InBusch?

Brazilian news report fuels speculation of InBev-A-B deal.

The longstanding rumor of a combination between Anheuser-Busch and InBev is getting hotter thanks to a Brazilian newspaper story.

Valor Economico reported that the two brewers -- which last fall reached a U.S. distribution deal for InBev’s European brands -- are in preliminary merger talks. The story was attributed to a source close to three of InBev’s directors, who previously managed AmBev.

From a Reuters story:

"Valor said at the end of 2006 InBev's market cap at $40.3 billion was higher than $37.7 billion for Anheuser."

It cited an unnamed source close to InBev's management as saying this number is important because it gives InBev "the possibility of negotiating a merger with Anheuser in better conditions."

Some analysts said a deal would make sense, given the ongoing consolidation in the global beer business and the lack of geographic overlap between the two brewers.

Matthew Jordan, analyst for Dresdner Kleinwort -- who gave the InBusch moniker to the potential new entity -- said “we had long considered the two companies to be obvious partners.”

He added: “Management might be shared initially but we would expect the Brazilian aggressive cost reduction culture to dominate within a year or two.”

Carlos Laboy, analyst for Bear Stearns, has previously argued that A-B is the “most viable candidate in any potential merger with InBev.” In a note he said:

"Our concern is whether the control-obsessed InBev controlling shareholders (former AmBev management) would be willing to be diluted in any major equity transaction."

Deutsche Banc analyst Marc Greenberg, meanwhile, said he did not assign a high degree of probability to the rumored deal.

Harry Schuhmacher, publisher of Beer Business Daily, said he was “mildly skeptical.” Read BBD here (subscription required).

The Reuters story can be seen here.