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BIG BEER: INBEV VS. ANHEUSER-BUSH Case Solution & Answer

BIG BEER: INBEV VS. ANHEUSER-BUSH Case Solution

It doesn’t matter how big the company is because the companies which will rule European and US markets will take away majority of the profit.

WHAT IS THE STRATEGIC FIT FOR BOTH COMPANIES?

InBev has over 200 brands which reflect that they have readymade product portfolio which is key to success in the growing market it also holds 1st or 2nd position in 20 key markets around the world. Cost saving s and world class efficiency is the reason InBev has performed very well in the recent years

On the other hand Anheuser-Bush was once the biggest American beer company but it is replaced by InBev and after that by Heineken and SABMiller. No doubt it has a potential to become number one again in US market through merging and InBev is now making an offer which can be beneficial for Anheuser-Bush in the long run. In the recent years AB struggled to expose itself in the emerging foreign markets which are now possible with the help of InBev. Because InBev have an infrastructure in many key markets which can be very helpful for AB, on the top of that InBev can further strengthen its position in the American markets by acquiring AB.

WHAT ARE THE ADVANTAGES AND POTENTIAL SYNERGIES OF A MERGER BETWEEN INBEV AND AB?

There are number of cost, revenues and financial synergies can be achieved in the post acquisition period such as AB is currently facing difficulties to avail market exposure in the international market and they are finding it hard to introduce their products in the foreign markets especially in the emerging markets of Asia pacific. After acquisition they can use their single market department because InBev products are popular in the new markets and will help greater revenues through the mixture of products from two companies after acquisition this will act as a revenue based synergy.

Furthermore when they will eliminate some of their existing departments and avoid duplication of functions they will achieve synergies in the form of combine cost cutting which will also help them to improve their profit margins. AB is currently struggling to market its mass produced beer in which InBev help will create exceptional synergies because currently AB is dominating 48.5% of the US beer market.

WHAT HURDLES IS INBEV GOING TO FACE TO COMPLETE THE ACQUISITION OF AB?

The one problem they might face is that the acquisition must be in accordance with the consolidation trend of the industry. In big cross border merger the issue of culture arises and change management becomes more difficult. Apart from these hurdles the possible intervention by US government opposition that famous US Beer Company will be controlled by foreigners although there are no laws that will prevent this acquisition but still this is a potential hurdle in the takeover process.

What is AB’s cost of capital (WACC)?   Show your work in an excel worksheet and explain your

answer here.

COST OF CAPITAL OF AB

The cost of capital for AB is calculated as 8.23%, the calculation of cost of capital involves the use of capital asset pricing model through which cost of equity is calculated the free cash flows are discounted on this WACC the risk free rate was used, for cost of debt the spread was added in the US 30 year curve accordance with AB credit rating was added. The combine WACC after acquisition will also give good understanding of the free cash flows………………

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