Merger Between Brahma and Antarctica Sample Essay

1. SWOT analysis
Brahma Antarctica
Strengths: The largest manufacturer ; Improved productiveness ; strategic with foreign manufacturers ; Two independent distribution Failings: Low volume of gross revenues of nonbeer merchandises ; Antitrust restrictionOpportunities: Positive volume growing of beer gross revenues ; New and attractive market Menaces: Rising foreign firms’ competition ; Tariffs riddance ; Rising imported ingredients cost Strengths: Brazil’s second-largest beer maker and its largest soft-drink manufacturer ; World- celebrated trade name ; Expansion of production capacity ( in the long term ) Weaknesses: Gross saless decline ; deficiency of a client focal point ; regional distribution ; Expansion of production capacity ( in the short term ) ; low efficiency ; high levered Opportunities: Positive volume growing of beer gross revenues ; New and attractive market Menaces: Rising foreign firms’ competition ; Tariffs riddance ; Rising imported ingredients cost

Since Antarctica was high levered and diminution in gross revenues. a amalgamation would do sense. The value will bring forth from cost nest eggs and enlarged market portions. 2. No. MOE is the combination of two houses of about the same size to organize a individual company. In a amalgamation of peers. stockholders from both houses surrender their portions and have securities issued by the new company. Brahma and Antarctica didn’t have the similar market size ; Brahma seemingly had a higher market value. In this instance. Brahma would utilize some of its stock portions to interchange Antarctica’s but no the new company’s portions will be issued. 3. In our appraisal. the stand-alone value of Antarctic is R $ 49. 04 per portion. The value of synergisms is R $ 53. 55 per portion.

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The maximal monetary value per portion I would pay for Antarctica is R $ 102. 59 per portion. See the computation in Appendix a. 4. The stand-alone value of Brahma is R $ 841. 67 per portion. This rating is bigger than market monetary value. That might because of the fact that the Brazilian market is reasonably non liquid. its market monetary value can be far from its intrinsic portion monetary value. We can non sum up the decomposition of Brahma to get Antarctica because we do non cognize the offer monetary value. That makes the premium unavailable to us. From the difference between stand-alone ratings of Brahma and Antarctica and their market monetary values. we may deduce that the Brazilian market is illiquid. The market monetary value can non reflect the ongoing day-to-day alterations in the companies every bit good as in the market. See the computation in Appendix a. 5. The intrinsic stock monetary value of Antarctica and Brahma. by utilizing ECF method. are R $ 132. 99 and R $ 879. 54 severally. They are higher than the 1s in Q3 and Q4. 6. See appendix B.

7. The virtue of paying by stock is it does non necessitate to increase company’s debt and would non do any settlement issues. On the other manus. paying by hard currency is a quicker manner than by stock. It would non do net incomes dilution and ownership loss. Furthermore. paying by hard currency can bring forth revenue enhancement shield to the company. In this instance. FAHZ held 88. 1 % of Antarctica’s voting common stock and it was exempt from revenue enhancement. Besides. holds in the procedure may endanger the endurance of Antarctic. So FAHZ preferred a hard currency offer. On the other manus. Brahma’s stock monetary value might be undervalued. so the sum of consideration to be paid may alter depend on the signifier of payment. 8. Using the exchange ratio ( Brahma: Antarctica ) of 0. 096:1. which implied R $ 61. 20 per portion. the trade is dilutive both on historical footing and on future footing ( from 2000 to 2004 ) .

The synergisms that are necessary to do the trade break-even for each twelvemonth from 2000 to 2004 are R $ 134. 74. R $ 144. 60. R $ 133. 61. R $ 114. 92. R $ 86. 68 ( all in 1000000s ) severally. 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 maintain control of the company. the figure of the bets of both Garantia and Telles has to be bigger than 50 % of the figure of new company’s portions: ( 3. 522. 876+462. 809 ) & gt ; ( 6. 907. 600+X*12. 000. 000 ) *50 % . X & lt ; 0. 0886 10. Assuming the exchange ratio is X. The synergism brought by Antarctic should be larger than the loss of Brahma’s equity value due to the new issued bets: 642. 5 ? 5807. 5* ( 1-6. 9/ ( 6. 9+12X ) ) . X=0. 071 Synergy is the chief factor that the exchange ratio sensitive to. The exchange ratio includes acquisition premium.

11. The mean historical stock monetary value of Antarctic and Brahma are 63. 3 and 657. 2 severally. The historical natural exchange ratio is 63. 3/657. 2=0. 0963. The NewCo’s P/E ratio can be derived from the equal companies: ( 23. 2+20. 1+17. 9 ) /3=20. 4 Assuming ER=Exchange Ratio. S= Number of outstanding portions. The basic demand of Brahma’s shareholders can be considered as: PNew=P/ENew*EPSNew?PB. Substitute EPSNew= ( NIB+NIA ) / ( SB+SA*ERB ) in expression above. we get: ERB?0. 29 For Antarctic. the basic status is P/ENew*EPSNew*ERA?PA. Like what we did supra. replacement EPSNew= ( NIB+NIA ) / ( SB+SA*ERB ) in the expression. we get: ERA?0. 044 These exchange ratios don’t include acquisition premium.

12. Based on the comparative part analysis ( Appendix vitamin D ) . the ownership that Brahma should hold is: ( 70 % +87 % +93 % ) /3=83 % . Assuming the exchange ratio is X. 6. 9/ ( 6. 9+12X ) =83 % X=0. 117
13. Establishing on a stand-alone rating ranges for both companies. we got an implied exchange ratio of 0. 105. See computation in Appendix vitamin E.

14. & A ; 15.
Term sheet
Parties Brahma ( purchaser ) ; Antarctica ( mark )
M & A ; A Type Amalgamation
Name of NewCo AmBev
Acquisition of Outstanding Antarctica Equity Securities Brahma would get 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 regulating Transaction Antitrust bureau CADE
Headquarters Location Sao Paulo
Choice of CEO Marcel Herman Telles
Board Seats Banco Grantia ( more than half ) ; FAHZ
Union Relations Brahma’s brotherhood takes the domination

Other issues should be included in the term sheet: dealing Expenses. confidentiality. “no talk” clause. employment understanding. dividend payments. executive assignment. effectual day of the month. etc. 16. Yes. There is a sequence order in the amalgamation procedure so some of the footings have some sort of relevancy. Other links are such like: the pick of central office location and CEO should do for Brahma because Brahma wanted to demo control power to the NewCo’s employees and stockholders.


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