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

M & A- Anheuser-Busch InBev

Q1.) Make Comparison between the two companies and within the context of their operational and share price information?

InBev is an internationally recognized brewer and it has successfully managed large portfolio of 200 brands, meanwhile, Anheuser-Busch operates in United States brewer market with 49% of US market share. In addition to this, based on the results of 2007 the consolidated revenues of Anheuser-Busch have grown by 6% to €12.2 billion, whereas, growth rate of InBev has grown by 7% to €14.4 billion, which means that InBev had performed better than Anheuser-Busch in terms of revenue generation during the year 2007, however, in terms of total funds invested both the companies have generated almost similar turnover that is 36% for InBev [(36%=14.4/(35.1+5.1)] and 35% for Anheuser-Busch [(35%=12.2/(28.7+6.1)]. Furthermore, the normalized EBITDA that has been adjusted for one-off events, shows that InBev has more efficiently controlled its operational cost because its EBITDA margin is 34.60% of sales revenue, which is around 15.72% higher than the EBITDA margin of Anheuser-Busch [(34.60%-29.90%)/29.90%=15.72%]. Meanwhile, operating profits (EBIT) of InBev has also grown by 20%, whereas, Anheuser-Busch’s operating profits has grown by only 6% and that again confirms that InBev has performed far better than Anheuser-Busch. Moreover, the InBev has high sales in Europe and Latin America, whereas, Anheuser-Busch’s 81% sales revenue has been generated from the North American region, although InBev also have presence in North America but its sales represents only 11% from this region. Meanwhile, InBev have double work force in comparison to Anheuser-Busch and total sales volume of InBev has grown by 5.2% to 271 mhl, whereas, Anheuser-Busch’s sales volume is almost 43% lower than the sales volume of InBev and is growing with lower growth rate of 3.2%. However, the efficiency of Anheuser-Busch’s employees is higher than the employees of InBev because InBev has sold 0.003 MHL of beer per employee and in comparison to this Anheuser-Busch has sold more beer per employee, i.e. 0.006 MHL of beer per employee. Additionally, the debt to equity ratio of InBev is 15%, (5.1/35.1) whereas, debt to equity ratio of Anheuser-Busch is 21% (6.1/28.7); hence, Anheuser-Busch operations are more exposed to financial risk of not being able to pay its committed interest payments.

Meanwhile, the price to earnings ratio of shows that the InBev has earned €1 for every €10 of investment in InBev shares. In comparison to this, Anheuser-Busch has earned €1 for every €19 of investment in Anheuser-Busch shares. This ratio reveals that Anheuser-Busch’s shareholders have invested additional €9 per share (€19-€10) in order to generate earnings similar to InBev. Additionally, the share price of InBev has grown by 73% over the last 7 years which is a remarkable increment, whereas, Anheuser-Busch’s share price has only grown by 10% over the same period, which clearly indicates that investors have concrete confidence on the past and future performance of InBev than the performance of Anheuser-Busch. However, the share price of InBev is very much volatile in comparison to the share price of Anheuser-Busch because as per Annex 6 of the case, InBev’s share price has continuously been moving up and down, whereas, the share price of Anheuser-Busch has been very constant with slight movement over the 7 years period. This volatility of InBev’s share price may be due the speculations instead of its operational performance.

Q2.) Examine the press release. As an Anheuser-Busch shareholder, what is your opinion? What is your opinion based upon? Do you perceive the proposal as a takeover or a merger? What is your perception based upon?

The shareholders of Anheuser-Busch are divided into four categories and larger portion of its share is with the general public. Furthermore, the press release states that shareholders will be paid $65 cash for each share of Anheuser-Busch that represents a premium of 35%, however, the premium is an attractive opportunity for shareholders to gain the capital appreciation in the form of 35% premium. In addition, the shareholders will avoid the risk of holding the Anheuser-Busch’s stock for long time and wait for the appreciation of its share price.

Furthermore, from the point of view of Busch family and directors, shareholders will be more willing to support the acquisition because the press release states that the key management and directors will retain in the business to support the post acquisition business operations, which will not only secure their jobs but will also provide them with immediate gain on their investment in the form of 35% premium on Anheuser-Busch’s shares.

Takeover or Merger

However, the proposal is a potential acquisition of Anheuser-Busch because the consideration of Anheuser-Busch’s shares is being paid in the form of cash where a merger can be established through exchange of Anheuser-Busch’s share with the combined entities shares. Moreover, the acquisition will largely be financed through debt that further confirms that it’s a merger. In addition to this, the press release states that the combination......................

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