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To sell or not to sell?

Joachim Schwass is professor of family business at IMD.

A 148-year-old family company is under attack – by another family business. Belgian headquartered InBev, the world's second largest brewer, made a hostile, uninvited takeover bid for Anheuser-Busch, the world's third largest brewer, in early June.

It was an enticing offer for shareholders as the all time high of nearly $55 a share was reached some six years ago. However, last week the board of Anheuser-Busch rejected the bid, which is worth $46 billion in cash and prices the shares at $65 – a 35% premium over Anheuser-Busch's 30-day average price. Was this the right decision?

The St Louis-based company has been led by a series of family members: Adolph Busch, August Busch Sr, August Busch Jr, August Busch III and August Busch IV. Busch IV, who is 44, became CEO just 19 months ago. Descendents of the founding family today own about 4% of the total shares.

Busch III ran the company from 1974 until 2002 and greatly expanded the brewery business and diversified into theme parks. His son has been openly criticised for not keeping up with the growth pace of competitors. Might this be the right time for the family and other shareholders to sell?  

Selling a family business is a difficult, if not the most difficult, decision for business-owning families. For listed family businesses, a hostile takeover bid typically gives families nightmares. Witness the Bancroft family selling Dow Jones to Rupert Murdoch last year.

The emotional attachment a family feels for the business can be extraordinarily strong – often beyond rational explanations. The descendents of the Busch founding family rightfully take pride in being part of a strong organisation which has 50% market-share in the US and a global brand in Budweiser.

Why do families sell? It is worth taking a look at Israel-based Iscar Metalworking. The founding Wertheimer family constructed a fast growing, successful global business. The second generation, after long discussions with the next generation, came to the conclusion that the rapidly expanding business would be better off with another owner in the future.  

Together with key managers, the family explored options to exit: a merger; involve private equity; or IPO. They found that all options had unacceptable downsides: mostly a change or loss of culture and moving to a much more short-term view, with risks for employees.

The project team then focused on another option where the culture and long-term considerations could be maintained. The family decided to sell 80% of the shares to Warren Buffett's Berkshire Hathaway. The family obtained liquidity allowing the future generations to pursue other and new objectives.  

The new majority owner made it clear that he wants to provide long-term support to allow the business to continue strong growth, and to give full freedom to the current management. A win-win result was achieved.

Family businesses should not shy away from asking the question of whether to sell, especially at a generational change. It addresses the fundamental issues of "Why continue?" and "Is the family still the best owner for the business?" This will lead to reaffirming and strengthening the commitment of the family to the business.  

If on the other hand the family decides to sell, it should be a well-structured process taking into consideration what is best – both for the family and the business.

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