All Clear in InBev-Bud Merger Financing? (BUD)

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Anheuser-Busch Companies Inc. (NYSE: BUD) has been seeing its stock whip around as though the company was not a being bought out.  Its stock hit $64.00 early last Thursday, and by Friday it spent almost the entire trading day below $60.00.  Yesterday’s rally took care of fears and the stock gapped up higher this morning.  But since late morning there has been more selling pressure and the stock is now trading down over 2% at $62.50.  The problem is that in mid-September the stock was above $67.00.  It appears that there have been some building concerns over whether InBev will be able to line up the financing.  And today we have an update.

Today InBev issued a release stating  "as a consequence ofunprecedented volatility in the global capital markets, particularlyduring the last week, it has postponed its previously announced rightsoffering until market conditions stabilize. The Board of Directors willcontinue to monitor market conditions to determine the appropriate timeto launch the rights offering."

But immediately after that part of its press release, the beveragegiant also reaffirmed its acquisition of Anheuser-Busch by year-endafter shareholder and regulatory approvals. InBev evenstated that its decision to postpone the equity offering will notaffect completion of the combination with Anheuser-Busch.  Furthermore,the firm also reconfirmed the strong support of itsbanking group for the financing.  The beverage giant is using a bridgeloan instead of a rights offering to help finance the dealthat already has $45 billion in commitments from 19 banks.

The merger-arbitrage spread with a stock price at $62.50 today and a$70.00 buyout is roughly 12%.  For a deal that is expected to closebefore the end of this year, that is one hell of a return.  At least itis if there genuinely aren’t any problems with the merger closing.

Bank bailouts might not make pending mega-mergers immune from thethought of banks not wanting to lend to fund mergers.  If this buyoutdoes come apart, Anheuser-Busch stock may be back in themid-$50’s faster than anyone can ask what happened.

Jon C. Ogg
October 14, 2008