Ab inbev and sabmiller merger analysis

ON NOVEMBER 11, 2015, ABI-INBEV AGREED TO ACQUIRE SABMILLER IN A TRANSACTION VALUED AT $107 BILLION. SEARCH THE INTERNET FOR MORE INFORMATION ABOUT THIS MERGER E.G. THIS NY TIMES ARTICLE AND ANSWER THE FOLLOWING QUESTIONS IN A SINGLE WORD DOCUMENT.
Why do you think ABI-Inbev proposed to acquire SABMiller? What benefit is expected from the acquisition? (5 points)
Why would ABI-Inbev agree to sell certain assets/brands to other firms e.g their 59 percent stake in MillerCoors? What other challenges does the firm have in this merger deal? (5 points)
How will the merger affect the U.S. beer industry? How should competitors e.g. Molson Coors respond? (5 points)Chapter 7 Merger and Acquisition Strategies Introduction: Popularity of M&A Strategies • Popular strategy among U.S. firms for many years • Can be used because of uncertainty in the competitive landscape – Increase market power because of competitive threat – Spread risk due to uncertain environment – Shift core business into different markets • Due to industry or regularity changes • Intent: increase firm’s strategic competitiveness and value – the reality, however, is returns are close to zero Introduction: Merger vs. Acquisition vs. Takeover Mergers, Acquisitions, and Takeovers: What are the Differences? • Merger – Two firms agree to integrate their operations on a relatively co-equal basis. • Acquisition – One firm buys a controlling, or 100%, interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio. • Takeover – An acquisition in which the target firm did not solicit the acquiring firm’s bid for outright ownership. Using Acquisitions to Implement CorporateLevel Strategies Corporate-level strategies are primarily directed toward improving a company’s competitive advantage and profitability in its present business or product line: • Horizontal Integration (acquisitions) – The process of acquiring or merging with industry competitors • Vertical Integration (acquisitions) – Expanding operations backward into an industry that produces inputs for the company or forward into an industry that distributes the company’s products • Diversification (related acquisitions) Top 10 M&A Deals Worldwide 1990-1999 Rank Year Purchaser Purchased Transaction value (in mil. USD) 1 1999 Vodafone Airtouch PLC Mannesmann 183,000 2 1999 Pfizer Warner-Lambert 90,000 3 1998 Exxon Mobil 77,200 4 1998 Citicorp Travelers Group 73,000 5 1999 SBC Communications Ameritech Corporation 63,000 6 1999 Vodafone Group AirTouch Communications 60,000 7 1998 Bell Atlantic GTE 53,360 8 1998 BP Amoco 53,000 9 1999 Qwest Communications US WEST 48,000 10 1997 WorldCom 42,000 MCI Communications Reasons for Acquisitions (N = 8) • 1. Increased market power – Sources of market power include • Size of the firm, resources and capabilities to compete in the market and share of the market • 2. Lowers the cost structure – Creates increasing economies of scale – Reduces the duplication of resources between two companies Reasons for Acquisitions (N = 8) (Cont’d) • 3. Overcoming entry barriers – Cross-border acquisition: headquarters in different country • 4. Increased speed to market • 5. Lower risk compared to developing new products • 6. Increased diversification • 7. Reshaping firm’s competitive advantage • 8. Learning and developing new capabilities Problems in Achieving Acquisition Success Integration difficulties Inadequate target evaluation Too large Managers overly focused on acquisitions Problems with Acquisitions Too much diversification Extraordinary debt Inability to achieve synergy Problems in Achieving Acquisition Success: Integration Difficulties • Integration challenges include: – melding two disparate corporate cultures. – linking different financial and control systems. – building effective working relationships (particularly when management styles differ). – resolving problems regarding the status of the newly acquired firm’s executives. – loss of key personnel weakens the acquired firm’s capabilities and reduces its value. Problems in Achieving Acquisition Success: Inadequate Evaluation of Target • Due Diligence – The process of evaluating a target firm for acquisition. • Ineffective due diligence may result in paying an excessive premium for the target company. • Evaluation requires examining: – financing of the intended transaction. – differences in culture between the firms. – tax consequences of the transaction. – actions necessary to meld the two workforces. Effective Acquisition Strategies Complementary Assets /Resources Buying firms with assets that meet current needs to build competitiveness. Friendly Acquisitions Friendly deals make integration go more smoothly. Careful Selection Process Deliberate evaluation and negotiations are more likely to lead to easy integration and building synergies. Maintain Financial Slack Provide enough additional financial resources so that profitable projects would not be foregone. ...
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