In hindsight, it seems all too obvious that Carlos Brito had a master plan.
It was the summer of 2005, and Mr. Brito was chatting in the pub they have at Labatt Brewing's head office in Toronto. But his mind was elsewhere – specifically, St. Louis and the colossus of Anheuser-Busch. “Bud Light is the number one brand by volume in the world,” he said, explaining why Labatt, Anheuser's distributor in Canada, would be spending more to advertise Budweiser products. “Why not believe that a brand that performs well in so many markets could perform well in Canada?”
Why not, indeed? And after another six months of flogging the Bud to hosers, fate smiled on Mr. Brito. Labatt's parent company, InBev, needed a new CEO – would he leave his frozen outpost and take the job? Sure he would. Off he went to install some harsh Brazilian financial discipline on a bloated company of French-fry-eating Belgians. InBev's profits began to rise, the new boss became a hero, and would you look at that: Carlos Brito likes Budweiser so much that now he's bought the whole company.
That InBev, the world's largest brewer, would want America's top beer company was no surprise. The shock is that Anheuser caved so easily. At first, the Busch family tried to give the impression they'd rather be trampled by a team of Clydesdales than sell. They had political support. Claire McCaskill, a Missouri Senator, offered to do what she could to stop the sale. So did the state's governor, a Republican.
Then InBev offered an extra $5 a share. Sold!
There's a price for everything, even a piece of Americana. Anheuser-Busch was defenceless against the acquisitive Mr. Brito because it could no longer make the case for independence to its shareholders. Its stock price was about $50 in late 2000 and was still around $50 when the InBev rumours surfaced. Eight years of nothing but a few meagre dividends will erode the loyalty of the most patriotic investor. “I'm disappointed,” Sen. McCaskill declared when the $52-billion sale was announced – but it will disappoint her more to know that there are a lot more deals like it to come.
In the long run, any public company has to give returns that beat government bonds; otherwise, why bother with stocks? After a decade of stock-market drift, a huge number of big-name U.S. public companies fail to meet the test. There are 421 companies in the Standard & Poor's 500 that have been traded continuously for the past decade, according to Bloomberg. Nearly half of them (199) failed to gain 4 per cent a year over the past 10 years. (That doesn't count dividends, but since few S&P 500 firms pay large ones, it doesn't change the point.)
Every sensible book of financial advice says that stock investing requires patience. But even Job would get impatient with a subpar investment after a whole decade. Forget the banks, which are a mess. The list of value-destroyers includes Pfizer, Home Depot, RadioShack, Goodyear, Sprint, Mattel, J.C. Penney, Gap and scores of other big names. This may be hard to believe, but Coca-Cola has been as terrible as Citigroup; with either company, you'd have lost 42 per cent of your capital since July '98 (again, not counting dividends).
If you know a little about Coke, you'll realize that the number is deceiving. The company hasn't done badly, really. A decade ago, Coke earned about $1.40 (U.S.) a share. Last year it made $2.57, according to S&P/Capital IQ. It's all in the stock multiple: Coke was ridiculously priced back then and now is sensibly priced (about 16 times this year's earnings). Exactly the same thing happened to Anheuser-Busch. Profits went up steadily but the share price didn't. When it got cheap enough, InBev pounced.
You can find a bunch of similar examples – growing U.S. companies that have nothing to do with housing, have little debt, and are as cheap as they've been in 10, 15, 20 years. (In many cases they're not even that exposed to U.S. recession: 74 per cent of Coke's sales occur outside the United States.) The people least able to capitalize on these prices are individual Americans, who are too busy cutting their personal debt. Pity for them. Meanwhile, trillions of dollars in U.S. foreign exchange reserves are floating around Asia, the Middle East and Europe.
It's to be expected that, sooner or later, those dollars are going to find their way back to the U.S. in exchange for control of American assets. This a natural consequence of huge trade deficits: America is for sale. Didn't Warren Buffett talk about this a few years ago, when he warned the U.S. was becoming a “sharecroppers' society”? Yes, he did. By the way, he also stands to make about $750-million selling his shares in Anheuser-Busch to InBev.
