McCaskill shows what it takes to be a Senator
Posted by Marc Hodak on June 19, 2008 under Politics | 
11 Comments to Read
In coming out against the Anheuser-Busch takeover by Belgian-based InBev, Senator Claire McCaskill (D-MO) clearly illustrated certain lessons about what it takes to be a Senator:
1) Homework is unnecessary:
Asked what specifically she could do to stop the sale, McCaskill said she wasn’t sure yet.
Taken at face value, this statement represents a shocking lack of preparation. McCaskill has been in law for about 30 years. She and her staff have had over a week to study the situation around the bid, and the bid itself has been brewing longer than a full-bodied Bud–since February.
2) Don’t worry about giving shareholders the finger:
“This is not a company that’s not successful,” McCaskill said. “This is not a company that’s in stress.”
Well, Claire McCaskill thinks everything is just fine. The company is making money. As for the shareholders, who have last claim to the company’s money after the workers, suppliers, and government have taken their share, why should we care about what they think? So what if they have better prospects placing their money in similar firms? The fact that Anheuser-Busch’s stock price has gone nowhere for five years while the rest of the world has gained over 60 percent is of no concern to McCaskill.
3) Urge businessmen to breach their fiduciary responsibilities:
She suggested the board should consider more than just profits.
For someone who is sworn to uphold the law, she shows a cavalier disregard for the most basic laws of business–the shareholders own the company, and the board is the steward for the shareholders. We already know that McCaskill thinks the shareholders can eat cake (see #2). But suggesting that the board should betray the trust placed in them by the shareholders just so she can look good to voters speaks poorly of her legal and moral acumen.
4) Foment unnecessary fear among the people:
“It feels like to too many people in our country right now that these are the kinds of jobs that are going away.”
InBev has given zero indication that their purchase will result in any job losses. A few senior managers might become redundant, but I doubt McCaskill is boo-hooing for C-suite executives, here.
5) Speak in complete non sequiturs:
“On behalf of me and all my friends that like nothing better than a Bud Light every summer, it makes us very upset.”
It’s hard to imagine what her summer enjoyment of beer has to do with this sale. Do her friends think the sale of the company will reduce their ability to find a Bud, or that it might impair its taste (if that’s possible)? No chance of that. The main purpose of InBev’s purchase is to sell more beers, not less; nothing is expected to change in the manufacture of the beer. Maybe Claire and her friends are concerned that certain St. Louis offices will end up with brightly colored, Euro furnishings, with techno-salsa Muzak piped in the elevators? Really, Claire, what’s so upsetting to your friends? What do you know about the effects of this sale that we don’t?
Clearly, the Show-me state is tolerating a lot more vagueness and innuendo than it used to.
Consumers' Sovereignty said,
Shareholders? What Shareholders?
Hodak Value criticizes Missouri Sen. Claire McCaskill’s preemptive opposition to Anheuser-Busch’s acquisition by InBev.
2) Don’t worry about giving shareholders the finger:
“This is not a company that’s not successful,…
URConfused said,
>
You’re joking here, correct? Or have you not researched the history of InBev, going all the way back to Antartica Brewing Co.
Of the current ~6000 St. Louis AB employees, you can count on 1/2 of those jobs (G&A) being gone inside of 2 years. The trickle down effect in the area would be enormous – the families that would have to relocate, the businesses and charities these employees and families support, etc.
The businesses that partner with AB would also take a serious hit, as they will also require less resources to support the scaled back operation, and nearly non-existent capital project spending.
The union workers of the company can also kiss any overtime work goodbye, and should be most seriously concerned about their retirement accounts.
This deal is bad for AB, bad for St. Louis, and the company officers should be able to clearly show it is also not in the best interest of the shareholders. The wake-up call of this deal will get them and the board moving in the right direction, right now. Hopefully it’s not too late.
jd said,
And what makes you think that replicating this benefit for the shareholders with current management won’t result in similar layoffs and cutbacks (if it’s not too late)?
Check it out, over the last five years employees have seen an increase of 20% in compensation (including, no doubt, union overtime). Over the last five years, state and federal government have profited by $12 billion. As noted in the post, the shareholders have gotten squat over that period. Good luck convincing them that they would be better off with the status quo.
Anonymous said,
JD – I agree with you that it’s a tough sell – too little, too late. I appreciate your comments and stance.
To achieve the necessary goals, AB must change. I cannot explain why it has taken 5 years and a potential takeover to make them realize it.
Layoff’s by current AB mgt and cutbacks will occur, just not in the ruthless manner of InBev.
The difference between internal change and InBev change is considerable. It is the difference between a package deal and straight out layoffs. A 3 & 3, or 5 & 5, vs. “thanks but you’re gone” ala Macy’s and InBev’s historical record.
Read the story on the following link, and realize it is in no way an overstatement – Carlos Brita’s reassuring statements are a joke and an insult to anyone that has researched the history.
http://www.stltoday.com/stltoday/news/stories.nsf/washington/story/A6DB1073BDE29A818625746F00117D48?OpenDocument
But given all currently available info, and the attitude change by AB mgt in the short time since the initial salvo by Inbev, I believe shareholders will be better served with the revised AB programs and a new 5yr plan.
Despite public and financial sector opinion, (ala The Times editorial) the 4th has surrounded himself with quality personnel. They have repeatedly taken deals to the board, only to be thwarted by the 3rd. If any one of those deals had not been shot down, authoritatively by the 3rd, AB would not be in the position it is now. The 4th and his people have continually tried to take AB into the next level of competition and growth.
Antartica, Beck’s, Hansen (Monster Energy) just to name a few. All killed by the 3rd. He got AB to where it was, and now refuses to embrace the modern dynamics.
Any one of those deals would have delivered shareholder value, but the 3rd and the rest of the board were more concerned with immediate dividends.
Extremely shortsighted.
If the InBev deal goes forth, it will go down publicly as the failure of the 4th, which is unfortunate. While not an undying fan of either, the potential dismanteling of AB can be laid clearly at the feet of the 3rd, and his continual refusal to allow any of the 4th’s proposed arrangements to go forward.
Though stock history doesn’t show it, the actual current value of the company is approximately $75 dollars per share.
Changes can be made internally to move the stock to that price within 2 years.
Hopefully it’s not too late for current management to prove it to the board. They should decline this offer for solid value reasoning that would easily stand up to the inevitable lawsuits by shareholders. The same shareholders that would prefer the immediate payoff instead of a solid longer term investment.
pippen said,
Anonymous, are you on AB’s board? If not, they may be missing some great insights on how they should vote on InBev’s bid. But the board should make that decision, and the standard they should use is what’s best for the shareholders. Maybe they need to be convinced that the real value is $75, but McCaskill seems to be asking the board to use a different standard.
URConfused said,
Pippen,
URConfused and the “Anonymous” posting at 6:33 PM are one in the same person – not sure why it posted that way.
While I am less than a disinterested party, I am nowhere near boardroom level. Bluntly stated, I am a common office-type worker bee.
I agree that Clair McCaskill was most certainly not “Senatorial” in her response. The voters of Missouri deserve better from their elected officials. She should be making arguments that matter, not talking in useless generalities.
I believe in capitalism and that shareholders should get the maximum value for the investments they make. McCaskill made no coherent business statements, only “gut reaction” posturing that help no one.
I’ve read hundreds of articles since the rumors started ~10 days ago. I felt it necessary to speak up after reading this blog, despite the inherent impotence of any statement by anyone with under a 5% share, or a pedigree befitting a financial comment. I have neither, just what I feel is basic common sense.
M. Hodak said,
UR/anon, thanks for your thoughtful comments. I stand corrected on my fourth point about the fears being baseless. Clearly, you have a well-researched basis for fearing an InBev takeover. Unfortunately, I think you’re also right about your Senator not being helpful.
I was actually in a similar position about 15 years ago when I was working as a middle manager at Conrail, a large, well-run transportation company. Unfortunately, it was not large enough. Conrail got taken over by its two much larger rivals–Norfolk Southern and CSX. We all knew this merger (an asset split, really) would end up bringing our $10 billion of transportation assets under inferior management. But Conrail’s shareholders had a sense (probably correct) that this was the best they could do given the industry landscape of the time. Needless to say, Conrail’s managers (especially those of us without a ton of stock options) weren’t happy about this. I actually left just a couple years before the transaction was finalized, but I have many colleagues who stayed through to the end. Fortunately, they were given a decent reward for sticking around until the closing.
Unfortunate coda: by just a few years after the merger, all $10 billion of the value of Conrail’s assets had disappeared. The market value of CSX+NS post merger (i.e., including Conrail’s assets) was exactly the same as the market value of CSX+NS before the merger. What happened the rest? That was for the unfortunate NS and CSX shareholders to worry about.
Hopefully, your top management will offer your team enough of an incentive so that you are relatively indifferent about whether you end up staying or leaving–a not uncommon option.
As you probably know, when McCaskill said she didn’t know what she would do, what she meant was that she hadn’t yet found any existing authority to prevent InBev from coming in. She’s hoping she can wangle some questionable, new authority to prevent this deal from happening. My hope is that the government won’t create some new power to stop what may be a bad merger, because that invariably gives them the power to stop good ones, too. I know that doesn’t help you in the short run, but I believe it helps us all in the not so long run.
bobby b said,
“Though stock history doesn’t show it, the actual current value of the company is approximately $75 dollars per share.”
– – – –
InBev bid – what? – $65? – about 15% over list price at that point. I’d guess your $75 adds up all of the correct asset-value positives, but fails to take into account a few items that make it truly worth less than book.
Sadly, the “help the longtime employees” meme only asks that someone else continue to fund a giveaway to those workers that the BUD owners have been picking up for years. Everyone involved has simply been taking too much out of the company. There’s no $75 there.
URConfused said,
$75, and if offered, the board should still reject in the best interest of long term investors. Why cave to hedgers trying to make a quick buck? AB is a solid long term investment paying good dividends year in and year out.
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