Big Beer: Inbev vs. Anheuser-Busch Case Solution
The value of the Anheuser-Busch (AB) is $23.3 billion. However, if the offering price of the Inbev is less than the calculated value of AB, then the company had undervalued the AB with a low bid price. Similarly, if the company has offered the price more than the calculated price that means thecompany had overvalued the company. Whereas, the EBITDA multiple of the company is 11.37x. Against which the EBITDA multiple of the Inbev acquirer’s is 8.35x. Meanwhile, the AC company has the second highest EBITDA in the industry against the other brew companies operating worldwide.
AB is the third largest market player in the US. Similarly, thecompany has potential to grow in the market in the industry in different categories; it is also operating in China and UK. Meanwhile, it has the 5.2% worldwide sales volume to these countries which is equal to 57 million barrels. Consequently, company’s net income from the international sales increased by 13.4% in 2007. On the other hand, thecompany had also acquired Grupo Modelo (GM) Mexico’s leading brewer with 56% market share. With similar strategy company also acquired brewing businesses in China to increase the market share
Meanwhile, AB’s packaging operations ha significant cost efficiencies, cost saving and quality assurance which contributed $1.8 billion revenues. However, thecompany has been aggressively working against to cut the cost through the vertical integration and by the program Blue ocean that effectively reduces the operating expenses, labor productivity, supply chain and energy use. However, it is estimated that the program would deliver $400 to $500 million in cost savings.
Indeed, industry experts have given anopinion that company would be able to save cost over $1 billion by 2010. However, AB’s relationship with the wholesalers is unique. Because two third of the wholesalers in the United States has AB-sanctioned products in the market.
Table 1 Discounted Cash-flow
|($ in millions)|
|Less: Capital Expenditures||(348.0)||(195.0)||(126.0)||(82.0)|
|Less: Change in Working Capital||(227.0)||(151.0)||(224.0)||(417.0)||(279.0)|
|Free Cash Flow||$2,362.1||$2,789.4||$2,519.0||$2,469.2||$2,840.3||4.7%|
|DCF||$ 2,053.97||$ 2,109.21||$1,656.31||$1,411.77||$1,412.13|
Table 2 DCF Analysis by EBITDA Multiple Method
|DCF Analysis (2003-2007): EBITDA Multiple Method|
|Value of Firm Through EBITDA Multiple|
|EBITDA||11.37||Value of Firm||$ 23,289|