Essay about Merger Between Brahma and Antarctica

1124 Words Jan 24th, 2013 5 Pages
Case Study - Brazilian Beer Merger Negotiations
Xichao Hu, Shiqiang Yang, Rui Zhong, Chenzheng Wang

1. SWOT analysis Brahma | Antarctica | Strengths:The largest producer; Improved productivity; strategic with foreign producers; Two independent distribution Weaknesses:Low volume of sales of nonbeer products; Antitrust restrictionOpportunities:Positive volume growth of beer sales; New and attractive market Threats:Rising foreign firms’ competition; Tariffs elimination; Rising imported ingredients cost | Strengths:Brazil’s second-largest brewer and its largest soft-drink producer; World- famous brand; Expansion of production capacity(in the long term)Weaknesses:Sales decline; lack of a customer focus; regional distribution; Expansion
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That makes the premium unavailable to us. From the difference between stand-alone valuations of Brahma and Antarctica and their market prices, we may infer that the Brazilian market is illiquid. The market price cannot reflect the on-going daily changes in the companies as well as in the market. See the calculation in Appendix a.
5. The intrinsic stock price of Antarctica and Brahma, by using ECF method, are R$132.99 and R$879.54 respectively. They are higher than the ones in Q3 and Q4.
6. See appendix b.
7. The merit of paying by stock is it does not need to increase company’s debt and would not cause any liquidation issues. On the other hand, paying by cash is a quicker way than by stock. It would not cause earnings dilution and ownership loss. Moreover, paying by cash can produce tax shield to the company. In this case, FAHZ held 88.1% of Antarctica’s voting common stock and it was exempt from taxation. Besides, delays in the process may threaten the survival of Antarctic. So FAHZ preferred a cash offer. On the other hand, Brahma’s stock price might be undervalued, so the amount of consideration to be paid may change depend on the form of payment.
8. Using the exchange ratio (Brahma: Antarctica) of 0.096:1, which implied R$61.20 per share, the deal is dilutive both on historical basis and on future basis (from 2000 to 2004). The synergies that are necessary to make the
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