modifying the offer price either by raising the all-cash offer, lowering the cash-portion of the cash and
stock alternative, or both.
From the outset, the deal’s size triggered resistance from regulators due to concerns about stifling
competition. The global market share of AB InBev and SABMiller together would be about 31%, dwarfing
The primary argument for approving the deal rested on the limited geographic overlap of the two firm’s
markets, but the sale of certain brands was necessary. Resistance was expected to be to be greatest in the
U.S. and China. Why? The MillerCoors joint venture in which SABMiller owned a 58% stake, formed by
SABMiller with Molson Coors in 2008, owned several major brands in the United States. SABMiller’s 49%
share of the CR Snow joint venture in China, with China Resources Enterprise, was a leader in certain beer
categories.
Recognizing these potential regulatory problems, SABMiller announced proactively in late 2015 that it
would sell its interest in MillerCoors joint venture to its JV partner Molson Coors for $12 billion. The deal
In March 2016, SABMiller sold its stake in the China joint venture to its partner China Resources. AB
InBev in April accepted an offer by Asahi Group Holdings of Japan to buy certain AB InBev brands in
Europe as well as certain SABMiller operations in Britain, Italy, and the Netherlands. In May, the
European Union approved the deal contingent upon the two firms selling SABMiller premium brands in
Europe and certain other European operations in the Czech Republic, Hungary, Poland, Romania, and
Slovakia. U.S. regulatory approval in late 2016 allowed AB InBev to retain Budweiser, Beck’s and Stella
The firm has stated publicly that the integration of SABMiller will follow a process similar to AB
InBev’s acquisition of Mexican brewer Modelo in 2013. Following closing, dedicated local teams led the
integration process with senior executives focusing on critical decisions such as how to combine
administrative, operations and supply chain networks. While AB InBev sent a few executives to integrate
the two companies’ operations, “99% of the people” planning and implementing the integration was
Modelo staff. However, with Modelo and AB InBev, the integration involved combining operations in
Mexico and the U.S. But with SABMiller, the integration will involve many countries. AB InBev now will
have to bring together operations across multiple continents and a host of countries, something it hasn’t
firm has both a reputation and demonstrable track record for being able to effectively extract these savings,
the magnitude of the challenge remains daunting: SABMiller employs 69,000 people in 83 countries while
AB InBev has 155,000 workers in 25 countries. Cultures and laws can differ widely across these
geographic areas often requiring lengthier integration than originally anticipated.
SABMiller’s operations in Africa may be the crown jewel of the takeover. However, the risks are high.
Labor problems in South Africa could be significant. AB InBev has little experience in Africa and it must
Successfully integrating businesses often comes with a much higher price tag than initially believed. In
applying the business strategy it has successfully used in the past, AB InBev will try to eliminate regional
brands and move consumers toward more expensive beers. This will require significant investment in
training, demographic data collection, and sales and marketing programs. In addition, the new firm expects
to realize additional revenue growth as it would now have access to the fast growing Africa beer market
and greater dominance in Latin America. The firm’s inexperience in this region could create a series of
missteps.
The combination of AB InBev and SABMiller has to weather successfully the loss of revenues and
profits due to the sale of lucrative assets to gain regulatory approval and the perils of postmerger
At the time of the 2016 closing, the world economy continued to sputter. Civil war and terrorism
disrupted much of North and West Africa raising doubts about future growth. China, by far the largest beer
consuming market, recorded its slowest economic growth rate in more than 25 years. By paying such a
steep price for SABMiller, AB InBev may find the realization of their objectives far more demanding than
Discussion Questions:
1. What are the key assumptions implicit in Anheuser-Busch InBev’s takeover of SABMiller? Which
do you believe are the most critical? Be Specific.
Answer: Key assumptions can be categorized as to those over which management has some degree of
control and those which are uncontrollable. In valuing SABMiller, AB InBev’s board and management
had to make assumptions about the types of divestitures that would be required to get regulatory
approval, the most likely selling prices, and the timing of such sales. The resulting cash flows could be
2. Why did the deal include restricted stock in AB InBev’s stock and cash options rather than unrestricted
shares? How does the lockup on the restricted stock included in AB InBev’s stock and cash
combination affect the value of these shares?
Answer: In this instance, AB InBev agreed to use a combination of stock and cash to get SABMiller’s
largest shareholders to support the deal. Restricted shares rather than unrestricted shares were used to
3. What were the primary motives for the merger from AB InBev’s perspective stated in the case?
Review the common motives for cross-border deals discussed in this chapter; speculate as to what
other motives for this acquisition other than those indicated in the case might AB InBev have had in
buying SABMiller.
Answer: The case states that the main driver to the merger for AB InBev was the desire to gain access
to faster growing regional and country markets in which it could apply its long-standing strategy of
eliminating local brands and driving consumers to the firm’s more expensive and recognizable brands.
In addition, cost synergies exceeding $1 billion were believed achievable at the end of 4 years after
4. What alternatives to acquisition could AB InBev have pursued? Speculate as to why a
takeover was the preferred option?
Answer: AB InBev could have pursued a “go it alone strategy” or a partnership as alternatives to a
merger. However, the former could have been viewed as too expensive and risky. Partnerships
required shared control and profit and often are hard to negotiate and fail as partner expectations
Ireland-Based Drug Maker Actavis Buys
U.S. Pharmaceuticals Firm Forest Labs
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Case Study Objectives: To Illustrate
Alternative motives for cross-border acquisitions,
How taxes impact cross-border deals and capital flows, and
How activist investors can impact corporate decisions.
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Reflecting the escalating costs of developing blockbuster drugs (i.e., those with the potential to deliver
more than $1 billion in annual revenue) and the loss of patent protection on many substantial revenue
producing medications, the pharmaceutical industry has been undergoing a wave of consolidation for more
than a decade. The takeover strategy in many instances appeared to be largely formulaic: acquire rivals,
slash costs, and minimize taxes.
While Valeant Pharmaceuticals and Endo Health Solutions have employed this strategy effectively, drug
maker Actavis is the perhaps the most successful, tripling its market value during the last three years.
Actavis on February 18, 2014 announced that it had reached an agreement to buy Forest Laboratories
for $25 billion in cash and stock to create a pharmaceuticals firm with substantial exposure to branded and
generic drugs. Forest Labs is a fully integrated specialty pharmaceutical firm focused on the U.S. market,
with a portfolio of branded products. The combined revenues of the two specialty pharmaceutical
companies are expected to be more than $15 billion in 2015. The new company announced that it would be
increasing its annual budget for pharmaceutical research and development to more than $1 billion.
Strategically, Forest Labs represented an opportunity for Actavis to diversify into branded drugs and for
Forest Labs to penetrate foreign markets not currently survived. Forest Labs also has an impressive
number of drugs in the pipeline.
The takeover of Forest Labs needed an assist from famed activist investor Carl Icahn. Icahn has a track
record of investing in drug makers and profiting from their turnarounds or sales to larger companies. His
previous investments included ImClone Systems which was sold to Eli Lilly & Co. in 2008 for $6.3 billion
and in Genzyme Corp which was sold to Sanofi in 2011 for $19.4 billion. In 2012, Icahn investments that
were later sold included Amylin Pharmaceuticals which was acquired by Bristol-Myers Squibb for $5.1
billion.
Under the terms of the deal, Forest shareholders will receive $26.04 in cash and .3306 of a share of
Actavis, equivalent to $89.48 per share. This represents a premium of 25% from Forest Lab’s closing price
the prior day. Forest shareholders will own 35% of the combined firms. Forest Labs agreed to pay a
termination fee of $875 million if it backs out of the agreement in favor of a competing takeover proposal
or if the firm’s shareholders do not approve the deal.
The acquisitive Actavis has completed seven deals since January 2013. Like those deals, the firm
expects to realize substantial costs savings. However, in this case, the takeover of Forest Labs will be
accretive to earnings immediately following closing. This is relatively unusual as cost savings in most deals
The takeover of Warner Chilcott in 2012 allowed Actavis to complete a “tax inversion” in which it
relocated its headquarters to Ireland to escape the higher American statutory corporate tax rate. A big
advantage of a “tax inversion” besides the lower statutory tax rate is that acquisitions become more
affordable. Cash held overseas because of the more favorable tax rates can be used to pay for a deal and the
From a legal perspective, an inversion is simply the process by which a corporate entity, established in
another country, “buys” an established American company. The transaction takes place when the overseas
entity purchases either the shares or assets of a domestic corporation. The shareholders of the domestic
company typically become shareholders of the new foreign parent company. In essence, the legal location
Discussion Questions:
1. Using the common motives for cross-border deals discussed in this chapter, speculate as to the reasons
Actavis acquired Forest Labs.
Answer: The global pharmaceutical industry has been consolidating in part reflecting the escalating
cost of conducting pharmaceutical research and development. Consequently, pharmaceutical firms
must achieve a certain scale to be able to finance the huge R&D budgets deemed necessary to sustain
2. What alternatives to acquisition could Actavis have pursued? Speculate as to why a takeover was the
preferred option?
Answer: Actavis could have pursued a “go it alone strategy” or a partnership as alternatives to a
merger. However, the former could have been viewed as too expensive and risky given the long lead
3. Speculate as to how Actavis’s takeover of Forest Labs may have created shareholder value?
Answer: The improved operating performance as reflected in the anticipated operating synergy along
4. Do you believe firms should be allowed to engage in tax inversions?
Answer: Some argue that tax inversions are nothing more than a gimmick to escape high U.S. tax rates
and therefore are tantamount to tax evasion. Others argue that with the highest corporate tax rates in
the world, the U.S. is making itself less attractive to foreign investment. Tax inversions would not be
5. Why is Actavis organized as a holding company in Ireland?
Answer: A holding company structure enables a foreign parent to offset gains from one subsidiary with
6. Speculate as to why investors for both firms responded so favorably when news of the deal was
announced?
Answer: The sharp jump in Forest Lab’s share price represented investors bidding up its share price to
reflect the sizeable premium paid for Forest Labs. Actavis’s share price increase mirrored investor
EUROPEAN MOBILE PHONE AND CABLE INDUSTRY
SHOWS SIGNS OF CONSOLIDATION
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Key Points
• Industry consolidation often is an important factor in triggering merger waves.
• In buying competitors, telecom firms realize substantial operating cost savings by cutting
duplicate functions, reduced capital outlays by not having to build networks, and additional
revenue from cross selling and bundling services.
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Europe’s telecommunications sector ignited a new round of consolidation in early 2014 when Vodafone
acquired Spanish cable company Ono, which owns high speed networks across Spain, for 7.2 billion euros
or about $10 billion including assumed debt. The firm inked a similar deal in late 2013 when it acquired
substantial savings in operating expenses and capital outlays as well as revenue increases due to market
share gains.
The deals came amid a flurry of asset sales and consolidation among Europe’s fragmented
telecommunications firms. The Continent is characterized by numerous small competitors with operations
in specific countries and a few regional firms whose operations span multiple and often contiguous
The consolidation is driven in part by a change in the way in which cable and mobile phone services are
sold which consumers have found very attractive. Cable firms on the Continent are looking to offer bundled
services including mobile, fixed-line or land-line, broadband and pay TV offerings. The demand for
bundled services has increased significantly during the last few, particularly in Spain.
Vodafone Group PLC is a British multinational telecommunications firm headquartered in London. It is
the second largest mobile phone company in terms of subscribers and revenues behind China Mobile.
Vodafone owns and operates networks in 21 countries and has partner networks in 40 other countries. Ono
is the second-largest provider of broadband internet, pay television and fixed line telephone services in
Spain. The company’s network coverage extends to 70% of the country’s population. In addition, Ono has
1.5 million broadband customers and about 1 million mobile subscribers. However, the source of its real
competitive advantage is its technologically cutting edge fiber-optic network. The firm’s network speed is
as much as 20 times the average speed of its primary competitors.
In 2013, Ono’s earnings before interest taxes and depreciation and amortization (EBITDA) declined
8.8% to about 686 million euros (about $900 million) from the prior year. The decline in EBITDA (a
commonly used proxy for cash flow in telecommunications firms) complicated the valuation of the firm. It
may take several years before the deteriorating cash flow can be turned around, making the timing of the
firm’s recovery problematic. Despite Ono’s subpar financial performance, investors greeted the
announcement that Vodafone would acquire Ono by driving up its share price by 1.6%.
Nestlé Buys Majority Ownership Stake in Chinese Candy Maker
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Key Points
Acquisition often is a more desirable option to a startup in a foreign country.
Cross-border acquisitions require substantial patience.
The size of the Chinese consumer market makes growth potential highly attractive.
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After being in negotiations for two years, Swiss giant Nestlé, the world’s largest food company, announced
on July 15, 2011, that it had reached an agreement to pay $1.7 billion for a 60% interest in candy maker
Hsu Fu Chi International. The remainder of the firm would be owned by the founding Hsu family. This
The agreement called for Nestlé initially to buy 43.5% of the firm’s shares from independent
shareholders (i.e., non–founding family and noninstitutional investors) for 4.35 Singapore dollars
(equivalent to $3.56 per share), a 24.7 % premium over the six months ending on July 1, 2011, and a 16.5%
stake from the Hsu family. Hsu Fu Chi’s current CEO and chairman, Mr. Hsu Chen, would continue to
manage the firm. Nestlé paid 3.3 times revenue, as compared to 2.4 times what U.S. food manufacturer
Kraft Foods paid for British candy company Cadbury in 2010. However, the deal was less expensive than
Despite having had a presence in China for more than 20 years, Nestlé has found it difficult to grow its
distribution system organically (i.e., by reinvesting in its existing operations). As of 2010, Nestlé operated
23 plants and two research centers with more than 14,000 employees in the country, with annual sales of
$3.3 billion. Nestlé’s existing product portfolio in China at that time included culinary products, instant
coffee, bottled water, milk powder, and other products for the food service industry. With the addition of
Founded in 1992, Hsu Fu Chi has four factories and 16,000 employees in China and is the leading
manufacturer and distributor of confectionery products in China. With an estimated 6.6% market share and
annual sales of $800 million, the firm makes chocolate, candies, and pastries popular in China and had
annual sales of $800 million at the time of the transaction. Profits rose 31% in 2010 to $93 million. Located
With Hsu Fu Chi listed on the Singapore stock exchange, the deal helped unlock value for Hsu Fu Chi’s
independent shareholders. As with many Singapore-listed Chinese firms, Hsu Fu Chi’s independent
shareholders had seen little appreciation of their holdings in recent years and had found it difficult to sell
With the founding family owing 57% of the shares and Baring Private Equity Asia owning 15%, there
were few independent shareholders to whom to sell shares. As the controlling shareholder, the founding
family had little incentive to buy out the minority shareholders except at a significant discount from what
investors believe is the firm’s true value in order to take the firm private by buying out the public
Discussion Questions
1. What were Nestle’s motives for acquiring Hsu Fu Chi? What were the firm’s alternatives to
acquisition and why do you believe they may not have been pursued?
Answer: Nestle wanted to accelerate growth in the confectionary products market by acquiring an
existing market leader with established distribution and logistics networks. Nestle reasoned that it
could grow more rapidly in the future by acquiring regional competitors and integrating them into
2. What alternatives did the majority shareholders in Hsu Fu Chi in growing the firm? Speculate as
to why they may have chosen to sell a controlling interest to Nestle?
Answer: Hsu Fu chi could have continued to grow the firm organically and could have taken the
3. Speculate as to why Nestle used cash rather than its stock to acquire its ownership interest in Hsu
Fu Chi?
Answer: The independent shareholders wanted to cash out of their investment which had been
4. Why do you believe the independent and non-institutional shareholders in Hsu Fu Chi, whose
shares were listed on the Singapore stock exchange, were willing to sell to Nestle? What were
their other options?
Answer: Nestle represented a means to generate a return on their investment which had been
5. Nestle is assuming that it will be able to grow its share of the Chinese confectionary market by a
combination of expanding its existing Chinese operations (so-called organic growth) and by
acquiring regional candy and food manufacturers. What obstacles do you believe Nestle could
encounter in its efforts to expand in China?
Answer: Nestle may be limited in its ability to increase the market share of its existing operations
6. Do you believe that multiples of revenue paid by other food companies is a good means of
determining the true value of Hsu Fu Chi? Why? Why not?
7. Despite having similar profit margins, Hsu Fu Chi traded at a ratio of 22 times trailing earnings
compared with 28 for comparable firms. Why do you believe Hsu Fu Chi’s share price on the
Singapore stock market sold at a 21% discount from the share price of other firms?
Answer: This discount may reflect the comparative illiquidity of Hsu Fu Chi’s shares, i.e., the
limited number of attractive options available for existing independent shareholders. Independent
A Tale of Two International Strategies: The Wal-Mart and Carrefour Saga
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Key Points
Integrating foreign target companies and introducing improved operating and governance can be a daunting
task.
What works in the acquirer’s country may not be transferable to the target’s local market.
______________________________________________________________________________________
Wal-Mart began expanding aggressively outside the United States in the 1990s. Its principal international
rival at that time was French retail chain Carrefour. After opening the world’s first superstore in 1963,
Carrefour spent the next four decades expanding its grocery and general merchandise stores across Europe,
South America, and Asia.
To understand how Carrefour floundered, we need to look at the global strategies of the two firms.
Intended to offset sluggish growth in France, Carrefour expanded too rapidly internationally as it entered
24 countries during the 10 years ending in 2004. While it succeeded in China, with annual revenue totaling
$5.8 billion, it fell short in a number of other countries. Since 2000, Carrefour has sold off operations in 10
countries, including Mexico, Russia, Japan, and South Korea. The firm also has announced that it will
withdraw from other countries.
Wal-Mart has shown considerable success in growing its international operations. Having expanded at a
more disciplined pace than Carrefour, Wal-Mart enjoyed greater success in expanding in Mexico, South
This success has not come without considerable challenges. The year 2006 marked the most significant
retrenchment for Wal-Mart since it undertook its international expansion in the early 1990s. In May 2006,
Wal-Mart announced that it would sell its 16 stores in South Korea. In July 2006, the behemoth announced
that it was selling its operations in Germany to German retailer Metro AG. Wal-Mart, which had been
trying to make its German stores profitable for eight years, announced a pretax $1 billion loss on the sale.
After opening its first store in mainland China in 1996, Wal-Mart faced the daunting challenge of the
country’s bureaucracy and a distribution system largely closed to foreign firms. In late 2011, Chinese
officials required the firm to close 13 stores due to allegations of mislabeling pork as organic. Wal-Mart
also has had difficulty in converting firms used to their own way of doing things to the “Wal–Mart way.”
In India, Wal-Mart is still waiting for the government to ease restrictions on foreign firms wanting to
enter the retail sector, which is currently populated with numerous small merchants. Efforts to implement
reforms allowing foreign retailers to own a majority holding in local supermarket chains were halted due to
a firestorm of public protest. At the end of 2011, Wal-Mart has no retail presence in the country. Nor does
Despite these missteps, Wal-Mart would appear to be well on its way to diversifying its business from
the more mature U.S. market to faster-growing emerging markets. With the announcement in late 2010 of
its controlling interest in South African retailer Massmart Holdings, more than one-half of all Wal-Mart
stores are now located outside of the United States. Massmart gives Wal-Mart entry into sub-Saharan
Africa, a region that has been largely ignored by the firm’s primary international competitors, France’s
Wal-Mart’s past mistakes have taught it to make adequate allowances for significant cultural
differences. With respect to Massmart Holdings, there appears to be no immediate plans to rebrand the
chain. The first changes customers will see will be the introduction of new products, including private-label
goods and the sale of more food in the stores. Wal-Mart also has publicly committed to honoring current
SABMiller Acquires Australia’s Foster’s Beer
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Key Points
Properly executed cross-border acquisitions can transform regional businesses into global competitors.
Management must be nimble to exploit opportunistic acquisitions.
_____________________________________________________________________________________
With the end of apartheid in South Africa in 1994, South African Breweries (SAB) moved from a
sprawling conglomerate consisting of beer, soda bottling, furniture, apparel, and other businesses to a focus
on beverages only. Seeking to expand beyond South Africa’s borders, SAB executives studied the global
practices of multinational corporations like Unilever and IBM to adopt what they believed were best
practices before undertaking strategic acquisitions in Africa and elsewhere. The firm’s overarching
During the last decade, the global beer industry experienced increasing consolidation. Following
InBev’s acquisition of Anheuser–Busch for $56 billion in 2008 and Heineken’s purchase of Mexico’s
FEMSA Cerveza in 2010, the top four breweries (i.e., Anheuser-Busch InBev, SABMiller, Heineken, and
Carlsberg) controlled more than 50 % of the global beer market, up from 20% in the late 1990s.
In 2011, SABMiller’s annual revenue exceeded $31 billion, just behind the industry leader, Anheuser–
Busch InBev. About 70% of SABMiller’s revenue is in emerging markets. With the number of sizeable
independent and profitable breweries declining rapidly, SAB moved to acquire the Foster Group,
The firm’s initial bid on June 21, 2011, valued the target at $9.5 billion in Australian dollars ($9.7
billion in U.S. dollars), or $4.90 Australian dollars per share ($5 U.S.); however, Foster dismissed the offer
as too low. On August 17, 2011, SABMiller adopted a hostile strategy when it went directly to Foster’s
shareholders with a tender offer. To win the backing of its shareholders, Foster’s said in late August that it
The acrimonious takeover battle came to an end on September 1, 2012, as SABMiller offered to raise its
cash bid by 20 cents to $5.10 in Australian dollars ($5.20 U.S.). As part of the deal, Foster’s made a one–
time payment of $.43 per share ($.44 U.S.) to its shareholders. The total value, including the value of
assumed debt, was $11.5 billion in Australian dollars ($11.7 U.S.). SABMiller now holds about 12% of the