Strategic Management

1. What was the strategic rationale for the deal?

The strategic rationale for the deal was that of market share, financial viability and morale.

InBev was the second largest brewer, brewing almost as much as the first in the industry. This acquisition deal would then place InBev well ahead of the rest of the competition and place InBev as the market leader, in terms of quantities brewed.

InBev also had difficulties penetrating the US market. By acquiring Anheuser-Busch, who has a strong position in the US market, InBev consolidated its position as a leader and increased its US market share. Additionally, this is also a great opportunity for Anheuser-Busch to expand worldwide.

Furthermore, after a second offer, the deal was then considered financially viable and would please the shareholders. The shares were undervalued at first, but valued better the second time. Anheuser-Busch evaluated the proposals with the assistance of independent advisers.

Lastly, InBev promised that it would not close any of Anheuser-Busch's 12 U.S. breweries, and would not make significant job cuts. Cash would be generated to help finance the purchase from better supply chain management and selling off "non-core" assets.

As such, this is a win-win strategy, increasing the competitiveness and strength of the company as a whole.

2. Where do the synergies come from?

A corporate synergy is the financial benefit that a firm expects to realise when it merges with another firm and therefore increase the value and the performance of the newly formed firm.

Firstly, in the case of the merger between InBev and Anheuser-Busch, merging helped to share the knowledge between these two companies. For example Anheuser-Busch is known for their marketing experience. The company had a huge marketing and advertising budget, with $500 million for ad time in the United States annually, and especially with the Super Bowl. Moreover InBev and Busch will be able to share their different patents.

Secondly, this merger would allow the new firm to reduce its costs just as it did with the Interbrew-AmBev merger. With this merger, the new firm will become the leader in the production of beer. Raw materials being nearly identical for all beers (malt) they could reduce their costs by ordering more to their suppliers. By increasing the quantity they produce, this firm will reduce the cost per unite (economies of scale).

Thirdly, by merging, the two companies will share their different products and thus, InBev is going to improve its position in every market and especially in the US market, in which Busch holds 50% of the market share.

Then with the merging, InBev will also be able to reduce its staff cost by shutting down plants or services that are already present in Busch corporate organisation. This will also help them become more efficient in the production through reorganising its activities.

Finally the two firms are going to share their distribution channels in the different markets and with more beers being sold to the same retailers they will increase the pressure on them because InBev is going to have more beer brands than any other competitor on the supermarket's