NEW YORK (Reuters) – Anheuser-Busch Cos Inc’s (BUD.N: Quote, Profile, Research, Stock Buzz) board is in the hot seat after spurning a $46.3 billion takeover bid, facing questions over whether it is fulfilling its obligations to shareholders and not just the wishes of the brewer’s founding family.
The company’s suitor, InBev NV (INTB.BR: Quote, Profile, Research, Stock Buzz), has laid the groundwork to try to unseat the board — though Anheuser told investors on Friday that it would challenge the Belgian-Brazilian conglomerate’s claims that it could remove all 13 Anheuser directors without cause.
For sure, the board — which rejected InBev’s $65-a-share, all-cash offer — is facing pressure on multiple fronts.
The board, including members of the family that’s run the brewer for generations, has been grappling with the future of an iconic U.S. brand that is a large employer in its home base of St. Louis, Missouri.
Politicians have spoken out, with Missouri Gov. Matt Blunt saying he was deeply troubled by a possible InBev deal though he had no power to stop it.
At the same time, some investors have favored the InBev offer as good for stockholders. While Anheuser said on Thursday that the InBev proposal was inadequate and it was moving forward with an internal growth plan, it did leave open the possibility of entertaining a bid at a higher price.
“The board probably feels strongly about keeping the company independent,” said Shirley Westcott, managing director of policy at shareholder adviser Proxy Governance Inc. “An investor is really looking for a good return on his investment, whether it’s a good offer from InBev or whether the company’s plan would provide comparable value.”
Busch family members own about 4 percent of the company’s stock, which is nowhere near majority control but is still enough to wield influence.
Three directors are considered insiders — Chief Executive August Busch IV, his father, August Busch III, and Chairman Patrick Stokes, a former president of the brewer.
That leaves 10 other directors, including Henry Hugh Shelton, former chairman of the Joint Chiefs of Staff, and former JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz) chairman Douglas Warner, who are considered independent.
Of those 10, “many of them have been on the board for a very long period of time, so they clearly have a longstanding relationship with family members and previous management teams,” said Carrie Schloss, a stock analyst at Talon Asset Management in Chicago, which held about 90,000 Anheuser shares as of May.
But, she said, “I think in this day and age, any public board now truly has to look out for the best interests of the majority of shareholders, not just shareholders who own 4 percent of the company.”
The company received an “F” rating — the worst possible — in 2007 from corporate governance researcher The Corporate Library, according to data cited in a shareholder proposal in the company’s most recent proxy filing. The Corporate Library would not comment to Reuters about its ratings or methodology.
Another governance tracker, RiskMetrics Group Inc (RMG.N: Quote, Profile, Research, Stock Buzz), gives the brewer better marks. As of June 1, it scored Anheuser’s governance — based on criteria such as board practices, anti-takeover provisions and executive pay — better than 75.4 percent of companies in the S&P 500 and better than 91.9 percent of food, beverage and tobacco companies.
For its part, the company has said it is committed to good governance practices. In a statement last week, it cited plans to phase in annual elections of all of its directors, as well as share ownership guidelines for directors and executive officers.
Anheuser’s board has come under scrutiny for whether it is too cozy, in part because several directors have links to one another through seats on other corporate boards — a practice frowned on by governance experts who say such relationships can stifle boardroom debate because directors become clubby.
For instance, both August Busch III and Anheuser director Joyce Roche, CEO of nonprofit organization Girls Inc, sit on the board of AT&T (T.N: Quote, Profile, Research, Stock Buzz), while former AT&T Chairman Edward Whitacre also sits on the Anheuser board.
The board also has been scrutinized over payments to Enterprise Rent-A-Car Co, which is headed by Anheuser director Andrew Taylor, for auto services to the brewer. Anheuser last year paid Enterprise about $12.2 million for auto leasing.
Anheuser says the Enterprise contract has been in place for 30 years — long preceding Taylor’s election to the board. Also, “Enterprise is a $13 billion company, and this agreement is an extremely small contract for that company,” it said.
One shareholder, who asked not to be identified so he could speak freely about the matter, said he has not been impressed with the Anheuser board and that he supported a sale.
“My gut sense is that they are not independent enough and that they are simply trying to protect the Busch family and its legacy,” this investor said.
One former Anheuser investor who held the stock until several months ago, however, said he thought the board was not blindly backing the family as it weighed the InBev bid.
“The board members may be friendly with Mr. Busch but at the same time they are worried about their reputations as they are expected to do what is best for the shareholders,” said Jean-Marie Eveillard, portfolio manager at First Eagle Funds.
“I think the days that the CEO and his buddies on the board could wreak havoc with the shareholders are over,” he said.