Anheuser-Busch InBev: Here’s to payday; Sell assets, win bonuses. Buy them back, keep bonuses. Nice work

Anheuser-Busch InBev: Here’s to payday; Sell assets, win bonuses. Buy them back, keep bonuses. Nice work

Jan 18th 2014 | From the print edition

PAYING $4 billion for a business you sold for $1.8 billion five years ago is not much of a way to make money. But Anheuser-Busch InBev (ABI), a giant brewer, may be about to do just that. It is reported to be negotiating to buy Oriental Brewery of South Korea from its private-equity owners, including KKR, to which it had sold the firm in 2009. The sale helped ABI hit financial targets which unlocked $2.5 billion of bonuses for its executives, including $289m for its boss, Carlos Brito. Although the sale may now be reversed, it appears that the bonuses will not.The eye-watering payouts came in the form of a share-option plan put in place after the merger of Anheuser-Busch (purveyor of Budweiser) and InBev (of Stella Artois fame) in November 2008. With shareholders spooked by the combined group’s huge debt pile, just as financial markets were convulsing, ABI’s board promised cheap shares to 40 executives if they got the firm’s debt-to-earnings ratio below a certain threshold. So Mr Brito flogged $9.4 billion of assets, including Oriental Brewery and a division in central Europe. Along with cuts in costs and dividends and a share issue, the sales helped ABI meet the debt target in 2011, thus unlocking the riches.

Although the bonuses are now guaranteed, some of the disposals look temporary. Both the Korean and the central European units, which together accounted for around half of the disposal programme, were sold to private equity in deals that gave ABI the option of buying them back later. If it does so with Oriental, KKR and its managers will also have done very well. In part this is because they did a good job of boosting Oriental’s profits. But those who inveigh against corporate excesses may disregard this and choose to see the whole transaction as ABI, in effect, pawning its assets at a staggering interest rate, with its bosses getting a cut of the proceeds.

If so, the shareholders of ABI would be the injured parties. However, they should pause for thought before mounting their high horses. First, they approved the unusual bonus plan (which comes on top of other, more conventional, incentives) because it was so urgent at the time to cut ABI’s debt. Second, part of the reason the bosses’ bonuses are so huge is that ABI’s stock has increased nearly sixfold since the merger. Shareholders can hardly complain about that. Bosses were only this month able to cash in half the stock options; they will have to stay at the firm until at least 2019 to get the rest.

And the reacquisition of Oriental would make sense. The fears about ABI’s debt have passed; with interest rates low, it can afford to borrow a bit more if need be. The price looks right: ABI can get Oriental back for perhaps 11 times annual earnings. That is more than the ten times that KKR paid in 2009, but well short of the 20.5 times that Suntory, a Japanese booze group, this week offered to buy Jim Beam, a bourbon distiller.