The Deal 2014_JBIMS_Mastermind

Report
1
Agenda
Global brewing industry – Overview
Competitive landscape
SABMiller – Overview
SABMiller – Financial strength
SABMiller – Way forward
Carlsberg – Overview
SABMiller – Carlsberg integration
Alternatives to Carlsberg
Valuation of Carlsberg
Synergy valuation
Funding structure analysis
Deal consideration and bidding tactics
Acquisition issues
Appendix
2
Alcoholic beverages categories
Alcoholic beverages
Distillation
Spirits
 Unsweetened
 ABV > 20%
Players
 Diageo
 Pernod Ricard
 Bacardi
 Campari
* ABV: Alcohol by volume
Brewing
Beers
 Flavored with hops
 ABV 4-6%
Players
 Anheuser – Busch InBev
 SABMiller Plc
 Carlsberg
 Heineken
Aging
Wines
 Prolonged fermentation
 ABV 9-16%
Players
 Constellation Brands
 E&J Gallo
3
Global brewing industry : Geographic
In the past shifts
Beer consumption
- predominantly
being
driven by geographies like NA, Europe, Australia
 Mature
markets –became
more & more
fragmented
- Became
an integral
part of culture
 Stiff
competition,
slow growing
consumer base – squeezing margins & declining growth
- Remained
no more
a discretionary
item
of the
expenditure
 Emerging
markets
became
next frontier
– on
back of growing population & affluence
Relativelyfirst
large
geographies
– high
population,
high
growth alignment
potential were
still untapped
 Obvious
targets
:
- Latin
America
– cultural
with Europe
 Prevalence of local beers in untapped
– sans
premiumization
- SEgeographies
Asia – growing
affluence
& rapid urbanization
 Next in line – China & India
4
Global brewing industry : Current scenario
Per capita consumption of beer by region
Global brewing sector
region-wise segmentation by value
Beer – region wise PLC stages
Global brewing sector
product segmentation by value
2%
3%
4%
25%
44%
Europe
Beer
Asia Pacific
Cider
Americas
FABs
Rest of the World
94%
28%
Source : Datamonitor, WHO
5
Global brewing industry : Future outlook
Income v/s Beer consumption
Beer consumption L/Capita
120
Germany
100
Denmark
UK
US
80
Russia
South Africa Portugal
Brazil
China
60
40
Sweden
Australia
France
20
India
10000
20000
30000
40000
Income/Capita USD (PPP)
0
0
 Mature markets – Saturation, cutback on
spending, high unemployment levels - growth
expected to be sluggish
 Emerging markets will fuel consumption
- Expected socio-economic improvement, rising
per capita income
- High correlation between improving wealth and
beer consumption
• BRIC key to offset sluggishness
- Increased focus of global brewers
50000
(Bn)
Beer growth trends by volume
(during 2011-15)
Global brewing sector forecast
800
700
6%
600
0%
0
Source : Datamonitor, Research Reports
E Europe
Bn litres
100
W Europe
200
1%
NorthAm
$ Bn
LatAm
300
2%
Asia
400
3%
Africa
500
4%
Global
5%
2010
2011
2012
2013
Year
2014
2015
6
Competitive landscape
Global brewers sector % share by value
Profitability v/s Market concentration
35%
AB InBev
30%
20%
25%
SABMiller
EBIT/hl ($)
Carlsberg
USA
South Africa
15%
UK
10%
5%
Russia
China
India
0%
Other
10%
Japan
20%
Heineken N.V.
13%
50%
Brazil
0%
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
7%
Concentration
Regional market share v/s EBIT margin
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
EM
MM
Carlsberg
Heineken
AB InBev
SABMiller
Source : Company Reports, Datamonitor, Research Reports
EBIT margin
Top 4 Brewers market exposure
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
ABI- LatAm North
ABI-LatAm South
ABI-North America
CAR-East Europe
SAB-LatAm
HEI-Africa &
Middle east
0%
20%
40%
60%
Market share
SAB-Soth Africa
80%
100%
7
Brewers : Market positions
USA,:
#1: ABInbev : (48%) (Budweiser,
Stella Artois, Hoegaarden)
#2: SABMiller
#3: Heineken
CANADA:
#1: SABMiller (Miller Genuine
Draft, Pilsner Urquell)
#2: ABInbev
#3: Heineken
UK:
#1: Heineken (26%)
#2: ABInbev (22%)
#3: SABMiller (20%)
EUROPE:
Highly fragmented market
Brewers share leading positions
in different countries
RUSSIA:
#1: Carlsberg (Carlsberg,
Baltika, Tuborg) (39%)
#2: ABInbev (18%)
CHINA:
#1: SABMiller
(CRE - Snow) (20%)
#3: ABInbev (11%)
#5: Carlsberg
LATIN AMERICA:
#1: ABInbev
(Brazil: 42%, Argentina: 69%)
#2: SABMiller (Lat Am: 93%)
#3: Heineken
SOUTH AFRICA:
#1: SABMiller (89%)
#2: Heineken
Source : Company Reports
AUSTRALIA:
#1: Foster’s (50%)
#2: Lion Nathan (Kirin) (38%)
8
SABMiller : Building locally, winning globally
Company that has grown out of acquisitions
Geographical contribution to top line
23%
31%
Lat Am
Europe
N.A.
1895
2003
2008
2%
2008
Africa
Asia
SA
Vision : To be most admired company in global beer industry
13%
17%
Key facts : 200 brands, 6 continents, 75 countries
30000
No. of breweries
7
25691
LatAm
17
14%
No of employees
($ Mn)
25000
30,000
NorthAm 20000
12
Europe
Africa
21
31
25,000
14239
15000
13481
11897
8800
10000
15,000
3358
5000
EBITA
10,000
0
8
20,000
Revenue
Asia
S Africa
Financial snapshot
LatAm
NorthAm
Europe
Africa
Asia
S Africa
5,000
0
2007 2008 2009 2010 2011
Source : Company Reports
9
SABMiller : Threats & opportunities
Threat from ABInBev
- Having realized more than 90%
of the total $2.5 Bn of cost
synergies from integration in
2008 is at more than
comfortable debt level with
debt/EBITDA almost reaching 2.0x
- Potential comeback of M&A on
strategic agenda
- With gloomy scenario in NA due to
spend cuts, unemployment at 9%
leading to squeezing margins AB will
look to strengthen its position in
EMs like LatAm & Asia
SABMiller’s massive exposure to emerging markets -requires sustained
investments and demand for higher FCF generation
Rising raw material and crude prices pushing transportation costs higher
30% of SABM’s net profit comes from its associates like Molson Coors &
CRE – sizeable, cash hungry and less controlled by SABM, leading to
shared access to the associates’ cash flows
Dominance of mega retailers – increased control on margins, introduction
of private labels
- This may lead to AB eating away
SAB’s pie from its stronghold
markets
Associating with an established player in
emerging markets who can generate cash on a
sustainable basis
Market share consolidation may give increased
negotiating power with retailers and suppliers
10
SABMiller : Financial strength
D/E Ratio (x)
0.80
0.60
Debt/EBITDA (x)
2.5
0.64
0.54
0.51
2
0.46
0.36
0.40
2.1
2.1
1.8
DSCR (x)
0.80
2.0
1.6
1.5
2007
2008
2009
2010
2011
0.47
0.48
0.50
2008
2009
2010
0.20
0.5
0.00
0.63
0.54
0.40
1
0.20
0.60
0
0.00
2007
2008
2009
2010
2011
2007
Leverage
 No current plans of accelerating distribution of funds to shareholders
 Funds are primarily diverted towards keeping the leverage levels within targeted 1.5x – 2.0x debt/EBITDA range
 Ratio of CFO/debt has been increasing continuously over the last 3 years – 32-38% in 2008 to 48% in 2011
 Average debt maturity decreasing - 4 years in 2011 & which was 4.7 years in 2010
Liquidity
 In position to generate strong medium term FCFs despite capex & dividends distribution
 Generated discretionary cash flows of $1.4 Bn over the last two years
 $3.2 Bn of undrawn committed credit facilities
 $1.1 Bn of cash available against $1.3 billion short term maturities
Free Operating Cash Flows
($ Mn)
3,000
2,500
2,000
1,500
1,000
500
0
2507.9 2564.9
1552.6
2007
831.5
740.3
2008
2009
Source : Company Reports
2010
2011
Financial position
 Strengthening – availability of free cash & reducing leverage
 Sufficient headroom under company’s debt covenants
 In position to improve price/mix to mitigate volatile agro commodities costs,
negative currency effects & weak consumer sentiment
SABMiller comfortably poised to make provisions for additional means of
financing to fund further growth plans
2011
11
Way forward
 SAB can look for complementing the group’s current footprint with a well established local business
 With such a move SAB can strengthen its position in LatAm & Africa which will help it pose its defenses
against a possible advent of AB
 Consolidation in Asia not only will increase Asian region’s contribution to its top line but also will take it to
such a level which will make it difficult for AB to counter
 SAB can gain significant scale advantage over its other peers as well
Growth
Option
Advantage
Disadvantage
Previous
Example
Build
Cheaper
Uncertain
Castle
Lager
Befriend
Cross
Selling
Cannibalize
Molson
Coors
Acquire
Brand
Access
Premium
Peroni
12
Carlsberg : Brand as many, but stand as one
Vision : To be the fastest growing global beer company
Regional presence with no. of breweries
($ Mn)
Profitability
14000
12000
10000
8000
Revenues
6000
Profits
4000
27
10
2000
0
2006
2007
2008
2009
2010 Q2LTM
7
Regional break - up
Revenue ($ Bn) (outer)
Volume (Mn hl) (inner)
19
6
18
4
N W Europe
1.1
E Europe
50
3.5
6.9
3rd largest market share holder globally
47
Key facts : 200 brands, 2 continents, 50 countries
One of the earliest to go for internationalization, but not as aggressive as
competitors in market penetration
After establishing stronghold in Russia, poised to embark on Asian growth
with sustained expansion in China & Indochina
Source : Company Reports
Asia
13
SABMiller – Carlsberg integration
Geographic footprint of Carlsberg - highly complementary to that of SABMiller
296.4
Combined Entity scenario
121.1
115.3
55.3
21%
20%
SAB +
Carlsberg
ABInbev
Market share (%)
Revenues ($bn)
50%
9%
Heineken
Others
Combined entity will be the largest player in China,
S-E Asia, Germany, UK
Combined entity
SABMiller : Emerging Markets (EM)  Mature Markets (MM), Carlsberg : MM  EM, Enhanced regional strength in EMs
Increased concentration in EMs & resulting market dominance of combined entity will be key driver to profitability
Financials comforting the level of debt & liquidity
Enhanced FCF generating ability of the combined entity will
satiate the overlapping need for capex required for
strengthening position in emerging markets
14.0%
Free cash flow yield (2011E)
12.0%
10.0%
8.0%
SABMiller’s dependency on associates for cash generation
from emerging markets will shift to combined entity
6.0%
4.0%
2.0%
0.0%
AB Inbev
Source : Company Reports, Datamonitor
SABMiller
Heineken
Carlsberg SABMiller +
Carlsberg
14
SABMiller – Carlsberg integration
Complementary product portfolios
 Absence of a flagship premium brand from SABMiller’s product portfolio will be filled by the crown jewel – ‘Carlsberg’ – possible
launch in markets like LatAm and NorthAm
 Carlsberg’s energy and soft drink business - natural diversification of SAB’s portfolio – building image in health conscious society
 Carlsberg’s new repositioning strategy can be leveraged upon to launch SAB’s local brands in E Europe & NW Europe markets
Operational efficiencies – economies of scale, higher negotiating power with suppliers & retailers
 Access to each other’s breweries – benefits of economies of scale along with optimization
 SABMiller’s bottling plants can be expanded to accommodate Carlsberg’s products
 Carlsberg’s SKU rationalization & standardization strategy can be extended to SAB’s products
 Synergies through cross utilization of human resources
 Sales & marketing synergies
R & D – Combined effort would be even more fruitful
 Carlsberg’s development of a new yeast strain, together with a relatively new high yielding strain of barley will help
keeping beer fresher for longer. This is of particular importance in emerging markets, such as India and Russia, with long
transport hours and hot warehouses in summer months
 SABMiller’s new low gauge beer crown is expected to reduce requirement of steel by 10%, leading to annual cost savings of
about $ 12 Mn in material costs alone (Backus’s design uses 0.17 mm gauge, instead of the industry standard of 0.22-0.24 mm)
Strategic fit
Both the companies follow the strategy of premiumization of local brands
15
Alternatives to Carlsberg
Heineken NV
Market Cap ($ Mn)
Market Price ($)
Trailing P/E (x)
Debt to equity (x)
28,737
59.57
14.52
0.8
Financial snapshot
25,000
Anadolu EFES
3,000
Market Cap ($ Mn)
Market Price ($)
Trailing P/E (x)
Debt to equity (x)
8,775
21.95
18.39
0.27
Financial snapshot
2,500
20,000
2,000
15,000
10,000
Revenue ($ Mn)
1,500
Revenue ($ Mn)
PAT ($ Mn)
1,000
PAT ($ Mn)
500
5,000
0
0
2006
2007
2008
2009
2006
2010
Region wise revenue break-up (%)
4%
7%
47%
2008
2009
2010
West europe
Central & east Europe
3%
35%
Turkey
 Family driven holding structure
 Smaller footprint in other EMs
Source : Company Reports, Datamonitor
2007
2008
2009
2010
5%
63%
Alcoholic Beverages
Soft drinks
26%
Food
Moldova
Georgia
 Next best alternative for Carlsberg
 Strong footprint in Africa and scope for
market share consolidation in MM
PAT (Mn)
6%
Asia Pacific
19%
Revenue (Mn)
Category wise revenues (%)
Kazhakhstan
The Americas
12%
9,513
19.99
13.74
0.61
Financial snapshot
2006
Russia
Africa & Middle East
Market Cap ($ Mn)
Market Price ($)
Trailing P/E (x)
Debt to equity (x)
20,000
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
Region wise revenues (%)
1%
21%
2007
Asahi Holdings
Others
51%
 5th largest in Europe and 13th in the World
 5th largest bottler for Coca Cola
 Market leader position in Japan can be
leveraged upon to expand further
 Smaller geographic footprint
 Relatively new player, no big brands
 Product portfolio too diversified to be a
pure brewer
16
Projections and sensitivity to macroeconomic factors
 Growth drivers :
- Price/mix in mature markets
- Volume in emerging markets
- Product mix – catering to all consumer segments (economy – standard – premium beer)
Carlsberg projections
Macroeconomic factors sensitivity
30.00
Carlsberg revenue change (%) & Real GDP change (%)
25.00
($ Mn)
Revenues Carlsberg
20.00
16,000
14,000
Euro Area
15.00
Emerging Europe
10.00
Emerging Markets
5.00
12,000
Net income
10,000
0.00
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
-5.00
EBIT
-10.00
8,000
EBITDA
-15.00
Revenues
6,000
30.00
Carlsberg revenue change (%) & Consumer price change (%)
25.00
4,000
Revenues Carlsberg
20.00
2,000
Euro Area
15.00
0
Emerging Europe
10.00
2008 2009 2010 2011 2012 2013 2014 2015 2016
Emerging Markets
5.00
0.00
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
-5.00
-10.00
Source : IMF, Company Reports
-15.00
17
DCF valuation and sensitivity
Carlsberg
Base
WACC
WACC (%)
7.94
Beta
30%
33%
36%
39%
42%
0.77
7.7%
7.7%
7.6%
7.6%
7.5%
7346.5
0.82
7.8%
7.8%
7.7%
7.7%
7.6%
NPV of Terminal Value ($ Mn)
18753.7
0.87
8.0%
7.9%
7.9%
7.8%
7.8%
Value of Firm ($ Mn)
26100.2
0.92
8.1%
8.1%
8.0%
7.9%
7.9%
Value of Debt ($ Mn)
9089.6
0.97
8.3%
8.2%
8.1%
8.1%
8.0%
Long Term Growth (%)
2
Forecast Period
2011 to 2016
NPV of Forecasted Cash Flows ($ Mn)
Value of Equity ($ Mn)
Debt ratio
17010.6
Number of Shares ($ Mn)
152.6
Share Price ($)
111.50
Price sensitivity WACC v/s Growth rate
(in $)
Value in $
1.00
WACC (%)
145.00
Growth rate (%)
1.50
2.00
2.50
3.00
8.14
88.52
96.60
105.99
117.04
130.25
8.04
90.61
98.96
108.70
120.19
133.97
7.94
92.76
101.40
111.50
123.46
137.84
7.84
94.97
103.92
114.41
126.85
141.87
7.74
97.25
106.53
117.41
130.38
146.08
8.04
120.00
7.94
7.84
7.74
95.00
7.64
70.00
1.00
1.50
2.00
2.50
Growth rate (in %)
3.00
18
Transaction and trading comparables
Carlsberg CMP :: $107.62 as on 30th June 2011
Rev/share :: 78.31 (Calenderized)
EPS ($) :: 6.37 (Calenderized)
EBITDA/share :: 16.68 (Calenderized)
Trading Comparables
Transactions Comparables
Peers
Heineken
Kirin
Foster's
Asahi
Molson Coors
P/E
2011e
14.30
15.80
19.80
13.60
12.60
EV/EBITDA
2011e
7.40
5.90
9.80
6.60
7.90
EV/Rev
2011e
1.70
0.90
5.0x
0.90
1.30
Anadolu Efes
18.40
10.00
2.30
Primary Peers
15.75
7.93
1.42
Implied Price/share ($)
100.40
132.33
111.20
Date
Acquirer
Target
FV/Rev
FV/EBITDA
Jun-10
Carlsberg
Chongqing
Brewery
8.8
49.4
Jan-10
Heineken
Femsa
2.34
10.9
May-09
Asahi / Mr Chen
Fashu
Tsingtao Brewery
1.42
13
Apr-09
Kirin Holdings
Lion Nathan
3.59
12.2
Jul-08
InBev
Anheuser-Busch
2.9
12.5
Scottish &
Newcastle
2.49
13.6
Grolsch
2.74
14.4
2.74
13.00
Jan-08 Heineken/Carlsberg
Nov-08
Median
Carlsberg share price (in $)
Trading comparables
Transaction comparables
Source : J P Morgan PIB
SABMiller
FV
108.95
154.34
Net Debt
Equity Value
No of shares
Price/shre
FV/Rev
32807.75 9089.62
23718.13
152.6
155.47
FV/EBITDA
32463.20 9089.62
23373.59
152.6
153.21
19
Valuing synergies
Synergies : $19.43/share (Bull case), $9.71/share (50% realization) and no synergies (Bear case)
EBITDA margin improvements
• COGS : Extending raw materials cost reduction programs ~ 200-250 bps
• Operating expenses : Optimization & cross mobilization of human resources ~ 200 bps
• SD&A expenses : cross utilization of sales & distribution network ~ 300 bps
Economies of scale
• Higher negotiating power with suppliers & retailers
• Revenue/brewery: Increases, moves towards SABMiller numbers
Growth rate -Tiding over the crisis
• Declining growth rate in European region is expected to stabilize with consolidation
• Launch of Carlsberg brands in unexplored markets of Americas & Africa ~ 150- 200 bps
• Consolidation & market dominance in Asian region ~ 200 bps
• Elongation of explicit time horizon by 2 years due to global market leadership position
Finance - Increased borrowing capacity
• Improved credit rating & higher debt capacity
• Higher cash flow yield
Key factors
• Enhanced geographic presence
• Complementary portfolios
• Strategic fit
20
Pricing summary
CMP
3M
6M
12M
Broker Target
EV/EBIDTA
EV/Sales
P/E
DCF
Bull Case
FV/Sales (T)
FV/EBIDTA (T)
25
50
75
100
125
150
175
200
225
250
21
Funding structure analysis
All cash offer
Part cash part equity
All equity share swap
 Swap ratio (52 wk avg mark cap) ~ 3.8
 Using 100% of cash available with
 Swap ratio based on revenues ~ 7.9
SABMiller ~ $1.07 Bn
 Using 100% of cash available with
SABMiller ~ $1.07 Bn
 Debt to be raised ~ $18.91 Bn
 Swap ratio based on EBITDA ~ 5.5
 Raising debt of $4.52 Bn on SABMiller
 Raising debt on SABMiller ~$12.65 Bn
 Ceiling swap ratio of 4.5
 Issuing 393 Mn shares of SABMiller
 Infusion of $13.72 Bn in an SPV
 Issuing 710 Mn shares of SABMiller
 Ceiling swap ratio of 2.57
 Raising debt on SPV ~ $6.26 Bn
 Cash : equity ~ 28:72
 Outstanding shares ~ 1.59 Bn
 Outstanding shares ~1.59 Bn2.30 Bn
 Outstanding shares ~1.59 Bn1.98 Bn
 Pledge Carlsberg shares against debt
 No additional debt to be raised
 Additional debt is within comfort level
 Higher interest costs
 Interest costs to remain same
 Slightly higher Interest costs
- SABMiller ~ 8.44%  9.50%
- SABMiller ~ 8.44%
- SABMiller ~ 8.44%  9.00%
- Carlsberg ~ 8.86%  10.00%
- Carlsberg ~ 8.86%
- Carlsberg ~ 8.86%
 I- Banking fees ~ $50 Mn
 I- Banking fees ~ $50 Mn
2011e
2012e
2013e
SABMiller standalone
1.38
1.49
1.61
1.78
With Synergy
1.45
1.65
0.07
0.17
Effect on EPS
0.07
1.53
1.74
Part Synergies (50%)
2011e
2012e
2013e
SABMiller standalone
1.38
1.49
1.61
1.79
With Synergy
1.53
1.76
1.94
0.16
0.19
Effect on EPS
0.15
0.27
0.33
1.43
1.62
1.77
Part Synergies (50%)
1.51
1.74
1.91
0.13
Effect on EPS
0.05
0.13
0.16
Effect on EPS
0.13
0.25
0.30
1.41
1.60
1.74
Bear case
1.49
1.71
1.87
0.03
0.11
0.14
Effect on EPS
0.11
0.22
0.27
2011e
2012e
2013e
SABMiller standalone
1.38
1.49
1.61
With Synergy
1.28
1.56
Effect on EPS
-0.10
Part Synergies (50%)
1.25
Effect on EPS
-0.13
 I- Banking fees ~ $50 Mn
0.04
Bear case
1.22
1.49
1.70
Bear case
Effect on EPS
-0.16
0.00
0.10
Effect on EPS
22
Post acquisition creditworthiness
All cash offer
Pre-acquisition
Post acquisition Debt/EBITDA
5.00
SABMiller Debt/EBITDA
2.00
Carlsberg Debt/EBITDA
1.00
0.50
0.00
2011e
2012e
2.00
Part Synergies
(50%)
2013e
Carlsberg EBIT/Interest
0.00
2011e
9.00
6.00
1.50
8.50
4.00
1.00
8.00
2.00
0.50
7.50
0.00
0.00
2013e
2011e
2012e
2013e
2012e
2013e
2011e
9.00
Post acquisition EBIT/Interest
2.50
2.00
Bear case
0.50
0.00
2012e
8.00
2012e
Part Synergies
(50%)
1.00
Bear case
1.00
9.50
2011e
With Synergy
1.50
3.00
SABMiller EBIT/Interest
Post acquisition Debt/EBITDA
2.50
With Synergy
2.00
2011e
2013e
4.00
3.00
3.00
2.50
2.00
1.50
1.00
0.50
0.00
1.50
All equity share swap offer
2012e
2013e
Post acquisition EBIT/Interest
8.00
7.00
With Synergy
With Synergy
6.00
5.00
Part Synergies 4.00
(50%)
3.00
Bear case
2.00
Part Synergies
(50%)
Bear case
1.00
0.00
2011e
2012e
2013e
In case of all cash offer
 Highly levered combined entity, high debt/EBITDA, low interest coverage ratio
 Strained debt position even in case of 100% synergy realization
 Expected to reach level of comfort (3.5x) over a period of 3-4 years
 Negative impact on credit rating – higher credit spreads
In case of all equity share swap
 Combined entity – moderately levered, average debt/EBITDA and interest coverage ratio
 Comfortable debt level even if no synergies are realized
 Possibility of a credit rating upgrade
2011e
2012e
2013e
23
Deal consideration and bidding tactics
 Shareholding pattern of Carlsberg
Carlsberg Foundation ~ largest shareholder with 30.33% equity stake and 74.16% of the voting rights (‘A’ shares)
Common shareholders ~ 69.67% equity holding and 25.84% of the voting rights (‘B’ shares)
 Board approval is a pre-requisite due to internal take over defenses in place
Unsolicited friendly offer to promoters
Proposal to do the business together with Carlsberg being 100% subsidiary of SABMiller
 Start with a considerable premium
 Equity share swap offer with
exchange ratio of 3.60-4.20
Willing to be a part
But offer is not acceptable
Consequent offer with an exchange
ratio of 4.20-4.50
Final offer at an exchange ratio of 4.66
 Offering MD’s position on rotating basis
 Offering CXO level positions
Offer same exchange ratio of 3.60 – 4.20 and an exit option after
5 years at then prevailing fair market value
If not willing to be
a part of business
Exit option can be provided by offering 100% cash with a bid price of
$121 per share
If willing to exit but offer
is not acceptable
Consequent offer s firstly at $127 per share and then $130 per
share which will be the ceiling price
 Promoter approval will trigger Danish take over code ~ majority of voting rights
 Open offer to common shareholders for remaining 70% stake at same price as promoters ~ Danish take over laws
24
Acquisition issues
 Post merger management and employee integration issues
- SAB’s growth has primarily been inorganic in nature whereas that of Carlsberg has been organic in nature
- SAB’s management is mainly based out of emerging markets whereas that of Carlsberg is mainly based out of mature
markets
- This may lead to integration issues (aligning the interests of management and executives)
 Acquisition may be challenged on anti trust grounds
 Legal Issues
- Stitching: Carlsberg can acquire another company and enter into a Stitching Agreement in Netherlands, making SABMiller’s bid
for Carlsberg more expensive and potential acquisition more difficult
 Pre-merger take over defenses by Carlsberg
- White Knight/ White Squire
- Carlsberg can merge with another brewer
- Crown Jewel Defense: May sell off important Carlsberg brands
 Sentimental attachment to “the Carlsberg Brand”
 Potential Political Intervention
- Introduction of new laws/ Change of existing laws
 SABMiller may incur higher debt raising costs due to global financial crisis and worsening debt markets
25
Appendix
 Case materials provided by JP Morgan
 Company Reports
 Datamonitor
 Research Reports

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