International Negotiation

Case Study: Sab Miller And Bavaria Deal

John Alejandro Peuela Tellez Cod: 201311151
The South African Group Is Paying US$7.8bn For The Acquisition Of
Bavaria
Introduction
As we now, one of the things that people like most is to have fun and to relax
disconnecting themselves from reality, and thats why the beer industry is one
of the most successful industries since 4300 B.C. what shows its an old old
industry that had growth in the history due to its popularity between the
people, thats why that many brands and different kinds of beer were created
to attract the customers, and more since the XXI century began, due to the
world became a consumption place, where the industries started having more
power than the countries and governments, and thats why it is so important to
supply the product to more and more people each time what makes the market
a competitive place where the companies want to grow fast for become the
biggest one and that could be done by having big programs of marketing in
this technological century, and also using join ventures, franchising as
McDonalds, or acquiring companies as Sab Miller did with Bavaria. (beer of
history, 2015)

Companies
Bavaria was the result of a society between the German Kopp and Castello,
they were interested on establish a beer business, they acquired a place in
Bogot the 4th of April of 1889, that was the day in which Bavaria was born,
and through the years it was acquired by Julio Mario Santo Domingo, which
made it grow with is visin of business, and in the XX century it started
growing by buying its competitors, being the last the Leona brewery that was
its major competitor in Colombia during that century, and Bavaria destroyed all
of them, that was why the Colombian market was completely dominated by
Bavaria in the beginning of this century, and also because Bavaria and
postobon made a deal in which both compromised, Bavaria compromised in
only be in the beer industry, and postobon be encharged on the sodas industry,
so in the 2005 Bavaria didnt have a competition, and if someone was thinking
on make an entrance to the market, was like a kind of lose time and money,
was imposible to compete with Bavaria. (bavaria)

Graphic 1: Market Share Of Bavaria In 2005

Market Share Of Bavaria

1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0

colombia

peru

ecuador

panama

Serie 3

So Bavaria was not only on the Colombian market, it also was operating on
many different Latin American countries, having big market shares on those
countries, that was why it was the second biggest beer producer on Latin
America.
On another hand, Sab Miller is a South African Brewing Company, that was
created on 1895 as the south African breweries, which in 2002 joined with
miller brewing having sab miller as the result; and that started growing,
entering to another markets as the American, European and African, and by
the 2005 it was the third largest brewing company in the world, and by the
beginning of this century, sab miller, was wanting to expand its operations to
the Latin American country, but making a study to see the possible entry
modes, they noted that a good one was to entry acquiring Bavaria, which was
operating in many countries, by the time it was also growing, and also it had a
knowledge on the Latin American countries, and had the experience of supply
those markets, so it was easier for sab miller to acquire it than to start
operations by its self with its own brands and its own operation without the
knowledge of the market. (thomas, 2015) (sab miller, 2015)

Graphic 2: Stocks After The Rumor Of Deal

Stocks In 2005
100
90
80
70
60
50
40
30
20
10
0

sab miller

bavaria
stock

(dan bilefsky, 2015)

Graphic 3: Benefits Of The Deal

Columna1

Bavaria

Sab
Miller

Negotiation
Sab Miller wasnt the first party to make an offer to Bavaria, the first one was
Heineken, but it was not interesting for the Santo Domingos group, maybe the
Santo Domingo didnt believe or didnt trust on Heineken, or maybe Heineken
had a position in which didnt want to offer more or didnt want to move its
initial position to make a deal, and that negotiation end without any deal; after
some time Sab Miller came to Colombia with the total interest on acquiring
Bavaria, what made the negotiation easier, because it was a win-win
negotiation, due to both were wanting to make a deal, Sab miller because was
watching it as a way of expand the market globally, and Bavaria, because so it
as a way to go in of a global company, and also winning too much money, and
maybe because Julio Mario was tired of managing the company, that was why
his son Alejandro Santo Domingo took its place on the negotiation. So the
Santo Domingo were trusting on sab miller, watching them as the BATNA (best
alternative to a negotiated agreement) compared with Heineken, so it was a
kind of integrative negotiation due to both parties were satisfied, on one hand
sab miller having it as the entry mode to the Latin American market, and on
the other the Santo Domingos family, earning 7.8 billions of dollars divide in
3.5 billions in shares of sab miller, which gave them the 15% of sab miller
shares, 1.5 billions in money on that year, and the rest on debt. And also two
seats on the sab miller border one of them taken by Alejandro Santo Domingo,
so the Santo Domingo saw it as a way of entry to the global market without
trying it by themselves, and also sab miller entering to the Latin American
market without doing by itself so they prioritize their interests in order to

achieve the agreement, the deal was done with the American currency, us
dollars. Both parties had a good impression of each other, and also they
created a kind of relationship, due to the size of the deal, also they had skilled
negotiators, maybe the Julio Mario by the side of Bavaria due to its experience
and its view for business as being known as an old fox. (ft.com, 2015)
(just drinks, 2015)

Conclusion
The agreement made that Bavaria growth as the second biggest beer company
in Latin America with its own products as aguila, poker, pilsen and some more.
By the time sab miller did introduce its products having as the principal one
the miller beer, that deal also had as result the growth of sab miller brewery,
becoming the second largest brewery company in the world, only after Ab
Inbev, what show as that it was a successful deal for sab miller because it
increased its capacity, and also started earning too much than it was before
the deal, and also it was a big deal for the Santo Domingo family, due to they
earned too much money, and also obtained benefits and a part of control on
sab miller, that would represent money and money over the pass of the years.
And all of that was achieved, due to the well planned negotiation by sab miller,
and also the disposition to negotiate by the Santo Domingo family, what made
it easier, due to both parties were interested on make the deal what also did it
faster, ending with both parties happy of the benefits received of that deal.
(houblon.net, 2015)

Graphic 4: Comparison Between Companies Before And After The Deal

 was the third largest beer company in the world

didnt have control on latin american market
was the second largest beer company in latin
america
only was operating on latin america
made sab miller the second largest beer
company in the world
made bavarias owners to be part of a global
beer company

Sab
miller
Bavaria
Deal
Questions

1. What advantages or disadvantages does the deal have for both parties?
2. What made the deal was successful? Any negotiation tactic?
3. What would change for both parties after the deal?

Bibliografa
bavaria. (09 de october de 2015). bavaria.co. Obtenido de bavaria.co:
http://www.bavaria.co/3-2/historia_an/
beer of history. (09 de october de 2015). beer of history. Obtenido de beer of
history:
http://www.beerhistory.com/library/holdings/raley_timetable.shtml
dan bilefsky, j. s. (09 de october de 2015). wall street journal. Obtenido de wall
street journal: http://www.wsj.com/articles/SB112170366715088407

ft.com. (09 de october de 2015). Obtenido de ft.com:

http://www.ft.com/cms/s/0/ea6bc492-f7b6-11d9-9f6400000e2511c8.html#axzz3o7mpSJZq
houblon.net. (09 de october de 2015). houblon.net. Obtenido de houblon.net:
http://www.houblon.net/spip.php?article1830
just drinks. (09 de october de 2015). just drinks. Obtenido de just drinks:
http://www.just-drinks.com/analysis/sabmiller-steals-march-on-rivalswith-bavaria-deal_id85133.aspx
sab miller. (09 de october de 2015). sab miller. Obtenido de sab miller:
http://www.sabmiller.com/about-us/history
thomas, n. (09 de october de 2015). the telegraph. Obtenido de the telegraph:
http://www.telegraph.co.uk/finance/11247773/Brewing-a-Latin-beerwar.html