Question

An acquisition is a situation whereby one firm (acquiring firm) purchases most or all of another firm's (acquired firm) shares in order to take control.

From real national/international market, select an example of an acquisition between two firms and answer the following questions:

1. Briefly introduce the chosen acquiring and acquired firms (Industry, nationality, size, competitors…).

2. Was this acquisition successful? Why?

3. Evaluate the competitive advantage of the acquiring company (after the acquisition).

4. What is the method used by the acquiring firm to manage the culture of the acquired firm? underline the pros and cons of this method.

Answer 1

Let us consider the acquisition of SABMIller (Sab) by Anheuser-Busch InBev SA/NV (AB) in 2015-16. The general terminology is such that the larger of the two companies involved in the deal is called the acquiring company whereas the smaller company is called as acquired company. Ab is from Belgium while Sab is from UK, both operating in FMCG sector. Both the companies are producers of alcoholic drinks and soft drinks. Even before the acquisition, AB was the world’s largest brewer by volume and sales. The combined market share of the two companies is around 28% worldwide, which translates to around 50% of the global profits The combined entity owns approx. 500 beer brands in over 100 countries. Because of the huge market share of the combined entity, the deal was investigated by regulators in US and Europe for antitrust proceedings. The deal got a conditional approval based on company spinning off MillerCoors holdings in the US and outside.

The deal was all-cash bid for 100% stake in Sab for 69 Bn euro or USD 107 Bn. After the acquisition, the acquired company was delisted and stopped trading on the stock exchanges.

Financial data –

Year	2013	2014	2015	2016	2017	2018
Revenue ($ Bn)	43.20	47.06	43.60	45.52	56.44	54.62
Net Income ($ Bn)	16.52	11.30	9.87	2.72	9.16	5.69
Assets ($ Bn)	141.67	142.55	134.64	258.38	246.13	232.10
PAT margin	38.24%	24.01%	22.63%	5.98%	16.22%	10.42%
ROA	11.66%	7.93%	7.33%	1.05%	3.72%	2.45%

It may appear from the financial data above the deal was not very profitable for AB. The PAT margin as well as the return on assets have decreased after 2016. However, 2016-17 should be seen as exception years when the synergies of acquisition were yet to be realized. Due to the antitrust regulations, the combined entity had to spin off few international units. This transaction has impacted the financial data. However, over the long term, the combined entity has more market share and global access through their 500+ brands. The company has gained a larger market share and reduced competition. It has multiple brands with different product offerings catering to consumers of different tastes.

The cultures of the two companies were similar in many aspects as they both originated from European region. However, as the acquired entity ceased existence after the acquisition, the staff of Sab was accommodated by AB. To adjust to the culture of the new combined entity, the company was restructured into functional groups, which were headed by the functional chiefs. The functional groups corresponded to different product categories. There was also grouping based on geographic presence and these zones were headed by the zonal presidents. The functional chiefs and zonal presidents constitute the team that runs the company. The acquirer has retained the control of the functions and management of the combined entity. Only 1 member of the leadership team out of 19 has come from the Sab while 18 were from AB before acquisition. Effectively, AB has erased the culture of Sab and replaced it with its own. The results would suggest that since the acquired is much bigger than the acquired, the corporate culture is in some ways is better. The acquirer has more accommodating culture considering its global presence and multi-dimensional portfolio. AB’s culture has evolved over a series of mergers and acquisitions since its inception. After the acquisition, the prevalent stronger culture has persisted. The benefits of this method is that the company culture remains uniform worldwide, which is often a risk for companies that have grown inorganically. However, it is sometimes difficult for the employees of the acquired company to adjust in the new culture and fiction may arise. Since the cultural shift has a support from upper management, the transitioning was less turbulent.