Based on my discounted cash flow valuation of Anheuser-Busch as of the end of 2007, the intrinsic value of the company is estimated to be in the range of $55-65 per share. While InBev's initial bid of $65 per share appears reasonable, its final offer of $70 per share seems too high given Anheuser-Busch's prospects and risks. My analysis indicates that InBev's shareholders should not endorse the acquisition at $70 per share. (1) Statement of the issue The key issues financial managers at InBev face are: 1) determining

1. CASE: Culture Clashes Make Change Difficult at SAP
Software giant SAP is based in Germany and is seeking to
develop more efficient global operations. At
the beginning of this decade, about two-thirds of its managers
were German, and most key projects
were led from its headquarters in Walldorf, Germany. The
company’s leaders hoped SAP could become
more agile and creative by bringing in a more diverse group of
employees and sharing responsibility.
Unlike the more typical route to globalization by setting up
sales offices and manufacturing facilities,
SAP introduced change from the top down. The company made
English its official language, even for
meetings at headquarters. It hired foreign managers, making
them half of the company’s top
management. It placed product development under the
leadership of Shai Agassi, based in Palo Alto,
California. Agassi was charged with overseeing development
groups in eight centers around the world.
One objective for the globalized SAP was to develop and
implement software much faster. The process

2. of creating a new program at SAP had been taking at least a
year, as programmers in Walldorf carefully
worked out each problem. The resulting programs were complex
and difficult to install and didn’t work
well with other companies’ products. At the same time, the
Internet was making customers’ software
more interconnected and increasing the pace of change. To keep
up, SAP would have to change as well.
SAP hired programmers in India and China, as well as in
Germany and the United States. German
programmers focused on the coding associated with the
software’s main tasks, American employees
more often addressed programming that affects the user’s
experience, and Indian programmers worked
on updating and fixing the code in older programs. Some human
resource functions were outsourced to
Prague, in Eastern Europe.
The changes frightened many of the German employees, who
worried they would lose their jobs and the
company would lose its reputation for quality. Agassi assigned
a group of 10 software developers to
create 100 programs for analyzing data such as defects in parts.
Their deadline: just 12 weeks. The
developers first insisted the task was impossible, but when

3. Agassi wouldn’t back down, they found a
way to meet the deadline by writing a program that would write
other programs. Still, they worried that
working so fast would ultimately lead to problems with quality.
Employees in Germany complained about the move away from
“good, old German engineering” and the
requirement that they speak English in meetings. They criticized
the “Americanization of SAP.”
Eventually, they rallied enough support to form a workers’
council, similar to a union, to help workers
find other jobs at SAP when positions were moved to other
countries. So far, though, the company has
avoided layoffs at headquarters—in fact, it has hired
programmers.
Personnel director Klaus Heinrich guided American executives
in working with engineers in each
country. For example, he urged them to manage German
workers by making a good impression with
hard work and quality. Managers learned to give German
employees plenty of leeway and give Indian
employees plenty of attention. Still, Agassi, the U.S.-based head
of product development, resigned out
of frustration with the level of conflict.

4. SOURCE: Based on Phred Dvorak and Leila Abboud, “SAP’s
Plan to Globalize Hits Cultural Barriers,” Wall
Street Journal, May 11, 2007, http://online.wsj.com.
Questions
1. In your opinion, what aspects of the changes at SAP would be
most difficult for the German
employees? Which would be most difficult for the SAP
employees in other countries?
2. What HRM activities or functions were affected by the
changes described in this case?
3. Imagine you are an HR consultant called in to advise the
leadership at SAP. Suggest a few ways the
company can overcome cultural barriers that are affecting its
efforts to become more creative and agile.
Balance SheetExhibit1. Anheuser-Busch Balance Sheet (in
Million $, except per share)Dec.31 2006Dec.31
2007AssetsCurrent Assets219.20283.20Accounts
receivable720.20805.20 Inventories694.90723.50 Other Current
assets195.20212.60 Investments in affiliated
companies1,829.502,024.50Total Current
Assets3,680.304,019.50Plant & equipment,
net8,916.108,833.50Intangible assets, including
goodwill1,367.201,547.90Other assets584.10729.60Total

5. Assets16,377.2017,155.00Liabilities and shareholders'
equityCurrent liability1,426.301,464.50Accounts
payable342.80374.30Accrued salaries, wages and
benefits133.90106.20Arrued taxes124.20136.40Accrued
interest218.90222.40Total Current
liability2,246.102,303.80Retirement
benefits1,191.501,002.50Debt7,653.509,140.30Deferred income
taxes1,194.501,314.60Other long term
liabilities152.90242.20Shareholders' EquityCommon stock, $1
par value, authorized 1.6 billion shares1,473.701,482.50Capital
in excess of par value2,962.503,382.10Retained
earnings16,741.0017,923.90Treasury stock, at cost-16,007.70-
18714.70Accumulated non-owner changes in shareholder
equity-1230.80-922.20Total shareholders'
equity3938.703151.6Commitments and contingencies-Total
liabilities and shareholders' equity16377.217155Source: Andrew
Inkpen, InBev and Anheuser-Busch, Thunderbird School of
Global Management, 2010.
income statement & assumptionsExhibit2: Income Statement
and Assumptions(Millions of dollars)10-yrYears Ended
December 31,200320042005200620075 yrs1 yrRevenueNet
sales14,147100.0%14,934100.0%15,036100.0%15,717100.0%16
,686100.0%3.4%6.2%100.0%OPERATING EXPENSES:Cost of
goods
Sold7,57253.5%8,05053.9%8,60157.2%9,17658.4%9,84059.0%
5.4%7.2%56.4%S, G & A
expenses2,49817.7%2,59117.3%2,73018.2%2,83318.0%2,98217
.9%3.6%5.3%17.8%Depreciation, Depletion, and
Amortization8776.2%9336.2%9796.5%9896.3%9966.0%2.6%0.
8%6.2%OPERATING INCOME
(EBIT)3,19922.6%3,36122.5%2,72618.1%2,72017.3%2,89417.3
%-2.0%6.4%19.6%OTHER EXPENSES (INCOME):Interest
expense4022.8%454.53.0%4553.0%4512.9%4842.9%3.8%7.3%2
.9%Non-operating
income/expense3652.6%4372.9%5083.4%5973.8%6854.1%13.4
%14.7%3.4%PRETAX

6. INCOME3,16922.4%3,40422.8%2,69017.9%2,86618.2%3,09518
.5%-0.5%8.0%20.0%INCOME
TAXES1,0937.7%1,1637.8%8505.7%9015.7%9705.8%-
2.4%7.7%6.5%NET
INCOME2,07614.7%2,24015.0%1,93912.9%1,96512.5%2,12512
.7%0.5%8.1%13.6%NET INCOME PER
SHARE,BASIC4.954.565.726.056.400.04%5.3%5.8%0.0%NET
INCOME PER
SHARE,DILUTED4.894.525.635.966.320.04%5.3%6.0%5
yearEffective tax rate0.340.340.320.310.310.33Capital
expenditures (millions of
$)812.505.2%870.005.2%7.1%5.2%Working
Capital5,64035.9%6,13636.8%8.8%51.2%Source: Anheuser-
Busch Annual Reports except the last three columns.
Other InfoExhibit 1(in Million $, except where noted)31-Dec-
0631-Dec-07% changeNet Sales15,717.1016,685.706.20%Gross
Profit5,552.105,849.605.40%As a % of sales35.33%35.06%(0.2)
ptsOperating Income2,719.602,894.006.40%As a % of
sales17.30%17.30%(0.0) ptsNet
Income1,965.202,115.307.60%Diluted EPS2.532.7910.30%# of
shares outstanding715.00Operating cash flow before the change
in working capital2,502.602,963.1018.40%Common dividend
paid per share (in $)1.131.2510.60%Return on shareholders'
equity51.60%59.70%(8.1) ptsTotal
assets6,377.0017,155.00169.00%Capital
expenditures812.50870.007.10%Closing stock price (in
$)49.2052.346.40%Source: Andrew Inkpen, InBev and
Anheuser-Busch, Thunderbird School of Global Management,
2010.
WACCExhibit$ millionsWeightNotesEquity market cap as of
12/31/2007 (a)Book value of debt as of 12/31/2007Credit
ratingA(b)Beta0.6(c)10-year U.S. treasury YTM as of
12/31/20074.10%(d)A 10-yr corporate bond yield as of
12/31/20075.50%(e)expected annual market risk
premium4.79%(f)tax rate32.61%(g)dividend growth
rate4.75%(g)last dividend(a)closing share price

7. 12/31/2007(a)Cost of Equity Ke:CAPMConstant dividend
growth (or "Dividend Discount Model")WACC:with Ke based
on CAPMwith Ke based on Constant dividend growth
modelSources:(a) Find relevant information from the "Other
Info" tab.(b) Source:
http://www.netadvantage.standardandpoors.com(c)Souce:
Center for Research on Security Price(d)
http://www.federalreserve.gov/releases/h15/data.htm(e)
http://ycharts.com(f)http://people.stern.nyu.edu/adamodar/pdfile
s/papers/ERP2012.pdf(g) Estimated based on historical dividend
payments.
cash flow projectionAssumptionBase
Year200720082009201020112012Notes for assumptions
madePeriod012345Sales6.00%annual growth rate$ 16,685.701.
Historical pattern (including one-year growth rate of 6.1%); (2)
Expectation of recession and (3) strategy to expand
globallyOPERATING EXPENSES:Cost of sales59.0%of total
revenue9,840Expectation of rising commodity pricesS G &
A17.8%of total revenue2,982Dep. and am.6.2%of total
revenue996- 0- 0- 0- 0- 0Total operating
expenses13,818OPERATING INCOME
(EBIT)2,894PROVISION FOR INCOME TAXES32.61%of
operating income97000000Operating Cash Flows EBIT Taxes
Depreciation and amortizationOperating Cash Flows Net Capital
Spending5.19%of revenue or depr (whichever is greater)$
870$ - 0$ - 0$ - 0$ - 0$ - 0Change in NWC51.21%of
incremental sales$ 496$ (8,544)$ - 0$ - 0$ - 0$ - 0FREE
CASH FLOW (=OCF-NCS-Change in NWC)
ValuationDiscounted Cash Flow Valuation Based on Constant
Growth AssumptionYour Growth Rate Assumption for
TVWACCNo. of common shares O/S
(millions)DebtYear200720082009201020112012Period012345Fr
ee Cash Flows (millions)Terminal value (millions)PV of Free
Cash Flows through year 2012PV of Terminal ValueEstimated
Value of Firm VfirmLess: Value of Long-term Debt
VdEstimated Value of Equity VeEstimated Share Value

8. Financial Management
HW2
Please prepare a report based on the case entitled “InBev and
Anheuser-Busch.”
Your report should address the following questions:
1. What is the intrinsic value? Why is it so important? How is it
estimated in
business valuation?
2. What is WACC? Why is it so important in business
valuation? Please estimate
WACC for Anheuser in 2008 using the Excel template attached.
In your
estimation of cost of equity, use either CAPM or Dividend
Discount Model but
make sure to justify your model selection.
3. Assess InBev’s bids for Anheuser in 2008 based on
discounted cash flow
valuation model. How do they compare with the firm’s intrinsic
value?
a. Complete the attached Excel sheet by projecting free cash
flows, with the
terminal date at the end. What should determine the “terminal
date,” i.e., when
you stop forecasting annual cash flows and estimate a terminal
value? Do you

9. think 2012 is the appropriate “terminal date” for Anheuser-
Busch given its
circumstances at the end of 2007? Why?
b. Could you recommend an appropriate growth-rate assumption
for Anheuser-
Busch in the estimation of its terminal value? Justify your
growth-rate
assumption and estimate Anheuser’s terminal value.
c. What is your best estimate (or the range of your estimates) of
Anheuser-
Busch’s intrinsic value?
d. Should InBev’s shareholders endorse the acquisition of
Anheuser at $70 per
share?
The outline for the report is as follows:
(1) An executive summary that includes your recommendation.
(2) A statement of the issue(s) the financial managers face.
(3) A presentation and discussion of your Excel findings.
(4) Your analysis.
(5) Concluding remarks.
Due in 24 hours.
NOTE: no specific number of pages, BUT answer the questions
FULLY,,
COMPLETELY ,, AND CORRECTLY.