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Beer and Brexit: Misleading Wall Street Journal Article on AB InBev and British Pound

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In this past weekend's edition of the Wall Street Journal, they had an article in the "Money" section about how the decline of the British Pound (by Brexit and Thursday's "flash crash") would "cost" Anheuser-Busch InBev NV an extra $13 billion to acquire SAB-Miller PLC.

Now, to give them credit, the WSJ did put quotes around cost.

But, still, my first reaction was, "if InBev's purchase became more expensive, because they were using pounds to buy SAB-Miller in dollars, why didn't they hedge their currency risk?"

It turned out InBev did hedge – just like any responsible corporation should.  Moreover, they were doing the opposite: they were using dollars to buy SAB-Miller in pounds.

The WSJ article was trying to make the point, while acknowledging the hedge, that InBev could have made an extra $13 billion without the hedge because the pound weakened so much against the dollar.

Now, some might find this interesting, but InBev did not lose $13 billion. They did the responsible thing.  Their core competency is beer, not currency speculation.

The hedge allowed them to pay exactly what they would have paid, based on the GBP-USD price at the time the deal was announced.  It removed any uncertainty around currency change.

What if the market had gone the other way, and the pound had gotten stronger against the dollar by the same magnitude? Then, they would have actually paid $13 billion more for SAB-Miller, which would have been unacceptable.

Think of the currency hedge like insurance.  If you pay $5,000 for homeowner's insurance for the year, and your house doesn't burn down, you don't say that the result (house staying safe) cost you $5,000.
 
 
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