Brunswick Review Issue 1

Unsolicited Offers Enter The Mainstream

Lessons from InBev's acquisition of Anheuser-Busch

Written by: Frank Aquila, Sullivan & Cromwell Sabine Chalmers, Anheuser-Busch InBev

The tactics and objectives of unsolicited offers in the 1970s and 1980s justifiably evoked images of raiders and pirates. Yet while these terms continue to be used – hostile bidder, bear hugs, poison pills and white knights – today’s strategic buyers have little in common with the greenmailers and corporate bust-up artists of that era. Today, such buyers view unsolicited bids as just another tool in their chest to achieve strategic objectives.

InBev was not alone among multinational strategic buyers in making unsolicited bids in 2008. Microsoft, United Technologies, Samsung, BHP Billiton and Electronic Arts, a veritable “who’s who” of multinational companies, were just a few that did so in the last year. Other blue-chip companies, including GE and IBM, have also pursued unsolicited offers as part of their M&A repertoire.

In the months and years to come there will likely be a steady stream of such proposals. The continuing trend towards global consolidation, the current level of economic uncertainty and the recent precipitous drop in share prices come at a time when seller price expectations remain high and unsolicited bids are becoming increasingly respectable.

When undertaking any significant acquisition, solicited or unsolicited, planning is essential because once an announcement is made the deal team is at full stretch. No detail is too small and every contingency must be given a thorough 360 degree review well before the news is made public. While each situation will have its own dynamics, the lessons from InBev’s successful bid for Anheuser-Busch can be broadly applied by others considering a similar approach.

Lesson One – Define Success

An unsolicited acquisition that prevails at any cost may earn advisors a fee, but is unlikely to achieve all of the buyer’s key objectives. While the ultimate purpose of any acquisition is for the bidder to acquire the target company, the bidder will always have more nuanced objectives. From the outset, the InBev team was clear that it wanted its bid executed in such a way that the acquisition of Anheuser-Busch would proceed as quickly as possible, with a minimum of hostility and with financial discipline. This meant that while we had to move quickly, we would not vilify the other side or simply prevail by paying more than fair value. With these considerations in mind, the deal team developed an in depth plan that would set out to achieve all of InBev’s objectives.

Lesson Two – Turn Weaknesses to Advantage

Given the then developing credit crisis, we recognized that A-B’s Board would focus on our financing and would likely reject our offer if there was the slightest weakness in the financing package. The deal team therefore explored the best and firmest financing arrangements that could be made available for the bid. As a consequence, InBev put in place an exceptionally strong, UK-style “certain funds” package. This not only removed financing as an issue in our negotiations with A-B, it ultimately allowed InBev to close a $55bn financing in the midst of the most severe credit crunch in more than a century.

Lesson Three – Anticipate Challenges and Be Proactive

From the outset we had a carefully developed communications strategy ready for most possible scenarios. For example, we were ready with messages geared to the key constituencies. An outreach strategy was in place to address, early in the process, critical concerns of the employees, the wholesalers and the communities in which A-B operated. Beyond this initial program we attempted to anticipate potential challenges to the bid and developed complete responses – press releases with detailed Q&As – that were ready to go when needed. This allowed InBev to respond to any rumor or charge within hours. Issues that might have played out over several days and become major distractions, instead became non-events within less than a single news cycle. 

Lesson Four – Don’t Expect to Win Round One

Developing a plan is important, executing that plan is essential. When the A-B Board rejected InBev’s initial proposal, our hope of a quick, friendly deal began to evaporate. Rather than spending days contemplating our next move, the next phase of the plan went into high gear within hours of the A-B Board’s decision. That same day, InBev filed a motion for declaratory judgment in Delaware Chancery Court making clear the company’s intention to remove and replace the A-B Board by written consent. Without a moment’s hesitation, we began assembling our slate of nominees and our preparations for the consent solicitation. 

Lesson Five – Dare to Think Big

In putting together our proposed slate of nominees for the A-B Board, we sought well known names that would give the consent solicitation process instant credibility. Hank McKinnell, retired Chairman and CEO of Pfizer, led our director slate of former CEOs and business luminaries. McKinnell is the Chairman Emeritus of the Business Roundtable, the “trade group” of America’s top CEOs, and a highly regarded business leader. The slate, which also included Adolphus A. Busch IV, a leading member of the Busch family, and well-known former CEOs such as Ernie Mario, John Lilly, Bill Yost and Allen Loren, clearly made a strong statement to the business world. It was unveiled on July 7th; within hours the A-B Board met and discussions between InBev and Anheuser-Busch began the next day; the deal was approved by the two boards a few days later.

A takeover battle that many predicted would never succeed, and most believed would play out over many months at a very minimum, was resolved with an agreed deal just 32 days after the initial proposal. Not only did InBev achieve its main objective of acquiring Anheuser-Busch, it did so in a quick and friendly way, and at a fair price.

While no two deals are ever the same, planning will always be crucial. Once the plan has been developed, it must be implemented with skill and discipline. InBev and its advisors anticipated a long and hard fought battle, but by developing tactics that reflected InBev’s true objectives we were able to achieve a quick resolution on a basis that was ultimately beneficial to all parties. 

Sabine Chalmers and Frank Aquila were InBev’s lead internal and external lawyers on its bid for Anheuser-Busch. Chalmers is Chief Legal Officer of Anheuser-Busch InBev NV/SA and Aquila is a Partner in the M&A Group of Sullivan & Cromwell LLP. The views and opinions expressed in this article are their own and do not necessarily represent those of either Anheuser-Busch InBev NV/SA or Sullivan & Cromwell LLP.