley. In that case, directors from the charitable trust that controls a majority of the candy giant who voted in favor of the sale were bounced by the Keystone State's attorney general and a judge, then later replaced with more-sympathetic appointees.

"They got the law changed so that the attorney general would have to approve any deal involving Hershey," Gilpin noted. "So it has happened before."

Missouri Gov. Matt Blunt, a Republican, has said he opposes the deal as "deeply troubling" and, reports the Associated Press, has directed the state's Department of Economic Development to try and find a way to derail it.

And the unions are already screaming bloody murder too.

InBev's "reputation is one that is not conducive to good labor relations," said Jack Cipriani, Teamsters International vice president and director of the union's brewery and soft drink conference. "Our rank-and-file workers are worried that their pensions and health care may be in jeopardy if InBev were to take over Anheuser Busch. Our concern is that with a bid of this proportion one of the ways InBev is going to get back that value is to cut the good, American jobs our members hold."

The Teamsters, their members and other unions hold shares of Anheuser-Busch but exactly how large combined a stake they would represent is nearly impossible to determine.

Another possible reason for the stall at $61 is that the likelihood of a higher offer, from InBev or anyone else, is slim, Gilpin said.

"Anheuser-Busch doesn't have a lot of leverage to negotiate a higher price," she said. "InBev could go straight to the shareholders and get it done at $65. Besides, I don't think InBev could finance any more."

Tom Pirko, president of consultancy Bevmark, disagrees. Not only is he confident that a deal will go through but he thinks the price could go to $70 or even $75 by the time all is said and done.

Chief Executive August Busch IV and other members of the family run the company but have only a small percentage and although they are all widely thought to be opposed to selling, there isn't much they can personally do to stop it.

"It's too late," Pirko said. "Junior has no credibility in the market that he has the options to turn it around. There will be lots of to-ing and fro-ing but the company's defenses are all soft, they have been deconstructed. His only option is to sit back and say he will pursue value and deliver the [higher] price."

And he could get it, Pirko believes: "InBev is valuing it at what it has done over the last five years, not as part of a worldwide combine with tremendous opportunities, especially in China," he said. "If I could trade in shares of Anheuser-Busch, I would be buying it like crazy," he said.


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