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InBev snags Anheuser-Busch and its marketing clout
2008-07-14
ST. LOUIS - The King of Beers, the folks who spent lavishly to bring you the Bud Bowl, the Talking Frogs, the Whassup Guys and the Clydesdales, is being swallowed by a Belgian brewer known for its frugality. But InBev SA has an ambitious plan behind its $52 billion acquisition of Anheuser-Busch, hoping to tap into the U.S. company's massive marketing power and make the Budweiser and Bud Light brands into globally recognized products akin to Coca-Cola or Pepsi. Leaving marketing untouched, though, will mean cuts elsewhere. InBev expects to wring out $1.5 billion in annual savings, most of which will come from better managing the supply chain. InBev keeps a sharp eye on costs, forcing managers to justify every cent spent. Anheuser-Busch Cos. agreed to the sweetened $70 per share bid late Sunday to create the world's largest brewer and head off what was shaping up as an acrimonious fight. Swallowing Anheuser-Busch will give InBev, the maker of brands including Stella Artois, Beck's and Bass, half the U.S. beer market and a fifth of those in China and Russia. Gaining control of an iconic beer brand -- Budweiser -- to sell into emerging markets such as China and Brazil was a key part of the deal, said InBev Chief Executive Carlos Brito, who will retain his position. "What consumers care is that their Bud will always be their Bud, and that's what we're committed to, not only the product, the quality, the beer ... but also the heritage, the breweries, who brews the beers, and everything that's connected to the breweries," Brito said Monday. That image has been built by spending heavily on marketing. Industry estimates put Anheuser's U.S. spending last year at $378 million, said Benj Steinman, editor of the Beer Marketer's Insights trade publication. That's more than the combined spending of its biggest rivals, Miller Brewing Co. and Molson Coors Brewing Co., which began their own joint venture in the U.S., MillerCoors LLC, as of this month. Those marketing successes have coined popular phrases such as "This Bud's for you," its Clydesdale horses are a fixture of Super Bowl ads and the Bud logo adorns sports events from NASCAR to Ultimate Fighting. "This deal is transformational for InBev, not just because of the scale and the economic scope that this gives them, but because InBev is seeking to become more of a marketing-based culture," said Steinman. Brito made his commitment clear Monday, saying InBev has no plans to trim advertising in the United States. "What we see in Anheuser-Busch is its marketing expertise, and that's one of the pillars of why they built such great brands," Brito said. Still, some experts questioned whether InBev can really hold off indefinitely. With the U.S. economy slowing, InBev might constrain spending on sports endorsements, said John Sweeney, director of sports communication at University of North Carolina's School of Journalism. But the company must guard against competitors swooping in to buy any advertising space it abandons, he said. Ryan Kurek, CEO of Leverage Sports, a motorsports marketing firm based in Charlotte, N.C., said he would be more than surprised if InBev decided to pull the Budweiser brand out of American sports and NASCAR in particular. "Budweiser does spend an awful lot of money in overall sports marketing and you might see cutbacks, but I'd be stunned, frankly, to see any significant cuts in NASCAR." Anheuser-Busch executives are expected to have a hand in the new company, and presumably in its marketing plans. CEO August Busch IV will move into a non-executive role, but will be on the new company's board. InBev said it plans to use St. Louis as its North American headquarters, and that it will keep open all 12 of Anheuser-Busch's North American breweries. Brito tried to reassure workers worried about possible job loses, saying the company could instead expect "growth and investment" despite Anheuser-Busch's existing plans to shed 1,185 positions -- mostly by offering early retirement and not filling existing vacancies. That plan had already spread the pain across the board, but InBev's approach is more surgically precise, said financial analyst Juli Niemann of Smith Moore & Co. In a company that watches costs very carefully, employees must justify their job every year. Where Anheuser-Busch executives travel by private jet, Niemann said InBev folks will be flying coach to St. Louis -- and taking the city's light rail system, not a cab or limousine, from the airport to Anheuser-Busch's headquarters. "They'll start cutting from there," she said. "They've got it down to a science. They're very smart people." The companies will also sell off "noncore assets" that they would not name to raise part of the financing for the deal. They hope to close the deal by the end of the year, though it needs approval by the shareholders of both companies as well as U.S. and EU antitrust regulators. Anheuser-Busch might have a difficult time pushing Budweiser overseas, though, because America isn't known for beer -- unlike its hamburgers and soft drinks, said Stanley Baran, a communications professor at Bryant University in Rhode Island. "I don't know that that's worth it given the difficulty in becoming an international brand. You can be an international brand of soda because we did soda and nobody else did," Baran said. "But other guys were doing beer before we were so much so that we give our beers foreign sounding names so that we can seem beer equivalents." InBev has had its share of marketing stumbles. After the 2004 merger between Belgium's Interbrew and Brazil-based AmBev, the share price soared as InBev cut costs and rolled effortlessly into booming emerging markets in Russia and Brazil. But holding market share amid Europe's reluctant drinkers has been more difficult -- and may be where InBev most needs Anheuser-Busch's expertise. InBev quietly dropped Brahma from the global beer brand after failing to win over Europeans to its neutral taste, and Stella's branding ran into serious trouble in Britain where the high-alcohol lager was nicknamed "wife-beater." Mexico's Grupo Modelo, half-owned by Anheuser-Busch, said Monday that that relationship gives it consent rights to the deal. But Brito said he didn't "see any impediments coming from Modelo" and he was in "positive" talks about keeping the company as a partner. Anheuser-Busch shares rose 37 cents to $66.87 after rising to a 52-week high of $67.55. ___ Associated Press reporters Aoife White in Brussels and Cheryl Wittenauer in St. Louis contributed to this report. Emily Fredrix reported from Milwaukee. ___ On the Net: Anheuser-Busch Cos. Inc.: http://www.anheuser-busch.com InBev SA: http://www.inbev.com
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