AB InBev Paving way to the acquisition of SABMiller Queenie SOO | Thomas LUI | Ronald YIP | Eric CHOW
Executive Summary P RIORITIZATION Evaluate each issue by its urgency, financial impact and ethical impact Africa Direct Entry via Nigeria: I SSUE 1 M&A is a better option M&A or FDI Downstream Supply Chain Strategy: AB InBev should improve B2B and I SSUE 2 B2B or B2C explore B2C Integration, Synergies and Execution Risk: M&A can create value but risks need to I SSUE 3 Value Creating or Value Destroying be handled carefully Environmental Hazard in China: I SSUE 4 AB InBev should take immediate actions Take Corrective Actions or Not Deal Funding Strategy: Issue a mix of debt and equity to fund I SSUE 5 Debt Financing or Equity Financing the M&A deal Issue 1 Issue 2 Issue 3 Issue 4 Issue 5 2
Priority of issues is evaluated by urgency, financial impact and ethical impact Issue 1 Issue 2 Issue 3 Issue 4 Issue 5 More Important Urgency (30%) Financial Impact (50%) Ethical Impact (20%) Total (100%) 2 nd 3 rd 1 st 4 th 5 th Priority Issue 1 Issue 2 Issue 3 Issue 4 Issue 5 3
Issue 1: Africa Direct Entry via Nigeria Loss in the foreign direct investment project is higher than the breakup fee USD/NGN Exchange Rate Cash Flow of Foreign Direct Investment Project 700 1500 638 566 600 1000 502 1144 USD Billion 500 500 897 445 567 584 395 352 400 0 350 -406 300 -500 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Different inflation rate in Nigeria and the United States Consideration of potential real option USD 2.3 billion gain before breakup fee USD/NGN increases by 12.7% annually USD 3.7 billion loss after breakup fee AB InBev should continue the current acquisition of SABMiller to enter the African market Issue 1 Issue 2 Issue 3 Issue 4 Issue 5 4
Issue 2: B2B and Downstream Supply Chain Strategy in Southern Africa B2C sales channel is more profitable in terms of market size and margin Sales from Supermarket Retailing: US$19 million Sales: US$70 million Shoprite Pick n’ Pay Makro Direct Retailing 100% 100% 100% 100% 80% 80% 80% 80% 69% 60% 60% 60% 60% 80% 80% 80% 100% 100% 100% 100% 40% 40% 40% 40% >1% 1% 2% 3% 20% 20% 20% 20% 31% 19% 18% 17% 0% 0% 0% 0% Revenue COGS Sales and Contri- Revenue COGS Sales and Contri- Revenue COGS Sales and Contri- Revenue COGS Sales and Contri- Delivery bution Delivery bution Delivery bution Delivery bution Expenses Expenses Expenses Expenses Direct retailing contributes more revenue and higher margin Other than B2B, AB InBev should also explore B2C sales channel through direct retailing Issue 1 Issue 2 Issue 3 Issue 4 Issue 5 5
Issue 2: B2B and Downstream Supply Chain Strategy in Southern Africa AB InBev should promote B2C channels and enhance efficiency of B2B channels Recommendation Impact Launch marketing campaigns B2C Sales Collecting sales data for to promote the B2C direct Channels better analyses and retailing platform sales forecasts Integrate with retailors’ POS systems Reduce need for scarce physical shelf space B2B Sales Sell products to less profitable Channels retailors through wholesalers Reducing cost of Negotiate price and contract servicing supermarket terms with retailors by utilizing customers market power Issue 1 Issue 2 Issue 3 Issue 4 Issue 5 6
Issue 3: Integration, Synergies and Execution Risk AB InBev would gain USD 7.9 Billion from the acquisition of SABMiller Incremental Cashflow of Synergies Gain from Acquisition of SABMiller 3000 120 2500 21.2 100 2000 80 1500 105.5 USD Million 2660 60 2354 113.4 1000 1669 92.2 40 500 1056 234 20 0 -73 7.9 -500 0 2016 2017 2018 2019 2020 2021 Value of Value of Total Value of Target Price Gain SABMiller Synergies Target Weighted cost of capital: 10% NPV of Synergies is adjusted by discounting by 5 months Annual incremental cashflow from 2021: USD 2660 Million since integration starts in October 2016 Net Present Value of Synergies: USD 22 Billion Gain from the deal: USD 7.9 Billion Acquisition of SABMiller creates value for AB InBev Issue 1 Issue 2 Issue 3 Issue 4 Issue 5 7
Issue 3: Integration, Synergies and Execution Risk AB InBev needs to mitigate execution risks to realize benefits of the deal Execution Risks Recommended Mitigations Delayed Integration Constantly perform earned value analysis to monitor the progress Process Declare to sell SABMiller’s interest in MillerCoors in the USA to Anti-trust Concern address regulator’s concerns of monopoly South African Maintain secondary listing Establish local supply chain in Government’s Demand status in South Africa South Africa Contact EVA and SAP for or Delayed Outsourced Work Hire other service vendors latest information and updates Publish clear guideline for Laid-off Labor Issue Calm workers’ worries dismissal Issue 1 Issue 2 Issue 3 Issue 4 Issue 5 8
Issue 4: Environmental Hazard in China AB InBev should not disregard environmental issues in China Current Situation Trends Trends Recommendations Emphasizes on Punish contractor if environmental issues inappropriate disposals and sustainability continue Customer Have imposed new green policies which Pollution in rivers and wildlife Polish the brand image as forced 18,000 factories has caused protests a sustainable company Government to close down being socially responsible What AB InBev does Implication Make the sustainability model more transparent Fool the public that AB InBev should not disregard to build community trust they will take action this issue Issue 1 Issue 2 Issue 3 Issue 4 Issue 5 9
Issue 5: Deal Funding Strategy and Group Financial Performance AB InBev needs debt and equity issuance to fund the deal and achieve goals Financing USD 50 billion debt Dividend Inputs Influential Factors 10% (FY2016) Structure USD 50 billion equity Growth Realization of Debt Repayment Dividend Discount M&A synergies Models Schedule Model Sustainability of dividend payout Total Shareholder Gearing Ratio Dividend Growth Returns Macroeconomic Goals condition 40% 14% 10% Taking our recommendations and taking care of influential factors, AB Inbev can possibly achieve gearing ratio under 40%, TSR of 14%, and dividend growth of 10%. Issue 1 Issue 2 Issue 3 Issue 4 Issue 5 10
Recommend
More recommend
