Brazilian Beer Merger Negotiations: Companhia Cervejaria Brahma, S.A

Abstract

In May 1999, the CEO of this company (the largest brewer in Brazil) is contemplating a bid for Antarctica, the second-largest brewer in Brazil. The primary motives are to exploit economies of scale and other synergies and to prevent other competitors (mainly foreign multinationals) from acquiring the firm. The tasks for the student are to value the target and buyer, propose an exchange ratio of shares, and generally design the terms of the transaction.

Excerpt

UVA-F-1418

Brazilian Beer Merger Negotiations:

Companhia Cervejaria Brahma, S.A.

In May 1999, Marcel Herrman Telles, chair of Companhia Cervejaria Brahma (“Brahma”), gathered a team of executives and advisers to outline bargaining goals and prepare to negotiate a merger with Antarctica Paulista, S.A. (“Antarctica”). A merger of the two firms would be the largest in Brazil's history. The resulting company (“Newco”) would hold almost a 70% share of the Brazilian beer market and would be the third-largest brewer in the world. Though Antarctica enjoyed a strong brand franchise, its recent financial performance had been disappointing, owing to stagnant growth in consumer beverage consumption in recent years and to the recent devaluation of the Brazilian real (R$ ), causing Antarctica's margins to erode further because of the rising cost of imported ingredients. The devaluation triggered a wave of speculation about restructuring in the Brazilian brewing industry and the possible entry of foreign firms. The possibility of acquisition by a well-financed foreign firm was not lost on the executives of Brahma, who understood the strategic challenge that might create. The executives of Brahma believed that a combination with Antarctica could generate large synergies.

In the next few days, Brahma's negotiating team would need to prepare a bargaining strategy to guide negotiations. Key to this strategy would be an outline of important terms and a range of values with which to conclude a deal. Any negotiation guidelines would need to gain the approval of Brahma's CEO.

Market for Beer and Soft Drinks in Brazil

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Keywords: mergers aquisitions valuation negotiation analysis industry, strategy, transaction, design