AB InBev Paving way to the acquisition of SABMiller Queenie SOO | - - PowerPoint PPT Presentation

Queenie SOO | Thomas LUI | Ronald YIP | Eric CHOW

AB InBev Paving way to the acquisition of SABMiller

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Executive Summary

PRIORITIZATION Evaluate each issue by its urgency, financial impact and ethical impact ISSUE 1 Africa Direct Entry via Nigeria: M&A or FDI M&A is a better option ISSUE 2 Downstream Supply Chain Strategy: B2B or B2C AB InBev should improve B2B and explore B2C ISSUE 3 Integration, Synergies and Execution Risk: Value Creating or Value Destroying M&A can create value but risks need to be handled carefully ISSUE 4 Environmental Hazard in China: Take Corrective Actions or Not AB InBev should take immediate actions ISSUE 5 Deal Funding Strategy: Debt Financing or Equity Financing Issue a mix of debt and equity to fund the M&A deal

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Priority of issues is evaluated by urgency, financial impact and ethical impact

More Important

Issue 1 Issue 2 Issue 3 Issue 4 Issue 5 Urgency (30%) Financial Impact (50%) Ethical Impact (20%) Total (100%) Priority

2nd 5th 4th 1st 3rd

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Issue 1: Africa Direct Entry via Nigeria

Loss in the foreign direct investment project is higher than the breakup fee

350 395 445 502 566 638

300 400 500 600 700 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

AB InBev should continue the current acquisition of SABMiller to enter the African market

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352 567 1144 897 584

• 500

500 1000 1500 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

USD Billion

USD/NGN Exchange Rate Cash Flow of Foreign Direct Investment Project

Consideration of potential real option

USD 2.3 billion gain before breakup fee

Different inflation rate in Nigeria and the United States

USD/NGN increases by 12.7% annually USD 3.7 billion loss after breakup fee

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Issue 2: B2B and Downstream Supply Chain Strategy in Southern Africa

B2C sales channel is more profitable in terms of market size and margin

Direct retailing contributes more revenue and higher margin Shoprite Direct Retailing Pick n’ Pay Makro Sales from Supermarket Retailing: US$19 million Sales: US$70 million

100% 31% 69% >1% 0% 20% 40% 60% 80% 100% Revenue COGS Sales and Delivery Expenses Contri- bution

Other than B2B, AB InBev should also explore B2C sales channel through direct retailing

100% 18% 80% 2% 0% 20% 40% 60% 80% 100% Revenue COGS Sales and Delivery Expenses Contri- bution 100% 19% 80% 1% 0% 20% 40% 60% 80% 100% Revenue COGS Sales and Delivery Expenses Contri- bution 100% 17% 80% 3% 0% 20% 40% 60% 80% 100% Revenue COGS Sales and Delivery Expenses Contri- bution

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Issue 2: B2B and Downstream Supply Chain Strategy in Southern Africa

AB InBev should promote B2C channels and enhance efficiency of B2B channels

B2C Sales Channels B2B Sales Channels Integrate with retailors’ POS systems Sell products to less profitable retailors through wholesalers Negotiate price and contract terms with retailors by utilizing market power Launch marketing campaigns to promote the B2C direct retailing platform Recommendation Impact Reduce need for scarce physical shelf space Collecting sales data for better analyses and sales forecasts Reducing cost of servicing supermarket customers

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Issue 3: Integration, Synergies and Execution Risk

AB InBev would gain USD 7.9 Billion from the acquisition of SABMiller

Gain from Acquisition of SABMiller

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234 1056 1669 2354 2660

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500 1000 1500 2000 2500 3000 2016 2017 2018 2019 2020 2021

USD Million

Incremental Cashflow of Synergies

Annual incremental cashflow from 2021: USD 2660 Million

Net Present Value of Synergies: USD 22 Billion

Weighted cost of capital: 10%

92.2 113.4 7.9 21.2 105.5 20 40 60 80 100 120 Value of SABMiller Value of Synergies Total Value of Target Target Price Gain

since integration starts in October 2016

Gain from the deal: USD 7.9 Billion

NPV of Synergies is adjusted by discounting by 5 months

Acquisition of SABMiller creates value for AB InBev

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Issue 3: Integration, Synergies and Execution Risk

AB InBev needs to mitigate execution risks to realize benefits of the deal

Delayed Integration Process Anti-trust Concern South African Government’s Demand Delayed Outsourced Work Laid-off Labor Issue

Execution Risks

Constantly perform earned value analysis to monitor the progress

Recommended Mitigations

Declare to sell SABMiller’s interest in MillerCoors in the USA to address regulator’s concerns of monopoly Publish clear guideline for dismissal Hire other service vendors Maintain secondary listing status in South Africa Establish local supply chain in South Africa Contact EVA and SAP for latest information and updates Calm workers’ worries

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Issue 4: Environmental Hazard in China

AB InBev should not disregard environmental issues in China Current Situation Trends Recommendations

Pollution in rivers and wildlife has caused protests Emphasizes on environmental issues and sustainability Have imposed new green policies which forced 18,000 factories to close down

Customer Government

Trends

Fool the public that they will take action What AB InBev does AB InBev should not disregard this issue Implication Polish the brand image as a sustainable company being socially responsible Punish contractor if inappropriate disposals continue Make the sustainability model more transparent to build community trust

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Issue 5: Deal Funding Strategy and Group Financial Performance

AB InBev needs debt and equity issuance to fund the deal and achieve goals Taking our recommendations and taking care of influential factors, AB Inbev can possibly achieve gearing ratio under 40%, TSR of 14%, and dividend growth of 10%.

Dividend Discount Model Debt Repayment Schedule 10% Dividend Growth USD 50 billion debt USD 50 billion equity Financing Structure 14% Total Shareholder Returns 40% Gearing Ratio 10% Dividend Growth

Inputs Models Goals Influential Factors

Sustainability of dividend payout Macroeconomic condition Realization of M&A synergies

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