Trouble on Tap - Interbrew’s Failed IPO Takeover of Bass Brewers

In January 2001 the CEO of Interbrew, the world’s second-largest brewer, received what was likely the worst news of his career. With the ink on the company’s Initial Public Offering still wet, the British Government announced it was rescinding Interbrew’s €3.68 billion takeover of Bass Brewers, a deal it had affected just four months prior and which served as a selling point in its recent IPO. On the day of the announcement, Interbrew’s stock lost 25%, wiping out €4 billion in shareholder wealth and raising numerous questions, discussed here by François de Breteuil and Professor Herwig Langohr.

by Herwig Langohr
Last Updated: 23 Jul 2013

Interbrew can trace its origins back to 1366 to a brewery called De Hoorn in Leuven, a city just outside of Brussels. From these modest roots, the company has emerged as the second-largest brewery in the world behind Anheuser-Busch. Much of the company’s growth took place in the 1980s and 90s, when the industry began consolidating. During this time, Interbrew was extremely active, acquiring Labatt (owner of Rolling Rock in the US and Cerveza in Mexico) in 1994 and entering new markets such as China, South-Korea, Russia and the Ukraine. But its biggest acquisition, Britain’s Bass Brewers, would turn out to be its costliest, in more ways than one.

In this Case Study François de Breteuil, Research Associate, and Herwig Langohr, Professor of Finance and Banking, look at the beer industry in the late 1990s and how the trend toward consolidation pushed through a number of mergers and acquisitions. Among them was Interbrew’s takeover of British-owned Bass Brewers for €3.68 billion. In outbidding other potential buyers, including Heineken, South African Breweries, and Carlsberg, Interbrew added 44 new brands to its portfolio and nearly doubled its revenues – from €3.4 billion to €6.6 billion.

The purchase (in August 2000) was part of Interbrew’s overall strategy of developing the British market; it had recently acquired Whitbred and, with the Bass purchase, now controlled 32% of the UK market. In fact, this strong market position is what Interbrew used to propel its Initial Public Offering just three months later.

The festivities celebrating Interbrew’s successful IPO were short-lived, however. In January 2001, Britain’s Trade and Industry Secretary announced that the British government was rescinding Interbrew’s takeover of Bass on the grounds that it created a duopoly between Interbrew and Scottish & Newcastle that “would reduce competition in the market, lead to higher prices for end-consumers, and reduce consumer choice.”

In the aftermath of this harsh decision, the financial community was left wondering whether the IPO was the right move (perhaps they should have waited to make sure there would be no antitrust problems with the British competition authorities), and whether €33 was an appropriate IPO price.

To answer these questions, the authors take the reader through a step-by-step discussion of the IPO process: the announcement, the IPO team, timing, valuation, and pricing and listing. They conclude by asking readers, given the increasing industry consolidation, how companies like Interbrew can continue to grow while remaining within the boundaries of existing antitrust regulations.

INSEAD 2003

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