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Discontent grows against AB InBev bonuses

* Politicians and unions criticise executive bonuses
* CEO set to gain 144 million euros from bonus scheme
* A further 39 AB InBev executives set to gain
* AB InBev hits debt target two years early

Discontent is building against executive bonuses totaling more than 1 billion euros ($1.33 billion) at Anheuser-Busch InBev triggered when the brewer cut its huge debt two years ahead of target following the acquisition of the maker of Budweiser.

Executive options were set on how rapidly the world's biggest brewer could cut debt, and with the target now reached Chief Executive Carlos Brito is in line for a windfall of more than 100 million euros among 40 AB InBev executives set to benefit from the scheme.

"No one can be worth that kind of money. Indeed, companies with the highest bonuses are not necessarily the best run. Just look at the financial sector," said Flemish Socialist Democrat lawmaker Dirk Van der Maelen.

The brewer of Stella Artois and Beck's reported earlier this month in its annual results that net debt had fallen sharply by the end of 2011 to trigger the options, half of which are due to vest at the start of 2014.

Belgium-based Inbev took over Budweiser-brewer Anheuser Busch in late 2008 for $52 billion in cash, and then sold off non-core business rapidly and cut costs at the U.S. brewer dramatically to bring its hefty debt down sharply.

The company's shares slumped as the group tried to conclude the then world's biggest cash takeover in the midst of a financial crisis following the collapse of Lehman Brothers, but since the deal was concluded in November 2008 the shares have soared.

The shares hit a low of 9.96 euros in late November 2008 from a high of 43.1 euros in October 2007 due to the financial crisis and concern over the deal's size, but have recovered strongly and hit a new record high on March 27 of 55.61 euros.

"Clearly the Anheuser Busch acquisition has been good for shareholders, but in hindsight the bonuses were set very generously considering the cash generative nature of brewing and the programme of disposals the group had agreed," said one AB InBev shareholders speaking in London.

The brewer cut debt by selling off brewing assets in eastern Europe, Korea and China and non-core businesses like Anheuser Busch's SeaWorld leisure parks, while bringing together two of the world's top brewers created big cost savings.

TWO YEARS EARLY

The company granted 28 million share options at an exercise price of 10.32 euros at the closing of the Anheuser Busch deal to 40 executives it believed were key to the successful integration of the two brewing companies. Half the options vest on Jan. 1, 2014 and the other half on the same date in 2019.

This 2008 exceptional option grant was set to vest if the group's net debt to core EBITDA profit ratio fell below 2.5 times before the end of 2013. The actual debt ratio fell to 2.26 times by the end of 2011.

Based on a current share price of 54.62 euro, the profit would be 1.24 billion euros for the 40 executives, or some 144 million euros for Brito.

"A worker would take 4,500 years to get to the bonus of Brito... Bonuses for managers are based on hitting budget targets, so you have cutbacks in repairs or preventative measures," said Kris Croonenborghs of blue collar ABVV union.

The bonus issue also annoyed group managers and office staff who are seeking work security guarantees, according to union officials, while Brito appeared to have security up to 2019 when his options fully vest.

"There is a lot of indignation. We are talking about white-collar staff and managers who are seeking guarantees of work until the end of 2014, which InBev is refusing to provide. We are not asking for anything that costs," said Roger Van Vlasselaer, a leader in the white collar BBTK union.

"Set against this is the gigantic bonus. It's a huge scandal, pure madness," he added.

Analysts said it had been clear that debt was going to tumble sharply given the group's planned disposals and the costs which could be trimmed from Anheuser Busch's bloated budgets.

Group net debt/EBITDA stood at 5.5 times when the deal was completed in November 2008, then it fell to 4.7 times by the end of 2008 after a planned $9.8 billion rights issue, which was set at a steeply discounted price of 6.45 euros a share.

The brewer said its debt fell to $34.7 billion at end 2011 down $5 billion from end-2010 and the net debt to EBITDA fell to 2.26 times from 2.86 times. It expects to reach a net debt to EBITDA ratio of 2 times during 2012.

28 Mar. 2012

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