Let the brewing giant show you how it’s not done.

The world’s largest brewer had the year’s biggest initial public offering in mind. A quick and easy way to raise about a tenth of its massive dead load in Hong Kong, with the proceeds going to pay it down. And then in it wasn’t quick and easy, and then it wasn’t an IPO, and instead was the biggest withdrawn IPO in eight years.

How does something like this happen? Well, by doing everything wrong. A-B InBev decided it was smarter and knew better and was more valuable than anyone else thought, and reaped the rewards. Let us count the miscalculations.

· Hong Kong IPOs usually avoid the sleepier summer months. A-B InBev thought the market would like nothing better than a frosty, flavorless American lager to perk things up.

· Hong Kong IPOs usually rely on cornerstone investors to get things done. A-B InBev didn’t.

· The Hong Kong market’s been pretty weak this year. A-B InBev didn’t seem to notice.

Oh, yea, and A-B InBev thought way more highly of itself than the people it was asking to buy shares of A-B InBev.

From the get-go, things didn’t look too healthy. Unusually, it was only after several days—on July 5—that a person familiar with the matter said the deal was covered, meaning orders matched the $8.3 billion to $9.8 billion of shares on sale…. That slowness may have suggested to buyers that demand was weak, prompting them to scale back orders or demand a lower price, said a Hong Kong equity banker who wasn’t involved….

“It doesn’t offer enough prospects for margin expansion and profit growth to justify its high valuation,” this person said, highlighting a mix of developing and mature markets, from India to Australia.

Even the lowest end of range, or 40 Hong Kong dollars (US$5.11) a share, corresponded to a 72% valuation premium over Carlsberg and 57% over Heineken, two major European rivals, according to Sanford C. Bernstein estimates.

Investors Balked at Pricing for Canceled Budweiser Listing [WSJ]


Mark Zuckerberg Will Never Make It As A Banking Analyst

The best part of this morning's Journal story about Facebook buying Instagram is clearly Mark Zuckerberg's valuation approach, which I hope will be taught in future M&A banker training sessions: Now, however, Mr. [Instagram CEO Kevin] Systrom found himself in Mr. Zuckerberg's house asking $2 billion for Instagram. Mr. Zuckerberg suggested looking at the value of Instagram as a percentage of the value of Facebook, people familiar with the matter said. Mr. Zuckerberg, who planned to pay for Instagram mostly with stock, asked Mr. Systrom what he thought Facebook would be worth, the people said. If he believed Facebook would one day be worth as much as a company like Google at $200 billion or more, then the equivalent of 1% of Facebook would be sufficient to meet his price, Mr. Zuckerberg told Mr. Systrom, the people said. It was as good an argument as any, considering that traditional ways of valuing a company — by its cash flow, or the sum of its parts — are ineffective when that company makes only one product and gives it away free. "It was as good an argument as any" given that it is a TERRIBLE ARGUMENT. Here it is as best I can make out: (1) Instagram is worth $2bn (2) Facebook is worth $100bn (3) At some point in the future Facebook will be worth $200bn, I guess (4) Therefore $100bn = $200bn (5) Therefore $1bn = $2bn (6) Therefore you should accept $1bn because it's $2bn B+ students in those future M&A banker training sessions will object to using a zero discount rate (for equity!) and/or the failure to probability-weight Facebook's future $200bn valuation; the more advanced may notice that this argument proves that 1 = 2 and is thus a reductio ad absurdum of itself. These numbers are all sort of imaginary anyway so I will concede that this "was as good an argument as any" so long as we recognize that it is also literally the worst argument that it is possible for anyone to make about anything.*

Ron Burkle Will Manage Your Money For Free Until He Manages It Better

[caption id="attachment_100373" align="alignright" width="260"] Let's be reasonable...[/caption] So things aren't great at Yucaipa Cos. It's bounced back a bit since its books showed a 40% loss at the end of 2011, but it was still down 19% at the beginning of this year. And, it seems, investors were insufficiently impressed with the discount he consequently offered.