Page 3 - AB INBEV MODEL ANSWER 1

P a ge | 3

A. EXECUTIVE SUMMARY

1. IINTRODUCTION

AB InBev is the world’s no. 1 brewer: as the global brewery industry stagnates, a new future is
emerging in Africa, where our global rivals (Heineken, Guinness and SABMiller) have played for

decades. That we have no presence nor track record - and have now been forced to play catch-up in
the African market - is our most fundamental strategic weakness! In part to respond, 12 months ago,
we initiated the largest acquisition in our history –the US$105.5 billion premium (cash) offer for our
fiercest rival and world no. 2 brewer –SABMiller; the deal is yet to close. Underpinning this are strategic

benefits (costs and revenue synergies) that must accrue to the new entity, ‘Newco’; these will require
a focused execution –otherwise, we would have dealt an irreversible damage to shareholder value!

2. TERMS OF REFERENCE

Commissioned by the Board, this report prioritises and evaluates the strategic threats, opportunities,
weaknesses as well as the embedded ethical dilemmas we face -and provides strategic advice.

3. PRIORITISATION

Taking account of the impact, urgency and the SWOT analysis (Appendix 1), we prioritised the main
issues as follows:

st
1 Priority: Integration, Synergies and Execution Risk
An acquisition typically fails if the synergies are overestimated, or, they fail to realise through
integration. Following the deal announcement, our share price rose by only 1.8%, instead of the
expected 25% -and this remains uncorrected! We are faced with major execution risks in the
integration of both entities -cost overruns of as much as 54% and lower than expected synergies by

as much as US$0.7billion; and we could miss our 4-year full integration target by over 2 years. This is
priority 1 because should we not address these, we will not be able to obtain the requisite shareholder
approval for the deal, much less raising the requisite finance. We need to apply a range of Earned

Value and feedforward control techniques, to realise all synergies and secure a successful integration!

2 Priority: Deal Funding Strategy and Group Financial Performance
nd
We have made a major investment decision to spend US$105.5 billion of cash that we do not have
(only US$6.8 billion available), so we need to immediately make a financing decision: should we raise
the cash by debt or equity? Both methods have varying implications for our group financial
nd
performance targets. This is ranked 2 because the requisite finance can only be raised in a manner
consistent with delivering on our annual financial targets; failing here will be a definite deal breaker as
investors would not invest further. We recommend you go with 92% debt and 8% equity!

Developed by The CharterQuest Institute for 'The CFO Business Case Study Competition 2018'
www.charterquest.co.za | Email: thecfo@charterquest.co.za