Sun Brewing (B) Case Analysis

Description
Sun Brewing (B) Case Analysis

Sun Brewing (B)
Strategic Alliance

Overview
• SUN Interbrew Limited (SIL) – Leading Russian Beer company • JV: SUN and Interbrew • Alpha Group (Russian Conglomerate) buyout offer • Interbrew offer
– Buyout – Merge with Brazilian Giant AmBev

SUN Group - Khemka
• 1900 – Started as Traders • 1950 – Leading suppliers of iron & manganese ores • 1960 – Leading supplier of capital infrastructure (Esp Soviet partnership) • 1986 – Commercial and investment “SUN” Group • 1990s – Russian FDI into 5 breweries

Interbrew
• 1987 – Merger of 2 largest Breweries • 1990 to 2004 – 30 acquisitions and JV to become global players • 2003 – Need for further deals to consolidate position as well as expansion • AmBev merger – Entry into Latin America and future expansion

SUN + Interbrew
• Prior to deal:
– SUN group holding in SUN Breweries – 51%

• Interbrew contribution:
– $40 mn cash + $90mn assets – Wealth of brewing – Marketing expertise

• Interbrew gains:
– Expansion of operations – Access to Russian Beer Market

• Post Deal:
– – – – – Both SUN and Interbrew own 34% Rest 32% Tradable Equal power to veto any future acquisitions Equal representation on board Equal representation in Executive committee

SUN Interbrew
• Growth
– 2 further acquisitions with capital raised – Coherent Branding – Rapid CEO Changes
• Loss of market shares • Top line growth but bottom line declines

– Shift in packing from glass towards cans and PET – Strella impact
• • • • Regained market share Improved financials Cross-brewing Improved operational efficiency and increased capacity

Russian Beer Market
• 5th Largest beer market • 2nd largest in terms of volume growth after China • Four of world’s top brewers produce beer in Russia • Five global brewers account for 36.4% of volume of Russian Beer • Six major independent players account for 28% of volume market share

The Khemka Family Decision (2004)
• Interbrew hold 74.3% while Khemka hold 16.6% – But equal voting stake of 37.7% • 5 year Lock-Up period for SUN expired. • Interbrew had permanent right of first refusal on any sale of SUN’s stake • Alfa conglomerate Group holdings @ 15.8% • Interbrew merger with AmBev
– Latin America local beer market share of 66% – InBev with global market share of 14%

Alternatives for Khemka
• Hold on to their shares in SIL
– Actively participate in its management

• Exit completely
– Closing out 1 year tenure in Russian beer industry

• Maintain Equity Exposure
– Equity swap with InBev – Role of Khemka group unclear

Conclusion
• Interbrew looks at rapid global expansion by way of mergers and JV to gain entry into other markets • Since SUN believes in long term expansion in Russian Beer Market, exiting it altogether would not be a valid option • Alfa is also a threat to its holdings with the lock-up period expiry • It would not be possible to hold back Interbrew from expansions for a long time as it falls in line with its growth strategy. Holding on to SIL would see Interbrew eventually diluting stake / exiting • Hence Equity swap with InBev and maintaining equity exposure looks potential option • At the same time, it can look for potential partners independently, that can help expand in Russian markets as per its expectations.



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