Belgian brewing giant InBev has moved a step closer to making a hostile offer for Anheuser-Busch, complaining that the St. Louis company's new plan for improving earnings and stock price has "significant execution risks."

Meanwhile, some analysts think that if InBev raises its offer too much, it will create financial problems for the combined company.

InBev CEO Carlos Brito argued Tuesday that Anheuser-Busch's rejection of InBev's $65-a-share offer on June 27 denies the best payout to shareholders.

InBev's offer "provides immediate certainty of value in a weakened stock market environment," Brito said in a prepared statement. "Our firm proposal was rejected in favor of a newly formulated management plan with significant execution risks."

Anheuser-Busch's board rejected InBev's offer, worth $46.4 billion, contending that the Belgian brewer undervalues Anheuser-Busch's brands. The St. Louis company said it could raise revenue, profit and its stock price as an independent company.

To achieve those goals, CEO August A. Busch IV announced he would lay off 10 percent to 15 percent of 8,600 salaried workers, take a series of steps to reduce operating costs, accelerate and expand an existing cost-cutting plan and increase prices for beer.

With Anheuser-Busch's stock trading within a few dollars of the InBev offer, some analysts predict InBev might raise its bid - perhaps as high as $70 - even though Brito reiterated that his offer was "full and fair."

Brito reaffirmed his desire for a friendly deal; but he warned again that Anheuser-Busch shareholders should have a vote in the matter - a not-too-subtle reference that InBev could try to bypass the board with a stock-tender offer to shareholders.

"InBev remains committed to the combination and will pursue all available avenues that would allow Anheuser-Busch shareholders a direct voice in the process," he said.

HIGHER BID, HIGHER RISK?

This latest move comes as credit and equity analysts debate the risks and benefits of a higher InBev bid vs. a hostile offer.

A $70-a-share offer would please Anheuser-Busch shareholders, but it could also create a pyrrhic victory for InBev with a lower near-term credit rating and a weakened stock, according to some analysts. Even at the $65-a-share bid, bond-rating agencies sound a bit squeamish.

The first credit alarm was sounded just after InBev made its official offer on June 11 as three bond-ratings firms said the deal might harm Anheuser-Busch's credit rating, thus raising the cost of borrowing money. If InBev buys Anheuser-Busch, it also assumes all of its debt.

Standard & Poor's and Moody's Investors Service said the St. Louis company's rating could be harmed if InBev took on significant debt to buy the company or if Anheuser-Busch assumed more debt to discourage InBev.

So far, Anheuser-Busch's defense doesn't include extra debt. InBev says its $65-a-share price will cause it to borrow at least $40 billion and that the financing commitments have been arranged.

If it raises its offer, it will have to borrow more. "We believe financing could become an issue if the deal were to approach $70-a-share," says a recent report by equity analysts at UBS Securities.

The bond-rating firm, Fitch Ratings, not only placed $9 billion worth of Anheuser-Busch debt on a "credit watch," but it also placed on credit watch $1.3 billion of debt in for AmBev, the Brazilian subsidiary of InBev.

Belgium's Interbrew merged with AmBev in August 2004 to create InBev, which owns a majority of AmBev''s stock. InBev doesn't trade on a U.S. exchange, but AmBev still does.

Analysts who follow AmBev had fretted that its balance sheet would be hurt by InBev's pursuit of Anheuser-Busch. InBev says AmBev's capital structure won't be harmed, says a recent report by Citigroup equity analysts covering the Latin American beverage market.

Fitch Ratings is worried about AmBev "due to the close relationship" with InBev and to the "potential impact upon AmBev's dividend policy and future capital structure," the credit-ratings firm said on June 12.

Fitch estimates that a combination of Anheuser-Busch and InBev would produce $65.5 billion in debt. "Reflecting the sizeable increase in leverage, debt service will be onerous at the outset," Fitch said. "If InBev is successful in acquiring Anheuser-Busch, a multiple notch downgrade [in credit rating] of Anheuser-Busch is likely."

Analysts who follow InBev are mulling over a higher friendly price vs. a slugfest with Anheuser-Busch that could feature a hostile tender offer or an attempt to replace the St. Louis company's board members.

"We don't think InBev wants to go hostile," says a June 30 report from Morgan Stanley analysts who follow InBev. Obviously, InBev doesn't want to lose its investment-grade credit rating.

If InBev bids $70, it might have to issue more stock, much to the chagrin of its shareholders, the Morgan Stanley report says. "The key reason for weakness in InBev's shares is the market's fear of equity issuance."

Since early November, InBev's stock is down 35 percent. Since May 22, the day before the Financial Times reported that InBev was contemplating an offer, the stock is off 14 percent. Anheuser-Busch's stock, which was flat for five years, is up 18 percent since May 22.

Morgan Stanley speculates that a higher bid price could be financed with more debt, the sale of Anheuser-Busch assets like the theme-parks division and the selling of part of Anheuser-Busch's stake in Grupo Modelo, the biggest Mexican brewer. Anheuser-Busch owns 50.2 percent but lacks operational control. Morgan Stanley has had recent investment banking relationships with all three companies.

Natixis Securities, which also follows InBev, isn't impressed by Anheuser-Busch's strategy announced on Friday. The plan "does not amount to a long-term strategic alternative" because it doesn't address sustained improvement in sales, the firm says in a June 30 report.

The fact that Anheuser-Busch's stock rose after the company's presentation "could prompt InBev to increase its offer," the firm says.