Ben Cho
David Arani
Nate Anderson
Stephanie Hay
Anheuser-Busch InBev Merger

Write an outline reflecting all the issues involved. Include:
Overview of final transaction terms
All shares of AB acquired for US$70/share in cash, for an aggregate equity value of US$52bn
This was 35% premium to AB’s share price prior to deal speculation
Motivations
To create the global leader in beer & one of the world’s five largest consumer products companies ⇒ stronger, more competitive global brand
Opportunity to internationalize AB’s key brands, leveraging InBev’s expansive international footprint
Leverage AB’s sales & distribution system to support expansion on InBev brands in US
Synergies from sharing best practices, economies of scale and rationalization of overlapping corporate functions ⇒ US$1.5bn expected synergies
Analysts and market reactions
Analyst consensus was that the deal would be accretive to earnings by 2010
Felt that capability to enact planned synergies was strong
Consolidation was necessary at the time of the deal due to market trends so there was little doubt
The market felt the deal would have a positive impact on the companies as illustrated in appreciating share prices for the firm
Expectation of all companies involved
Merger to be neutral to earnings in 2009 and accretive by 2010
Allocation of US$32.9bn of goodwill allocated primarily to the US business
Expected savings through the implementation of AB InBev best practices such as, among others, a zero based budgeting program and initiatives that are expected to bring greater efficiency and standardization to brewing operations, generate cost savings and maximize purchasing power
Goodwill also arises due to the recognition of deferred tax liabilities in relation to the fair value adjustments on acquired intangible assets for which the amortization does not qualify as a tax deductible expense
The way the deal was financed and the effect it had on the financial statements
Debt levels often play an important role, so be sure to study the debt to equity ratios, especially in LBOs
US$45bn in debt financing and US$9.8bn in equity bridge financing
Financing structured for rapid repayment of credit facilities through asset disposals & capital market issuances

Rapid de-leveraging:
Group financial target of net debt / EBITDA < 2x remains unchanged (2007 Net debt/EBITDA 1.0x)
Focus on working capital improvements to drive strong free cash flow generation
Financial information for spreadsheet analysis from the following sources: Compustat, Disclosure, Moody’s Manuals, Company Annual Reports
See annual reports below
Industry trends if applicable
In US, beer sales were stagnating and margins were falling putting pressure on alcoholic beverage companies with primary markets in North America
Industry trending toward consolidation to capitalize on emerging challenges in the alcohol industry
State of the U.S. economy
Entrance into Global Financial Crisis in midst of deal execution
Alcohol sales are positively correlated with economic conditions so falling sentiment that accompanied the crisis often resulted in decreased alcohol sales
Initial changes after the event (such as layoffs, divestitures, changes in top management)
Layoffs: AB layoff of 1,400 salaried employees in US beer-related divisions (affecting 6% of company’s US workforce)
Additionally, 250 open positions were not filled and 415 contractor positions eliminated
Divestitures:
10/15/09: Anheuser-Busch InBev announced that it had entered into a definitive agreement for the sale of Central European operations to CVC Capital Partners for an enterprise value of US$2.231bn and additional rights to a future payment estimated up to US$800m USD contingent on CVC’s return on its initial investment.
The US$2.231bn enterprise value is comprised of: US$1.618bn in cash, US$448m in an unsecured subordinated deferred payment obligation with a six year maturity and US$165m in minority interests
10/7/09: Anheuser-Busch