BRAZILLIAN BEER MERGER NEGOTIATIONS:

COMPANHIA CERVEJARIA BRAHMA

Presented By:

Apoorva Dixit

Carolin Emrich

Kornkamon Leelakraisorn

Saurav Ganguli

Watchara Kaewkaw

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AGENDA

Brahma and Antarctica Brazilian's Beer Industry Analysis of the Merger

Synergies and SWOT analysis Negotiations Conclusion & Takeaways

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COMPANHIA CERVEJARIA BRAHMA

Founded in 1988, Brahma had turned into the most efficient and leading brewer in Brazil as well as number five worldwide

An expansion by foreign acquisitions and investments established the firm also in Argentina and Venezuela

A number of strategic alliances and joint ventures allowed Brahma to also serve the rest of Latin America

In 1998, beer accounted for 78.5 % of total sales and 94.7 % of its EBITDA

Since 1994, Brahma´s aims to increase shareholder value and market share were pursued by acquisitions, investments, and alliances

Despite the outperformance of its peers, the soft-drink divisions and acquisitions were hardly profitable

Relatively low operating costs and financial leverage as well as strong channels of distribution promised a strong position with regard to its competitors

Key facts Past Developments & Future Expectations

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ANTARCTICA PAULISTA, S.A.

Second-largest company in the Brazilian beer market and also in the sof-drink industry

At the end of 1998, assets equaled R$ 3.4 billion and Sales amounted to R$ 1.38 billion, while 73 % were made up by beer

Cerveja Antarctice, the flagship brand, was Brazil´s second-ranked beer brand and number four worldwide

Product portfolio comprises of 18 beer brands, 12 soft drink brands and 30 other beverage products

From 1996 to 1998, net sales in all categories declined and its beer market share dropped by 18 % due to insufficient customer focus, failures in the distribution network, and rising competition

Newly established beer brand, Bavaria, gained 5-6 % market share since 1996 by targeting a younger customer segment

Due to a major expansion of production capacity in 1996, overcapacity of 41 % in beer and 47 in soft drinks prevailed in 1999

Key facts Past Developments & Future Expectations

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THE TWO COMPANIES

Antarctica is constantly losing the market share over the period of time

Financial Comparative Performance as of 1999

  Antarctica Brahma

Revenue14$ ,

065.3 ,2$

470.

Net Income57$(

88. )212$

7Total Assets

35$ , 676.52$ ,

338.

Stock - Price Information39$ .

6637

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BRAZILIAN’S BEER INDUSTRY In 1998, it was the world’s forth-

largest beer market

Three firms accounted for 90 % of the market

Beer-sales volume grew at a compound rate of 11.3 % from 1993-1998, but in the past three years sales growth had been zero

Channels of Distribution was the key success

Restructuring of Brazil’s beer industry after the R$ devaluation

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SWOT ANALYSIS

SS

TTOO

WW

Strengths

• Stronger competitive position

• Expansion into related product lines

• Revenue synergies of R$121mn per year because of reduced price competition • Cost saving synergies of R$ 45 mn per year in production, distribution and administration

Weaknesses

• Existing surplus capacity for both partners

• Considerable financing needs of Antarctica

• Eroding market share of Antarctica, negative perception about the Brand

Opportunities

• 70% market share – merged entity holds a higher share in the Brazilian beer market

• Greater bargaining power with retailers and distributors

• Pricing Power in the market

Threats

• Unknown economic outlook • Possible Entry of foreign firms• Cannibalization of products• Antitrust Laws• Labor Unions, competing producers & municipal governments. imposing conditions• Antarctica’s labor cost per hectoliter was 20% higher than that of Brahma

SS WW

OO TT

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NEGOTIATION STRATEGIES

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NEGOTIATION STRATEGIES

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CONCLUSION & TAKEAWAYS To assure a pole position in the future, Brahma

should merge with Antarctica

The merger would entail a good business fit and remarkable synergies

The timing of the merger is appropriate

Success of the merger mainly depends on the key stakeholders´ satisfaction with the negotiations

Telles´ negotiation team should find the right balance in not alienating Antarctica and giving too much away

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THANK YOU & CHEERS!

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