Anheuser Bush Co Case
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In 2008, the Belgian-based firm InBev NV prepared to acquire Anheuser Bush Co., with a total payment of $52.5 billion. The combination would create the worlds largest brewer. The issue we are going to discuss here is whether this deal will create value for InBev shareholders. In order to answer this problem, we will quantitatively calculate the NPV of the deal and qualitatively analyze the synergy and risks. We elaborate on four points as follows:
The competitive advantages of the brewing industry.
The strategic rationale for the deal and the synergies created.
The merger integration issues that will concern InBev.
A quantitative analysis of the value Inbev shareholders will get from the deal.
Compared with other industries, the basis of competitive advantage in the brewing industry is expanding distribution chains with acquisitions or collaborations and mergers in various locations since distribution is reflected by the consumption patterns, market structure, geographic density of customers, local regulation, and the existence of third-party wholesalers or distributors. It is hard for new companies to enter the market directly. Through acquisition and mergers, the brewer can easily make their products recognizable and available to consumers. Because the basic beer brewing process is quite straightforward, the holding company can take advantage of the existing production lines of an acquired company. Meanwhile, the holding company can obtain local consumers information and advertise their new products more efficiently. Acquisition is a shortcut to expand into new markets.
As suggested, InBevs rationale for acquiring Anheuser Busch is to gain supply chain and distribution advantages, which will generate both revenue synergy and cost synergy. At the time of the offer, InBev had only a minor share of the U.S. beer market and Anheuser Busch dominated the U.S. market. As the second largest market by volume, InBev couldnt ignore the U.S. market. InBev realized that it could gain large competitive advantages by acquiring Anheuser Busch. The acquisition would make AB InBev the worlds largest beer producer and the fourth largest consumer-goods company. This makes AB InBev much more globally diversified than either company could become by themselves. InBev will have access to the supply and distributions channels that Anheuser Busch developed, giving their brands an advantage against other imported beers in the U.S. Due to the marketing strategy of Anheuser Busch, Budweiser is already globally recognized as a premium brand, but Anheuser Busch has limited sales outside the U.S. By using InBevs supply channels, Anheuser Busch can boost sales in Europe and Asia by leveraging their brand reputation. The weak U.S. dollar also makes this an opportune time for the merger since it provides benefits for Anheuser Busch and cost savings for InBev. The acquisition will likely turn the new firm, AB InBev, into a brand thats as globally recognized as Coca-Cola or Pepsi.
In general, the synergies of mergers usually come from two main scenarios, cost synergies and revenue synergies. Take the previous merger between Ambev and Interbrew as an example; they received $280 million synergies from the merger by sharing operational and financial know-how and distribution channels. In this