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 …show more content…

See Appendix c.
9. Assuming the exchange ratio is X: 1. Number of new company’s shares= Number of Brahma’s shares+ Number of new issued shares=6,907,600+ X*12,000,000. In order to keep control of the company, the number of the stakes of both Garantia and Telles has to be bigger than 50% of the number of new company’s shares: (3,522,876+462,809)>(6,907,600+X*12,000,000)*50%. X<0.0886
10. Assuming the exchange ratio is X. The synergy brought by Antarctic should be larger than the loss of Brahma’s equity value due to the new issued stakes: 642.5 ≥ 5807.5*(1-6.9/(6.9+12X)). X=0.071 Synergy is the main factor that the exchange ratio sensitive to. The exchange ratio includes acquisition premium.
11. The average historical stock price of Antarctic and Brahma are 63.3 and 657.2 respectively. The historical natural exchange ratio is 63.3/657.2=0.0963. The NewCo’s P/E ratio can be derived from the peer companies: (23.2+20.1+17.9)/3=20.4 Assuming ER=Exchange Ratio, S= Number of outstanding shares. The basic requirement of Brahma’s stockholders can be considered as: PNew=P/ENew*EPSNew≥PB.
Substitute EPSNew= (NIB+NIA)/ (SB+SA*ERB) in formula above, we get: ERB≤0.29
For Antarctic, the basic condition is P/ENew*EPSNew*ERA≥PA. Like what we did above, substitute EPSNew= (NIB+NIA)/ (SB+SA*ERB) in the formula, we get: ERA≥0.044
These exchange ratios don’t include acquisition premium.
12. Based on the relative contribution analysis (Appendix d), the