Mergers and Acquisitions - publié le 07/05/2012

Résumé du document

In this paper, we will analyze, through four specific questions, the Brazilian beer merger between Brahma and Antarctica. In 1999, Brahma's CEO, named Marcel Telles, informed the firm's executives team about the negotiation of a possible merger with another Brazilian firm: Antarctica. The main objective of this assignment was to prepare a bargaining strategy to guide negotiations and conclude the deal.

The first part will focus on the estimation of the value of the different synergies and also determine intrinsic value per share of Antarctica (the target company). On the second part, it will determine the relative merits of cash and common stock as form of payment in this deal. Then, a share-to-share transaction will be brought in to find out the maximum exchange ratio in this condition. Moreover, we will enhance factors that determine the maximum and the minimum of this ratio. Finally, we will conclude with a description of deal design and some recommendations concerning this specific business case.

The merger with another firm enables to exploit a lot of opportunities as reinforcing its position in the market, creating economies of scale, sharing knowledge and know how. There are different mergers and acquisitions activity drivers. According to our business case between Brahma and Antarctica, we have faced rational managers and markets.

Brahma's managers pursue a competitive advantage to reach objectives in terms of market shares to become a "global total beverage company" in Latin America. In order to reach its objectives, Brahma has to take market shares from competitors as Antarctica.

Extraits

[...] Boards of directors A mix of two actual board of direction could be considered. In terms of future management it could be a good solution to involve all employees in the new company. On another part, enhancing the governance of this organization could guarantee to all stakeholders a coherent strategy and good future performance for the company. Headquarters location In terms of headquarters location, Brahma headquarters is located in Sao Paulo and Antarctica is located in Rio de Janeiro. I think is not good to keep two different places for Newco. [...]

[...] For example, some plants could be closed. The merger has to enable to eliminate non-profitable plants and promote others. So, this kind of synergies allows Newco to reduce cost of production and to improve company's performance. On another way, this merger could bring some revenue synergies thanks to its portfolio combination that enables Newco to improve its negotiation bargain and to reinforce its place in the market. Indeed, Antarctica produced 4 soft drink brands in Brazil and sold 18 brands of beer brands of soft drinks other beverage products and Brahma produced 11 brands of beer and 17 soft drink brands in America Latina. [...]

[...] There are a lot of kinds of payment we could consider in a case of merger. In fact, a company has different possibilities to pay: share for share, cash or other compensation such as assets (raw material, equipment, warehouse). In this paper, I think that the best solution is to use a share for share payment, with a cash transaction. In fact, in this case, we face with a merger where the two initial companies are destroyed to created a new one: Newco. However, the aim of Brahma is to take the lead under Antarctica. [...]

[...] 789 millions + 166 millions = 955 millions Bibliography Internet web site: http://www.businessdictionary.com http://www.investopedia.com/ http://www.brahma.com/ Seminar: Merger and acquisition seminar, ISM Paris by Mehdi MAJIDI, Ph.D Others: Brazilian beer merger Negotiations: Companhia Cervejaria Brahma, S.A. document by Darden Business Publishing, University of Virginia dated of 1999 Table available on the exhibit 6 from Brazilian beer merger Negotiations: Companhia Cervejaria Brahma, S.A. document by Darden Business Publishing, University of Virginia dated of 1999 Information available from Brazilian beer merger Negotiations: Companhia Cervejaria Brahma, S.A. [...]

[...] The main aim was to integrate another company and not to absorb it. In this case, Brahma is the most efficient producer of beer in Brazil and Antarctica is the second largest producer of soft drinks. In order to provide a satisfying answer to this question, we have to distinguish two different kinds of synergies. Indeed, in a merger operation, there could have some “cost synergies” or some “revenue synergies”. Let's explain the difference between the both approaches: The first one, synergies called “cost synergies” occur when they follow a logic of reduction or saving. [...]