USA: Anheuser-Busch stock rises 2% after rumours said it may be bought by activist investor Edward Lampert

Shares of Anheuser-Busch Cos. Inc. rose 2 percent October 10 in heavy trading to its highest price in a month, as investors weighed the possibility that the No. 1 U.S. brewer could be bought out by activist investor Edward Lampert.

Earlier on the same day, the The Times of London reported that Lampert's ESL Investments, best-known for taking retailer Kmart out of bankruptcy and engineering last year's takeover of Sears, Roebuck & Co., was set to launch a $56-per-share bid for the brewer, which would be a 19 percent premium to its closing price on October 09, or 12 percent above its yearly high.

A spokeswoman for Anheuser-Busch and a spokesman for Lampert both declined to comment on the report, which would result in a deal worth more than $40 billion.

More than 6 million Anheuser shares traded hands on October 10, nearly triple its average volume, but several traders and analysts said they doubted the rumor was true.

"I think it's one of the wackiest things I've heard in a long time, I don't think it's true, and I don't think it will happen," said David Kolpak, an analyst at Victory Capital Management, which owns Anheuser-Busch shares.

"Looking back, this may prove to be one of the high points in the LBO absurdities of 2006," Kolpak said, adding that the St. Louis-based brewer is "one of the best-managed companies in America," with a strong financial position and good marketing savvy. In that way, he said, Anheuser differs from Lampert's other targets, which he said tended to be more poorly managed.

JP Morgan analyst John Faucher said a deal that size would be difficult due to the company's $7.8 billion in debt. A possibility, Faucher said, might be for it to sell off some non-core assets, like its 50-percent stake in Mexico's Modelo or 27-percent stake in China's Tsingtao, but noted that problems the brewer has are affecting the whole beer industry, not just Anheuser-Busch.

Wine and spirits companies have been taking market-share from beer companies as American consumers' tastes shift.

Option volatility also spiked October 10, indicating greater anxiety about the stock, said Paul Foster, strategist at financial-information Web site theflyonthewall.com. Option volumes were also significantly higher - above 70,000 contracts - compared to a monthly average of about 2,100, Foster said.

Anheuser-Busch, which controls about half the U.S. beer market with brands including Budweiser, Bud Light and Rolling Rock, two weeks ago named August Busch IV, the head of its U.S. beer business and the great-great-grandson of its founder, as its new president and chief executive.

The brewer is one of a handful of large, publicly traded U.S. companies still dominated by the founders' families. This is part of the reason Kolpak said a move by Lampert was unlikely.

"These guys in St. Louis - or their fore-fathers or their grandfathers - have been running this company their whole lives," Kolpak said. "What people think an outsider can bring to this table is beyond my ability to imagine."

Anheuser-Busch shares rose 99 cents to close at $47.98 on the New York Stock Exchange.

E-malt.com, the global information source for the brewing and malting industry professionals. The bi-weekly E-malt.com Newsletters feature latest industry news, statistics in graphs and tables, world barley and malt prices, and other relevant information. Click here to get full access to E-malt.com. If you are a Castle Malting client, you can get free access to E-malt.com website and publications. Contact us for more information at marketing@castlemalting.com .