Company Description
InBev NV was formed after a merger between AmBev, the world’s fifth largest brewer, and Interbrew, the world’s third largest brewer, in 2004 (Inkpen 121). InBev has its headquarters in Leuven, Belgium. It has a strong presence in Europe, Latin America, North America and Asia.
It employed about 94,000 people and operated in more than 30 countries across Europe, Americas as well as Asia Pacific in 2008 (Inkpen 121). The company had 112 plants worldwide (Inkpen 123). In 2007, the company earned €14.43 billion revenues registering a net profit of €3.048 billion.
InBev had over 200 brands which were categorized into different market segments. It categorized its segmented brands into; global brands, which were distributed in 80-100 countries; Multicountry brands, distributed in 30-60 countries; and local brands, which were distributed in their countries of production.
It also segmented its market into seven zones; North America, Latin America North and Latin South America, Western Europe, Central and Eastern Europe, Asia Pacific, and lastly, the Global Export and Holdings.
InBev has a unique corporate culture that is based on minimizing costs while modernizing production in addition to streamlining its extensive product line. Inkpen (123) reports that InBev’s corporate culture involves cutting travel budgets, using zero-based budgeting as well as eliminating executive dining rooms by setting up open-plan offices. As a result, it does not own corporate jets. Again, compensation to its staff is tied to performance rather than rank (Inkpen 123).
Problem definition
InBev’s aim is to increase its growth and market presence through mergers and acquisitions as it upholds its competitive strategy to achieving sustainability; however, the question remains as to whether InBev its proposed synergies would enhance the merger integration so as to benefit the two companies owing to their different corporate culture.
Who are the actors?
Carlos Brito, InBev’s President and Chief Executive, together with other board members at InBev have agreed on a merger with the Anheuser-Busch board members so as to establish a stronger as well as more competitive global company (Inkpen 128).
Anheuser-Busch’s board is headed by August Busch IV, who is the company’s President and Chief Executive. Other actors involved in the merger process include the management teams of both companies, independent financial advisers for both companies as well as financial institutions providing financing required in sealing the deal.
What is the strategy choice?
InBev’s expansion strategy in this case is to form a merger with Anheuser-Busch through a tender offer acquisition. In the deal, InBev plans to make an acquisition by buying Anheuser-Bush’s voting stock. In a tender offer, the bidding company (in this case InBev) makes a direct offer to the company’s shareholders to purchase their shares, and as a result, acquires their voting rights.
Strategic rationale for the acquisition
Under this merger, InBev aims to become a global leader in the brewery industry. The merger would allow it achieve a stronger as well as more competitive international company. It would enable it expand its Budwiser globally and to use Anheuser-Busch established marketing channels to expand its brands internationally.
Inkpen (128) reports that InBev will be able to exploit Anheuser-Busch’s wholesalers as well as its three-tier distribution system. In addition, it will also be able to operate in the communities/countries where Anheuser-Busch operates.
What is Anheuser-Busch worth?
The last annual financial statement to be presented to the public at the end of the 2007 fiscal year, Anheuser-Busch had an asset value of $17.155 having achieved retained earnings of $18.715 billion. The price of its closing stock at the end of the financial period was $52.34 per share.
The sources of synergies
Inkpen (127) reports that the acquisition Anheuser-Busch would lead to an estimated yearly net sales of about $36 billion. In the 2007 fiscal year, Anheuser-Busch collected $18.989 billion from sales while InBev had pre-takeover sales of $22.5 billion, and this was expected to increase due to improved operating efficiencies resulting from cost reductions.
Inkpen (129) reports that synergies will come from the sale of the company’s non-core assets as well from adoption of more efficient supply chain management.
Again, InBev’s value price would increase since the net current value of future cash flows expected to be generated by Anheuser-Busch under its old management team (since Anheuser-Busch had maintained its management team and board); and again, the cost of the bid is higher than the bid price.
Using Black-Scholes model, the hostile bid premium was found to be $11.254/share meaning that the cost of the estimates exceeded $11.25/share (Hancock 5). This meant that InBev had to increase its bid price to above $69.6/per share to promote an increase in its value (Hancock 6).
Thus, by buying the voting stock at $70/share, InBev’s shareholders would benefit from the increase in the company’s value. Again, the variance of both companies’ stock returns are low, with Anheuser-Busch having a variance of 0.000204 while that of InBev was estimated to be 0.0005853 (Hancock 7).
The correlation of their stock returns is also 0.101736 which is lower than the projected value since they both operate in the same industry (Hancock 7). The figures suggest that InBev’s shareholders will benefit from diversification benefits (Hancock 7).
What constraint(s) are present?
Anheuser-Busch-InBev faces several merger integration issues.
The two companies have different corporate cultures which may threaten the smooth integration into one company. While InBev’s corporate culture is based on cost cutting as well as incentive-based compensation programs (Inkpen 124), Anheuser-Busch’s corporate culture emphasizes on high salaries, bonuses and gifts, participation in community activities, as well as, executive transport to employees, and offices.
During the acquisition, it was agreed that the board members and the management team of Anheuser-Busch-InBev are to come from both companies. This means that developing a common business strategy could be a major challenge since Anheuser-Busch is not used to the extreme cost cutting strategies that InBev applies.
Possible solutions
Anheuser-Busch InBev has to focus on cutting costs by adopting a more efficient supply chain management without laying off employees at Anheuser-Busch. Supplier innovation will be its key strength to penetrating the markets. Again, it should also implement the sale of its non-core assets.
It should strategize on how to reduce a certain level of its non-material as well as non-product costs per year so as to ensure continued success. These would help achieve operating efficiencies which will in turn help in achieving cost reductions.
In addition, bonuses should be maintained, but they should be tied to meeting targets. The company can also strengthen its products diversification to gain more competitive advantage in its regions of operation. Finally, the company may also consider reducing costs by engaging in mass production of its global and multicountry products by designating specific plants for mass production.
Conclusion
InBev adopted a tender offer acquisition to merge with Anheuser-Busch. Despite their different corporate cultures, including members from the two organizations into the board as well as the management team would help steer the company to greater success.
Members from each side have a better understanding of the industry and how the different corporate cultures affect the integration process. This means that they can always find a common way forward that benefits both companies.
Works Cited
Hancock, David. How Much Is Too Much? The Case of the Anheuser-Busch INBEV Takeover. International Review of Accounting, Banking and Finance 2.1 (2010): 22-30
Inkpen, Andrew. InBev and Anheuser-Busch. Glendale, Arizona: Thunderbird School of Global Management, 2010. Print.