The Interbrew-AMBEV Merger Story

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According to the merger deal's terms and conditions, Interbrew would purchase a controlling interest in AmBev, by issuing its shares. For its part, AmBev would purchase the Labatt Brewing Company Limited (Labatt) - Interbrew's brewery in North America and Interbrew's 30% stake in Femsa Cerveza, one of the two leading brewing companies in Mexico.

AmBev would compensate for this by taking over Labatts' debt of US$ 1.3 bn and by issuing additional shares to Interbrew. Though, it appeared on the surface that Interbrew was losing a minority stake to acquire a majority stake in AmBev, this was offset by the shareholders of both companies being provided equal importance in the functioning of the merged entity. This was named InBev. Thus, the deal seemed an alliance or partnership rather than an acquisition. After the merger, AmBev would have sufficient autonomy in its day-to-day business, the power to influence critical decisions in the group's affairs and the opportunity to further expand its business, domestic as well as geographic...

Several synergies and benefits were expected from the merger (Refer Table I). These broadly included financial benefits, a good growth platform and cost synergies. On the pro-forma 2003 basis, Interbrew and AmBev were expected to jointly earn revenues of € 9.5 bn and combined earnings before interest, taxes, depreciation and amortization (EBITDA) of € 1.271 bn. Interbrew's market capitalization at the time of merger was 9.977 bn and had been showing steady growth. In the past couple of years, Interbrew had reported an increase in revenue, net income, volume of beer produced and EBITDA...

Despite the optimism from company officials, analysts criticized the Interbrew-AmBev deal on several accounts. The deal was based on the principle of growth through acquisitions. Analysts felt that pursuing growth at any cost was not always beneficial. They felt Interbrew was keen to go ahead with the deal more because of compulsion to maintain its position in the industry. The company's financial performance had deteriorated significantly in the fiscal year 2002. While the company's revenues had fallen by nearly 4%, from € 7.303 bn to € 6.992 bn, its net income was down by a whopping 33%, from € 698 mn to € 467 mn in the fiscal year 2002. Though the financials improved in the fiscal year 2003, they were less than 2001 levels...

Exhibit I: A Note on the Global Brewery Industry
Exhibit II: Interbrew - Stock Price Chart(April 2002 - September 2004)
Exhibit III: Ambev - Stock Price Chart (November 2003 - October 2004)
Exhibit IV: Ambev's Market Share in Latin America (2002)
Exhibit V: Organization Structure of Inbev
Exhibit VI: Interbrew - Consolidated Statements of Income
Exhibit VII: Interbrew - Consolidated Balance Sheets
Exhibit VIII: Ambev - Consolidated Statements of Income
Exhibit IX: Ambev - Consolidated Balance Sheets
Exhibit X: World's Leading Brewer's by Volume Sales (2004)
Exhibit XI: Top Twenty Beer Brands in the World (2002)
Exhibit XII: Comparison of Interbrew - Ambev Key Financial Figures

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