a) Explain why the following are or are not good reasons for AB InBev to acquire SABMiller:
(i) To gain entry into the Asian and African market
(ii) To cut costs by exploiting synergies in human capital
(b) Find the WACC and the unlevered cost of capital for both AB InBev and SABMiller as stand-
alone firms pre-merger.
(c) Assuming that synergies in the merger have the same business risk as that of SABMiller’s cash
flows, find the WACC and the unlevered cost of capital for the synergies.
(d) What is the total value created in this deal?
(e) Is the value created in the deal (estimated in (d)) higher or lower than that in an average
merger?
(f) What is the maximum cash price that AB InBEv can afford to pay for SABMiller?
(g) Suppose that the actual takeover price was ÂŁ43.50 in cash per share of SABMiller. How does
the premium offered to SABMiller’s shareholders compare with that in a typical merger?
(h) When the deal was announced on September 17, 2015. SABMiller’s share price increased
from £39.87 to £42.10. Why? Why didn’t the price reach the offer price of £43.50?
(i) When all the details of the deal were announced on October 12, 2015, SABMiller’s share price
decreased in value and the share price fell from ÂŁ42.43 to ÂŁ42.09. Why?
(j) On July 20, 2016, before the completion of the deal, the United States Department of Justice
(DOJ) announced that it would require AB InBev to divest SABMiller’s stake in Miller Coors in
order to proceed with the acquisition. Miller Coors was a joint venture with the Canadian
Molson Coors Brewing company in which SABMiller owned a majority stake. AB InBev agreed
and the deal was completed in October of 2016. Why would DOJ require such a divesture to
allow the acquisition? Please elaborate.
(k) The stock price of two other rivals of SABMiller and AB InBev, Carlsberg and Heineken, had
dropped after the announcement of the deal but it increased on the announcement of the
DOJ’s request on July 20, 2016 elaborated in (j). What does this suggest?