The Interbrew-AMBEV Merger Story
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Case Code: BSTR137 Case Length: 20 Pages Period: 2002-2004 Pub Date: 2004 Teaching Note: Not Available |
Price: Rs.500 Organization: Interbrew, AmBev Industry: Brewery Countries: Brazil, Belgium Themes: Mergers Acquisition and Takeovers |
Abstract Case Intro 1 Case Intro 2 Excerpts
"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."
- 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."
- 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.
This reduces the competitions' ability to expand into South America." 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.
AmBev's competitors in Brazil expressed concern that the deal would result in a price war that would lead to monopolistic practices by the newly formed company. Commenting on this, Vinicius Camargo Silva, the lawyer for Schimcariol, Brazil's second largest brewer said, "The deal will cause the merged company to either arbitrarily increase profits or use its increased margins from economy of scale or purchasing power advantages to wage a price war. A price war's immediate effect might be good for the consumers but the long term effect would be to force competitors out of a market, and then, once the merged company dominates the market, set a price that the consumer is forced to accept."
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