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SABMiller’s Foster Takeover

SABMiller’s Foster Takeover
External Market Environment
SABMiller is an international brewing company which has expanded its operations by acquiring other companies[1]. The company has a strong market share and growth potential. The chairman of SABMiller predicts that in the near future, the company will have dominated almost every continent in the world. He also predicts that the growth will be achieved by acquiring other companies to expand its market share and improve profitability. The long term goals of the company are focused on selling as many brands as possible to consumers all over the world. These strategies differentiate it from other companies competing in the industry[2].
In some instances, the company has taken over other companies as a strategy to expand its market base[3]. In the financial year 2011, the management of SABMiller developed a strategy to take over the activities of Foster. SABMiller is based in the UK and has captured a large portion of the global market. Foster, on the other hand, has a strong customer base in Australia. The takeover was speculated to improve SABMiller’s access to the Australian market[4].
The environmental elements which have an impact on the operations of a company are social, economic, political and technological factors[5]. The strategy to take over the operations of Foster provides SABMiller with new market environments to serve[6]. SABMiller is the second largest beer company in the world in terms of sales volume. Successful takeover of Foster will help SABMiller to “gain a solid market share of the Australian beer market and a valuable portfolio of brands as well as access to profitable, cash-flow-generating assets in a mature beer market, hence re-balancing its earnings base away from developing and emerging markets[7].”
SABMiller will diversify the products offered in the market after the takeover because more brands will be manufactured[8]. Foster manufactures brands such as “Foster Lager, VB, Cascade, Crown Lager, and Carlton[9]” among others. These products will be under the control of SABMiller once the takeover is complete[10]. Foster has also specialized in the manufacture of soft drinks. As such, SABMiller will increase the customer base by targeting the niche of consumers who drink soft drinks[11].
The credit profile of the company will increase after the takeover because it will be able to expand its global operations. Currently, Foster makes an approximate of US$2.3 billion sales volume. This will boost the sales volume of SABMiller by ten percent, which is a good increment. The new company will get better technologies as a result of adopting the innovations carried out by Foster[12].
The sales volume for Foster has declined in the recent past and the takeover will help the company incur more losses. The company has also been losing its market share in the global scene[13]. The takeover will recover the glory of the company by seeking other markets worldwide. Foster has failed in serving specific customer niches in the global market and this has made it fail in retaining its customers. In the past five years, SABMiller and other companies such as Coca-Cola have taken over the market share from Foster by focusing on niche market. The takeover will help improve the image of the company in the markets which were poorly served[14]. A better market position will be achieved because SABMiller has been well established in most of the markets where Foster has failed. Competitors had started to conquer most of the strong markets of Foster due to the weaknesses developed by the company. But after the takeover, most of the customers and markets will be recovered[15].
SABMiller has developed more flexibility in its ability to get more opportunities for growth[16]. In the last fiscal year, the company recorded better cash incomes due to the increment in customer and capital growth. However, the takeover may affect the financial profile of the company[17]. The takeover process will require financing through existing cash or by acquiring external debts. This will affect the balance sheet of the company and make the financial profile weaker. However, SABMiller has a good history of acquiring and taking over other companies and has been successful in all instances[18]. Therefore, the transaction will have more advantages than disadvantages to the company.
Internal Market Environment
The bargaining power of the consumers is minimal in the beer industry because there are no customers with a lot of influence. Most consumers are small scale based and they tend to have minimal influence on the prices offered in the market. The implication of this condition is that there is no independent consumer who can influence the pricing strategies of the company pricing strategies. Suppliers in the industry have a higher bargaining power because they are few and operate in large scale. Thus SABMiller must ensure that it has a reliable number of suppliers. Minimal restrictions are experienced in the industry and this has brought about the entry of many new companies. This has intensified competition but SABMiller has a strong market base which cannot be affected by the entry of new companies. Rivalry among companies in the market is very high and this has brought about stiff competition in the market. SABMiller has been experiencing many challenges from its competitors but this has not affected its operations to a large extent[19]. Some companies which have been competing with SABMiller are Anheuser-Busch InBev, Carlsberg A/S and Heineken. These companies compete on the manufacture and marketing of alcoholic beverages. After the takeover, the competitors will have to set strategies to overcome SABMiller. Therefore, SABMiller will be forced to change its strategies by adopting better pricing, niche marketing and others. these strategies will help the company maintain a big market share.
The environment in which a company operates in after a takeover is totally different from the initial one[20]. New stakeholders are involved in the activities of the company. Therefore, there is a need to integrate all the social, political, economic and technological aspect of the market environment[21]. In the case of SABMiller, the management will be required to learn the social economic needs of the consumers obtained from Foster. For example, SABMiller had previously been unable to penetrate the Australian market but through the takeover strategy, the company will be able to operate in this market. The management of the company has the obligation to identify the specific customer needs of the new market.
[1] Tina Grant, International Directory of Company Histories (New York: St. James Press, 2007).
[2] Graham Mackay, “Our Strategy for Growth” Retrieved September 04 2011 from http://www.sabmiller.com/files/reports/ar2004/Chief+Execs+review/Our+strategy+for+growth/index.html
[3] Canadean Ltd and SABMiller, The Company Watch Service: SABMiller (Canada; Canadean Ltd., 2003).
[4] Moody, “SABMiller/Foster’s Deal Will Benefit Both” Retrieved September 04 2011 from http://m.bizcommunity.com/Article/196/579/61054.html
[5] Jonathan Knowles, Mergers & Brand Strategy (Boston, Harvard Business Review, 2009).
[6] Correia Carlos, David Flynn, Enrico Uliana and Michael Wormald, Financial Management (Australia: Juta and Company Ltd, 2007).
[7] Ibid, para. 3
[8] Donald M. DePamphilis, Mergers, Acquisitions, and Other Restructuring Activities: An Integrated Approach to Process, Tools, Cases, and Solutions (New Jersey; Academic Press, 2009).
[9] Foster Group Ltd. Brands, Retrieved September 04 2011 from http://www.fostersgroup.com/brands/beer.aspx
[10] Robert Johnston and Douglas Bate, The Power of Strategy Innovation: A new way of Linking Creativity and Strategic planning to discover Great Business Opportunities (New York: AMACOM, 2003).
[11] Ibid
[12] Moody
[13] George Stonehouse, David Campbell, Jim Hamill and Tony Purdie, Global and Transnational Business: Strategy and Management (New Jersey: John Wiley & Sons, 2004).
[14] Stephen Carter and Jeremy Kourdi, The Road to Audacity: Being Adventurous in Life and Work (New York: Oxford University Press, 2010).
[15] Schmitt, Christian. Brewing Industry Analysis. New York: GRIN Verlag, 2011.
[16] Charles Grantham and Judith Carr, Consumer Evolution: Nine Effective Strategies for Driving Business Growth (Hoboken, New Jersey: Wiley, 2002).
[17] Robert L Sexton, Exploring Economics (South-Western; Cengage Learning , 2010), p. 430.
[18] Michael A. Hitt, Duane Ireland, Robert E. Hoskisson, Strategic Management: Competitiveness and Globalization: Concepts & Cases (Canada: Cengage Learning, 2008).
[19] Christian Schmitt, Brewing Industry Analysis (New York: GRIN Verlag, 2011).
[20] Thomas West & Jeffrey Jones, Handbook of Business Valuation, (New Jersey; Wiley & Sons Hoboken, 1999).
[21] Stephen Carter and Jeremy Kourdi, The Road to Audacity: Being Adventurous in Life and Work (New York: Palgrave Macmillan, 2003).

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