We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

Merger Between Brahma and Antarctica Essay Sample

essay
  • Pages: 4
  • Word count: 1,026
  • Rewriting Possibility: 99% (excellent)
  • Category: stock

Get Full Essay

Get access to this section to get all help you need with your essay and educational issues.

Get Access

Introduction of TOPIC

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 of production capacity(in the short term); low efficiency; high levered Opportunities:Positive volume growth of beer sales; New and attractive market Threats: Rising foreign firms’ competition; Tariffs elimination; Rising imported ingredients cost

Since Antarctica was high levered and decline in sales, a merger would make sense. The value will generate from cost savings and enlarged market shares. 2. No. MOE is the combination of two firms of about the same size to form a single company. In a merger of equals, shareholders from both firms surrender their shares and receive securities issued by the new company. Brahma and Antarctica didn’t have the similar market size; Brahma apparently had a higher market value. In this case, Brahma would use some of its stock shares to exchange Antarctica’s but no the new company’s shares will be issued. 3. In our estimation, the stand-alone value of Antarctic is R$49.04 per share. The value of synergies is R$53.55 per share.

The maximum price per share I would pay for Antarctica is R$102.59 per share. See the calculation in Appendix a. 4. The stand-alone value of Brahma is R$841.67 per share. This valuation is bigger than market price. That might because of the fact that the Brazilian market is pretty not liquid, its market price can be far from its intrinsic share price. We cannot summarize the decomposition of Brahma to acquire Antarctica because we do not know the offer price. That makes the premium unavailable to us. From the difference between stand-alone valuations of Brahma and Antarctica and their market prices, we may infer that the Brazilian market is illiquid. The market price cannot reflect the on-going daily changes in the companies as well as in the market. See the calculation in Appendix a. 5. The intrinsic stock price of Antarctica and Brahma,

by using ECF method, are R$132.99 and R$879.54 respectively. They are higher than the ones in Q3 and

Sorry, but full essay samples are available only for registered users

Choose a Membership Plan
Q4. 6. See appendix b.

7. The merit of paying by stock is it does not need to increase company’s debt and would not cause any liquidation issues. On the other hand, paying by cash is a quicker way than by stock. It would not cause earnings dilution and ownership loss. Moreover, paying by cash can produce tax shield to the company. In this case, FAHZ held 88.1% of Antarctica’s voting common stock and it was exempt from taxation. Besides, delays in the process may threaten the survival of Antarctic. So FAHZ preferred a cash offer. On the other hand, Brahma’s stock price might be undervalued, so the amount of consideration to be paid may change depend on the form of payment. 8. Using the exchange ratio (Brahma: Antarctica) of 0.096:1, which implied R$61.20 per share, the deal is dilutive both on historical basis and on future basis (from 2000 to 2004).

The synergies that are necessary to make the deal break-even for each year from 2000 to 2004 are R$134.74, R$144.60, R$133.61, R$114.92, R$86.68 (all in millions) respectively. 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 ownership that Brahma should have is: (70%+87%+93%)/3=83%. Assuming the exchange ratio is X. 6.9/ (6.9+12X) =83% X=0.117
13. Basing on a stand-alone valuation ranges for both companies, we got an implied exchange ratio of 0.105. See calculation in Appendix e.

14. &15.
Term sheet
Parties Brahma(buyer); Antarctica(target)
M & A Type Merger
Name of NewCo AmBev
Acquisition of Outstanding Antarctica Equity Securities Brahma would acquire 100% of the outstanding equity securities of Antarctica Means of Payment Stock for Stock
Exchange Ratio 0.096:1 (Brahma : Antarctica)
Tax Treatment Tax-deferred
Law governing Transaction Antitrust agency CADE
Headquarters Location Sao Paulo
Choice of CEO Marcel Herman Telles
Board Seats Banco Grantia(more than half); FAHZ
Union Relations Brahma’s union takes the domination

Other issues should be included in the term sheet: transaction Expenses, confidentiality, “no talk” clause, employment agreement, dividend payments, executive appointment, effective date, etc. 16. Yes. There is a sequence order in the merger process so some of the terms have some kind of relevance. Other links are such like: the choice of headquarters location and CEO should make for Brahma because Brahma wanted to show control power to the NewCo’s employees and shareholders.

We can write a custom essay on

Merger Between Brahma and Antarctica Essay Sample ...
According to Your Specific Requirements.

Order an essay

You May Also Find These Documents Helpful

Barilla and JITD

In 1990 Barilla is the largest pasta manufacturer in the world. It manufactures 35% of all pasta sold in Italy, and 22% of all pasta sold in Europe. Barilla markets extensively through advertising and trade promotions for all of its divisions: pasta, bakery, fresh bread, catering, and international. In it’s product categories, Barilla has fresh and dry products. The dry products (dry pasta, dried toast, cookies etc.) are offered in about 800 different SKU’s. Pasta alone is made in 200 different shapes and sizes and is sold via 470 different SKU’s. Barilla caters to it’s consumers of pasta with three different pasta divisions (Barilla, Voiello, and Braibanti), each at a different price point. To make Barilla, the number one manufacturer of pasta Barilla employs massive state of the art factories that can not only produce mass quantities, but produce the variety of pasta to satisfy the world. In fact, just...

Analysis of Stock Ordering for Henley Ice...

1. What is the name of the organisation? Henley Ice Cream Parlour 2. What does it do? Sells ice cream to the general public at the shop. There are also tearooms at the shop. The ice cream is also supplied to local businesses for retail. 3. Where is it located? Henley-in-Arden 4. How many people does it employ? There are two full-time members of staff and 9 part-time. 5. How many shops are there? One 6. What are the names and positions held of people who are going to be involved with the project? Cindy Brittan - Owner Emily Brittan - Sales and Marketing Manager The specific area of the company that I will be looking at for the project is stock ordering. It is linked to the rest of the organisation as follows: As it is a very small company many of the departments overlap and are managed by...

The Sweet Stand

The Problem Recently a small "Young Enterprise" group has set up a Sweet Stand, which sells a variety of sweets and soft drinks. The staff working at this Sweet Stand are Dave Currall (The Manager), Natalia Gelder (Assistant Manager). At the moment, the records which hold the information, are all paper based. This problem requires for Dave Currall to keep records in order, and also wastes time in writing the information down for the records. A stock check takes a lot of time to do although Nature of the problem User's requirements 1. Stock checking forms. 2. Stock not re-ordered. 3. Wrong Minimum re-order quantities. 4. Don't know who supplies which item. 5. Takes time and is difficult to prepare orders. 1. Form to use for stock checking. 2. Automatically identify when stock is low. 3. Items have a re-order quantity. 4. Each item has its known supplier. 5. System...

Popular Essays

logo

Emma Taylor

online

Hi there!
Would you like to get such a paper?
How about getting a customized one?