M & A- Anheuser-Busch InBev Harvard Case Solution & Analysis

Q3.) What do you perceived are the key and relevant elements of the combination of these two companies?

Key elements of the combined business are discussed in the press release issued by the InBev such as the name of combined business will be changed to Evoke Anheuser-Busch Heritage and the proposed headquarter of combined business will be in North America where Anheuser-Busch have the highest share of its revenues. Furthermore, Anheuser-Busch’s well known brand, Budweiser will become a flagship brand for the combined business and InBev will introduce the Budweiser into other parts of the world and will make it a world class brand. Meanwhile, the current management structure will not change significantly because the key management staff and directors will be retained. Additionally, the merger will lead to establishment of World’s fifth largest company in the consumer goods industry; meanwhile, the combined business will continue to serve the social cause of Anheuser-Busch. In addition to this, Anheuser-Busch’s brands will be launched in other parts of the world where InBev has already established its presence. Furthermore, another key element of business combination will be the synergies that the combined business will bring such as the advantage of economies of scale and cost savings that will be achieved through elimination of double functions and both the entitieswill share each others’ functions and resources in order to generate synergy effects. Meanwhile, the combination will be financed by syndicate debt, which will be provided by different groups and total amount of debt that will be needed to finance the acquisition has been estimated to be $40 billion. In addition to this, additional funding will be raised by selling unrelated business units and some equity financing.

Q4.) As an Anheuser-Busch shareholder what can you ascertain are the risks arising from this combination?

The potential risk that the existing shareholders of Anheuser-Busch will be exposed to is that the future value of Anheuser-Busch’s business operations may be higher than the per share premium they have been offered by InBev. Moreover, from the point of view of three major shareholders, they will lose the controlling power of combined business because the control will be transferred to InBev in the form of acquiring majority of shares from market float. However, the Anheuser-Busch revenue growths of 6% are significant and these are expected to grow in future and the premium calculated by InBev is based on comparison of offer price with 30 days average share price of Anheuser-Busch, which is not a reasonable comparison for calculation of share premium. In fact, the premium should be based on the fair value of Anheuser-Busch’s market share price, which should be calculated using not only the current value of business operations but a provision should also be made for the future growth opportunities of Anheuser-Busch. In addition, the combination of the two companies at offer price of $65 per share will put the shareholder’s investment at risk of losing capital gains that they had achieved over the long period of their investment in Anheuser-Busch.

Q5.) As an InBev shareholder what would be the risks arising from this combination?

From the perspective of InBev’s shareholders, the potential risk could be that the premium, which was offered to Anheuser-Busch’s shareholders might not be appropriate because the offer price has been calculated using the forecasted results of Anheuser-Busch’s business operations, which are expected to grow as per the past trends and if the future forecast failed to materialize then this will mean that the premium pricing had been paid at the cost of existing shareholders of InBev.

Meanwhile, if InBev fails to successfully integrate the operations in order to gain competitive edge and expected synergies then this will lower down the share price of InBev’s existing shareholders. Furthermore, the two companies are in different regions, i.e. Belgium and United States, the management of InBev may face the cultural and traditional difficulties while....................................

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