Introduction
The acquisition of Anheuser-Busch (AB) company by Inbrev was one of the most expensive bids in the beer industry. Both of the companies were considered TOP-5 in the beer market while operating in different regions. However, AB and Inbev were different in their approach to finance, marketing, human resource management, and long-term strategies, which resulted in the ability of Inbev to bid the AB. Besides, the deal is an interesting topic for discussion as it was made amidst the financial recession of 2008.
The merger of Anheuser-Busch and Inbev Companies
The initial financing strategy of Inbev was developed with cooperation with Lazard as financial advisor, and Sullivan & Cromwell as legal consultants. The J. P. Morgan and Banco Santander were chosen as banks responsible for syndicating nearly $50 billion in loan (Mogaji, 2021). As the proposition was in the development stages, the financial institutions that would secure the loan were not selected. Yet, due to rumors about the bid, many institutions were interested in having a share in such a large offer that was unique for the instable financial market at the time. Hence, the financial institutions that were committed in the primary financing strategy in June 2008 remained to be lead arrangers in the final financing proposal (Kumar, 2019). However, the additional syndication on August 28, 2008 involved new agents that secured the deal further (Kumar, 2019). Therefore, the diverse portfolio of financial institutions minimized the risks in financing the acquisition.
The unstable financial situation during the 2008, had attracted many institutions that were capable and interested in having a share in one of the largest bids of the recent years. The fact that during spring, the dividends of Inbev had increased from €0.72 to €2.44, was considered an astonishing growth that acted as a positive factor in searching the funding for the acquisition. As the bid was a promising deal for financial institutions, the interest in financing the deal of the AB and Inbev merger was mutually interesting for Inbev and financial institutions. A synergetic effect was achieved by the lack of other significant offers that created a win-win situation for Inbev and its creditors.
Other than that, the financing of the transaction was made in different facilities. The strategy of involving five facilities decreased the level of liability and the amount of debt with each facility (Kumar, 2019). Yet, the situation was risky as in case one of the facilities crashed, the whole acquisition was at risk of failure (Doan and Piet, 2021). Finally, another reason for the approval of Inbev’s scope of liabilities is the fact that the merger would make ABInbev a dominant player in the beer market (Barcas, Leggett and Richardson, 2017). Hence, creditors were confident that the company would return the debt.
In case I was the Chief Executive Officer of Inbev, I would still make this deal due to several reasons. First of all, the merger and acquisition strategy creates value because of the gradual stagnation of beer consumption in the world. Therefore, the in-organic growth is much more efficient compared to the organic ways. Secondly, the choice of AB company is good, because the markets that the company focused on – China and the United States, in particular, were not covered by Inbev. Therefore, the merger had an instant potential of expanding the market for Inbev production, while launching cross-selling of the AB’s production in Europe and Canada. Hence, the range of products is diversified and the market coverage is increased, which strengthens the position of ABInbed in the beer industry. Therefore, if I were in the position of Carlos Brito, Inbev CEO, I would do the deal as well.
The deal structuring and financing consisted of involving five financial institutions that provided credit for most of the transaction’s sum. As such, Facility A provided a bridge loan to debt capital markets insurances for 364 deal with an option of extension ($12.0 billion), and Facility B bridged a loan to disposals for 364 days without extension ($7 billion). Facility C provided a three-year bullet bank loan ($13.0 billion), Facility D provided a five-year bullet bank loan for $12 billion, and Facility E financed a revolving credit facility ($1 billion) (Barcas, Leggett and Richardson, 2017). The rest of the deal of 9.8 billion was achieved by Inbev’s bridge to equity, and $7.1 billion consisted of rollover debt (Mogaji, 2021). By structuring the deal this way, Inbev managed to decrease the number of liabilities with each facility, and achieve a secure total sum that was enough to achieve the acquisition.
Besides proper financing, the deal had numerous synergies that acted as an impetus for its completion. As such, the AB company did not have a strong shareholder presence, as its largest shareholders included Warren Buffet with 5 percent, Barclays Global Investors with 5.78 percent of the stock, and August Busch IV had only 4 percent (Mogaji, 2021). Therefore, the diverse portfolio of shareholders provided an opportunity for Inbev to influence them as voters, as many of them were interested in the acquisition. Additionally, the expected synergies included the diversification of the premium segment by some of the most recognizable beer products such as Stella Artois, Leffe, and Budweiser (Doan and Piet, 2021). The merger posed opportunities for cost-saving by implying more cost-effective management strategies to the AB’s corporate culture while using the efficient production practices applied at its breweries.
The example of the deal between Inbev and Anheuser-Busch companies shows how the financial market conditions affect the merger and acquisition processes. During the negotiation between the companies, the fall of Lehman Brothers caused a long-term crisis in financial markets (Barcas, Leggett and Richardson, 2017). Hence, the shareholders of AB and Inbev had the most interest in deciding on the merger. Although at the beginning of negotiations they were reluctant about the process, after September 2008, both parties’ shareholders approved the deal (Doan and Piet, 2021). Hence, shareholders’ interest determined the outcome of the transaction as they were interested in keeping their investments in the company and ensuring stock returns.
Conclusion
In conclusion, the merger of AB and Inbev companies was an important event in the beer industry. The two of the top five companies in the market had merged and formed a more dominant power that enlarged market share and diversified the products available. The acquisition is an example of how creating additional value through a merger is a way of growing in a stagnating industry. The opportunities and potential of the deal allowed Inbev to acquire several long-term liabilities to afford the transaction.
Reference List
Barcas, J. J., Leggett, T. W., and Richardson, W. D. (2017) Beer’s mega merger: views and perspectives. SAGE Publications: SAGE Business Cases Originals.
Doan, M. P., and Piet, S. (2021) ‘Merging One’s way to the top: the case of AB Inbev v. Heineken.’ Journal of Wine Economics.
Kumar, B. R. (2019) ‘Mergers and acquisitions by Anheuser-Busch InBev.’ In Wealth creation in the world’s largest mergers and acquisitions (pp. 69-77). Springer, Cham.
Mogaji, E. (2021) ‘Brand mergers and acquisitions.’ In Brand management (pp. 207-224). Palgrave Macmillan, Cham.