Financial Analysis

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Brazilian Beer Merger Negotiations: Companhia Cervejaria Brahama, S.A
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Table of Contents Executive Summary 3 Issues: 4 Recommendations: 4 Value of synergies and intrinsic value per share of Antarctica 5 Form of payment; Cash or common stock? 5 Share-for-share transaction 7 Term sheet and its components 8 Economic Analysis 8 Recommendation 9

Executive Summary
In 1999, the CEO of Companhia Cervejaria Brahama (largest brewer in Brazil) was considering the bit for Antarctica (second largest brewer in Brazil). The purpose for this merger was to exploit the potential synergies and avail the economies of scale. The secondary motive was to raise the barriers to entry to the industry
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Terminal value is calculated by divided the synergies of one year to the weighted average cost of capital.
Form of payment; Cash or common stock?
Once the prices would be finalized by both of the companies, the next step would be determining the method of consideration. There are commonly two methods that the companies considers, those are cash payment or share for share exchange. From the Antarctica’s point of view, an investment issue is the question. Should the Antarctica reinvest the amount in Newco (that means Brahama including Antarctica) to benefit from higher value and potential synergies?
Or should Antarctica take the cash payment in order to reinvest somewhere else in the market or in another assets. This depends principally on the Antarctica’s portfolio strategy, its objectives for risk and return and investment barriers for example liquidity, tax concerns, time horizon, legal and regulatory factors and other choices. From the Brahama’s point of view, the form of payment could be the financing issue. It could influence the impact on balance sheet and the capital structure. To acquire Antarctica, Brahama need to pay $5130 million by either the issuance of equity of the debt. Therefore, both viewpoints must be settled down in order to have the deal successful.
There are several elements to be considered when choosing between the two forms of payments. When submitting an offer, the Brahama should
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