The Interbrew-AMBEV Merger Story|Business Strategy|Case Study|Case Studies

The Interbrew-AMBEV Merger Story

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Case Details:

Case Code : BSTR137
Case Length : 20 Pages
Period : 2002-2004
Organization : Interbrew, AmBev
Pub Date : 2004
Teaching Note :Not Available
Countries : Brazil, Belgium
Industry : Brewery

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Joining with AmBev, Latin America's leading brewer, and its world class management team is great news for our consumers, employees, distributors and shareholders. The combination preserves the best of both companies, while enhancing our profitability and prospects. For Interbrew, it also represents an opportunity to enter some of the fastest growing beer markets in the world." 1

- John Brock, CEO, Interbrew in March 2004.

"The agreement offers AmBev a unique opportunity to combine with Interbrew and establish a truly global powerhouse, with strong positions in the world's best markets. A unified operation for the Americas, from Canada to Argentina is a very exciting prospect. More broadly, we can now achieve the long-term goal of opening up the world's largest markets for AmBev's brands."2

- Marcel Hermann Telles, Co-Chairman, AmBev in March 2004.

The Announcement

On March 03, 2004, the world's third largest brewery company - the Belgium - based Interbrew -- and the world's fifth largest brewery company - the Brazil- based AmBev announced plans to merge their operations. In a mega deal valued at US$ 12.8 bn, the merger created the world's largest brewing company in terms of volumes produced.

The combined entity was expected to generate revenues of €9.5 bn (US$ 11.9 bn) and command a 14% market share in the global beer market. Interbrew had a presence in over 140 countries, with a dominant position in Europe and North America. The company had registered a compounded annual EPS growth rate of 24.6% over a decade. AmBev had a nearly two-third share in the Brazilian market and was market leader across the Latin American region. Commenting on the benefits of the deal, Axel Gietz, Senior Vice-President, corporate communications and public affairs at Interbrew said, "The complementary deal will give AmBev a chance to expand into North America and Europe and give Interbrew an opportunity to expand into South America, the world's highest growth beer market after China.

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This reduces the competitions' ability to expand into South America."3 While company officials were optimistic, there was mixed reaction from different sections of the industry. Analysts expressed doubts whether the merger would really create the world's largest brewer.

In terms of revenue, the new entity lagged behind the current world leader, Ambeuser-Bush (A-B), which generated US$ 14.1 bn in 2003. Further, given the trend of consolidation in the global brewery industry, industry observers felt that even in volume terms, the new entity might not continue as the world's biggest brewer for long (Refer Exhibit I for a note on the global brewery industry). The stock markets too were not impressed. On the day the deal was announced, AmBev's shares fell by 18%, while Interbrew's witnessed a minimal change (Refer Exhibit II and Exhibit III for the stock price charts of Interbrew and AmBev). Analysts felt it would take a long time for the merger to yield the expected returns.

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1] Interbrew, AmBev to merge. Beverage Industry, March 2004.

2] Interbrew, AmBev to merge. Beverage Industry, March 2004.

3] Kepp Michael, The Brewmasters, Latin Trade (English), July 2004.


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