85

Acquisitionsaregreatfortargetcompaniesbutnotalwaysforacquiringcompanystockholders…

Aswath Damodaran

85

86

Andthelong-termfollowupisnotpositiveeither..

Aswath Damodaran

86

¨ Managersoftenarguethatthemarketisunabletoseethelongtermbenefitsofmergersthattheycanseeatthetimeofthedeal.Iftheyareright,mergersshouldcreatelongtermbenefitstoacquiringfirms.

¨ Theevidencedoesnotsupportthishypothesis:¤ McKinseyandCo.hasexaminedacquisitionprogramsatcompanieson

n Didthereturnoncapitalinvestedinacquisitionsexceedthecostofcapital?n Didtheacquisitionshelptheparentcompaniesoutperformthecompetition?n Halfofallprogramsfailedonetest,andaquarterfailedboth.

¤ Synergyiselusive.KPMGinamorerecentstudyofglobalacquisitionsconcludesthatmostmergers(>80%)fail- themergedcompaniesdoworsethantheirpeergroup.

¤ Alargenumberofacquisitionsthatarereversedwithinfairlyshorttimeperiods.About20%oftheacquisitionsmadebetween1982and1986weredivestedby1988.Instudiesthathavetrackedacquisitionsforlongertimeperiods(tenyearsormore)thedivestiturerateofacquisitionsrisestoalmost50%.

87

Ascarythought…Thediseaseisspreading…IndianfirmsacquiringUStargets– 1999- 2005

Aswath Damodaran

87

Months around takeover

88

Growingthroughacquisitionsseemstobea“loser’sgame”

Aswath Damodaran

88

¨ Firmsthatgrowthroughacquisitionshavegenerallyhadfarmoretroublecreatingvaluethanfirmsthatgrowthroughinternalinvestments.

¨ Ingeneral,acquiringfirmstendto¤ Paytoomuchfortargetfirms¤ Overestimatethevalueof“synergy” and“control”¤ Haveadifficulttimedeliveringthepromisedbenefits

¨ Worsestill,thereseemstobeverylittlelearningbuiltintotheprocess.Thesamemistakesaremadeoverandoveragain,oftenbythesamefirmswiththesameadvisors.

¨ Conclusion:Thereissomethingstructurallywrongwiththeprocessforacquisitionswhichisfeedingintothemistakes.

89

Thesevensinsinacquisitions…

Aswath Damodaran

89

1. RiskTransference:Attributingacquiringcompanyriskcharacteristicstothetargetfirm.

2. Debtsubsidies:Subsidingtargetfirmstockholdersforthestrengthsoftheacquiringfirm.

3. Auto-pilotControl:The“20%controlpremium” andothermyth…

4. ElusiveSynergy:Misidentifyingandmis-valuingsynergy.5. Itsallrelative:Transactionmultiples,exitmultiples…6. Verdictfirst,trialafterwards:Pricefirst,valuationtofollow7. It’snotmyfault:Holdingnooneresponsiblefordelivering

results.

90

Testingsheet

Aswath Damodaran

90

Test Passed/Failed Rationalization

Risk transference

Debt subsidies

Control premium

The value of synergy

Comparables and Exit MultiplesBias

A successful acquisition strategy

91

Letsstartwithatargetfirm

Aswath Damodaran

91

¨ Thetargetfirmhasthefollowingincomestatement:Revenues 100OperatingExpenses 80= OperatingIncome 20Taxes 8=After-taxOI 12

¨ Assumethatthisfirmwillgeneratethisoperatingincomeforever(withnogrowth)andthatthecostofequityforthisfirmis20%.Thefirmhasnodebtoutstanding.Whatisthevalueofthisfirm?

92

Test1:RiskTransference…

Aswath Damodaran

92

¨ Assumethatasanacquiringfirm,youareinamuchsaferbusinessandhaveacostofequityof10%.Whatisthevalueofthetargetfirmtoyou?

93

Lesson1:Don’ttransferyourriskcharacteristicstothetargetfirm

Aswath Damodaran

93

¨ Thecostofequityusedforaninvestmentshouldreflecttheriskoftheinvestmentandnottheriskcharacteristicsoftheinvestorwhoraisedthefunds.

¨ Riskybusinessescannotbecomesafejustbecausethebuyerofthesebusinessesisinasafebusiness.

94

Test2:Cheapdebt?

Aswath Damodaran

94

¨ Assumeasanacquirerthatyouhaveaccesstocheapdebt(at4%)andthatyouplantofundhalftheacquisitionwithdebt.Howmuchwouldyoubewillingtopayforthetargetfirm?

95

Lesson2:Renderuntothetargetfirmthatwhichisthetargetfirm’sbutnotapennymore..

Aswath Damodaran

95

¨ Asanacquiringfirm,itisentirelypossiblethatyoucanborrowmuchmorethanthetargetfirmcanonitsownandatamuchlowerrate.Ifyoubuildthesecharacteristicsintothevaluationofthetargetfirm,youareessentiallytransferringwealthfromyourfirm’sstockholdertothetargetfirm’sstockholders.

¨ Whenvaluingatargetfirm,useacostofcapitalthatreflectsthedebtcapacityandthecostofdebtthatwouldapplytothefirm.

96

Test3:ControlPremiums

Aswath Damodaran

96

¨ Assumethatyouarenowtoldthatitisconventionaltopaya20%premiumforcontrolinacquisitions(backedupbyMergerstat).Howmuchwouldyoubewillingtopayforthetargetfirm?

¨ WouldyouranswerchangeifItoldyouthatyoucanrunthetargetfirmbetterandthatifyoudo,youwillbeabletogeneratea30%pre-taxoperatingmargin(ratherthanthe20%marginthatiscurrentlybeingearned).

¨ Whatifthetargetfirmwereperfectlyrun?

97

Lesson3:Bewareofrulesofthumb…

Aswath Damodaran

97

¨ Valuationisclutteredwithrulesofthumb.Afterpainstakinglyvaluingatargetfirm,usingyourbestestimates,youwillbeoftenbetoldthat¤ Itiscommonpracticetoaddarbitrarypremiumsforbrandname,qualityofmanagement,controletc…

¤ Thesepremiumswillbeoftenbebackedupbydata,studiesandservices.Whattheywillnotrevealistheenormoussamplingbiasinthestudiesandthestandarderrorsintheestimates.

¤ Ifyouhavedoneyourvaluationright,thosepremiumsshouldalreadybeincorporatedinyourestimatedvalue.Payingapremiumwillbedoublecounting.

98

Test4:Synergy….

Aswath Damodaran

98

¨ Assumethatyouaretoldthatthecombinedfirmwillbelessriskythanthetwoindividualfirmsandthatitshouldhavealowercostofcapital(andahighervalue).Isthislikely?

¨ Assumenowthatyouaretoldthattherearepotentialgrowthandcostsavingssynergiesintheacquisition.Wouldthatincreasethevalueofthetargetfirm?

¨ Shouldyoupaythisasapremium?

99

TheValueofSynergy

Aswath Damodaran

99

Synergy is created when two firms are combined and can be either financial or operating

Operating Synergy accrues to the combined firm as Financial Synergy

Higher returns on new investments

More newInvestments

Cost Savings in current operations

Tax BenefitsAdded Debt Capacity Diversification?

Higher ROC

Higher Growth Rate

Higher Reinvestment

Higher Growth RateHigher Margin

Higher Base-year EBIT

Strategic Advantages Economies of Scale

Longer GrowthPeriod

More sustainableexcess returns

Lower taxes on earnings due to - higher depreciaiton- operating loss carryforwards

Higher debt raito and lower cost of capital

May reducecost of equity for private or closely heldfirm

100

ValuingSynergy

Aswath Damodaran

100

(1)thefirmsinvolvedinthemergerarevaluedindependently,bydiscountingexpectedcashflowstoeachfirmattheweightedaveragecostofcapitalforthatfirm.(2)thevalueofthecombinedfirm,withnosynergy,isobtainedbyaddingthevaluesobtainedforeachfirminthefirststep.(3)Theeffectsofsynergyarebuiltintoexpectedgrowthratesandcashflows,andthecombinedfirmisre-valuedwithsynergy.

ValueofSynergy=Valueofthecombinedfirm,withsynergy-Valueofthecombinedfirm,withoutsynergy

101

Synergy- Example1Highergrowthandcostsavings

Aswath Damodaran

101

P&G Gillette Piglet: No Synergy Piglet: SynergyFree Cashflow to Equity $5,864.74 $1,547.50 $7,412.24 $7,569.73 Annual operating expenses reduced by $250 millionGrowth rate for first 5 years 12% 10% 11.58% 12.50% Slighly higher growth rateGrowth rate after five years 4% 4% 4.00% 4.00%Beta 0.90 0.80 0.88 0.88Cost of Equity 7.90% 7.50% 7.81% 7.81% Value of synergyValue of Equity $221,292 $59,878 $281,170 $298,355 $17,185

102

Synergy:Example3TaxBenefits?

Aswath Damodaran

102

¨ AssumethatyouareBestBuy,theelectronicsretailer,andthatyouwouldliketoenterthehardwarecomponentofthemarket.YouhavebeenapproachedbyinvestmentbankersforZenith,whichwhilestillarecognizedbrandname,isonitslastlegsfinancially.Thefirmhasnetoperatinglossesof$2billion.Ifyourtaxrateis36%,estimatethetaxbenefitsfromthisacquisition.

¨ IfBestBuyhadonly$500millionintaxableincome,howwouldyoucomputethetaxbenefits?

¨ IfthemarketvalueofZenithis$800million,wouldyoupaythistaxbenefitasapremiumonthemarketvalue?

103

Lesson4:Don’tpayforbuzzwords

Aswath Damodaran

103

¨ Throughtime,acquirershavealwaysfoundwaysofjustifyingpayingforpremiumsoverestimatedvaluebyusingbuzzwords- synergyinthe1980s,strategicconsiderationsinthe1990sandrealoptionsinthisdecade.

¨ Whileallofthesecanhavevalue,theonusshouldbeonthosepushingfortheacquisitionstoshowthattheydoandnotonthosepushingagainstthemtoshowthattheydonot.

104

Test5:ComparablesandExitMultiples

Aswath Damodaran

104

¨ Nowassumethatyouaretoldthatananalysisofotheracquisitionsrevealsthatacquirershavebeenwillingtopay5timesEBIT..GiventhatyourtargetfirmhasEBITof$20million,wouldyoubewillingtopay$100millionfortheacquisition?

¨ WhatifIestimatetheterminalvalueusinganexitmultipleof5timesEBIT?

¨ Asanadditionalinput,yourinvestmentbankertellsyouthattheacquisitionisaccretive.(YourPEratiois20whereasthePEratioofthetargetisonly10…Therefore,youwillgetajumpinearningspershareaftertheacquisition…)

105

Biasedsamples=Poorresults

Aswath Damodaran

105

¨ Biasedsamplesyieldbiasedresults.Basingwhatyoupayonwhatotheracquirershavepaidisarecipefordisaster.Afterall,weknowthatacquirer,onaverage,paytoomuchforacquisitions.Bymatchingtheirprices,weriskreplicatingtheirmistakes.

¨ Evenwhenweusethepricingmetricsofotherfirmsinthesector,wemaybebasingthepriceswepayonfirmsthatarenottrulycomparable.

¨ Whenweuseexitmultiples,weareassumingthatwhatthemarketispayingforcomparablecompaniestodayiswhatitwillcontinuetopayinthefuture.

106

Lesson5:Don’tbealemming…

Aswath Damodaran

106

¨ Alltoooften,acquisitionsarejustifiedbyusingoneofthefollowingtwoarguments:¤ Everyoneelseinyoursectorisdoingacquisitions.Youhavetodothesametosurvive.

¤ Thevalueofatargetfirmisbaseduponwhatothershavepaidonacquisitions,whichmaybemuchhigherthanwhatyourestimateofvalueforthefirmis.

¨ Withtherightsetofcomparablefirms,youcanjustifyalmostanyprice.

¨ EPSaccretionisameaninglessmeasure.Afterall,buyingancompanywithaPElowerthanyourswillleadmathematicallytoEPSaccretion.

107

Test6:TheCEOreallywantstodothis…ortherearecompetitivepressures…

Aswath Damodaran

107

¨ NowassumethatyouknowthattheCEOoftheacquiringfirmreally,reallywantstodothisacquisitionandthattheinvestmentbankersonbothsideshaveproducedfairnessopinionsthatindicatethatthefirmisworth$100million.Wouldyoubewillingtogoalong?

¨ Nowassumethatyouaretoldthatyourcompetitorsarealldoingacquisitionsandthatifyoudon’tdothem,youwillbeatadisadvantage?Wouldyoubewillingtogoalong?

108

Lesson6:Don’tletegosorinvestmentbankersgetthebetterofcommonsense…

Aswath Damodaran

108

¨ Ifyoudefineyourobjectiveinabiddingwaraswinningtheauctionatanycost,youwillwin.Butbewarethewinner’scurse!

¨ Thepremiumspaidonacquisitionsoftenhavenothingtodowithsynergy,controlorstrategicconsiderations(thoughtheymaybeprovidedasthereasons).TheymayjustreflecttheegosoftheCEOsoftheacquiringfirms.Thereisevidencethat“overconfident”CEOsaremorelikelytomakeacquisitionsandthattheyleaveatrailacrossthefirmsthattheyrun.

¨ Pre-emptiveordefensiveacquisitions,whereyouoverpay,eitherbecauseeveryoneelseisoverpayingorbecauseyouareafraidthatyouwillbeleftbehindifyoudon’tacquirearedangerous.Iftheonlywayyoucanstaycompetitiveinabusinessisbymakingbadinvestments,itmaybebesttothinkaboutgettingoutofthebusiness.

109

Toillustrate:Abaddealismade,andjustifiedbyaccountants&bankers

Aswath Damodaran

110

TheCEOstepsin…anddigsahole…

Aswath Damodaran

110

¨ LeoApothekerwastheCEOofHPatthetimeofthedeal,broughtintoreplaceMarkHurd,thepreviousCEOwhowasforcedtoresignbecauseofa“sex”scandal.

¨ InthefaceofalmostuniversalfeelingthatHPhadpaidtoomuchforAutonomy,Mr. Apotheker addressing a conference at the time of the deal: “We have a pretty rigorous process inside H.P. that we follow for all our acquisitions, which is a D.C.F.-based model,”he said, in a reference to discounted cash flow, a standard valuation methodology. “And we try to take a very conservative view.”

¨ Apotheker added, “Just to make sure everybody understands, Autonomy will be, on Day 1, accretive to H.P….. “Just take it from us. We did that analysis at great length, in great detail, and we feel that we paid a very fair price for Autonomy. And it will give a great return to our shareholders.

111

Ayearlater…HPadmitsamistake…andexplainsit…

112

Test7:Isithopeless?

Aswath Damodaran

112

¨ Theoddsseemtobeclearlyweightedagainstsuccessinacquisitions.Ifyouweretocreateastrategytogrow,baseduponacquisitions,whichofthefollowingoffersyourbestchanceofsuccess?

This OrthisSoleBidder BiddingWarPublictarget PrivatetargetPaywithcash PaywithstockSmalltarget LargetargetCostsynergies Growthsynergies

113

Bettertoloseabiddingwarthantowinone…

Aswath Damodaran

113

Returns in the 40 months before & after bidding warSource: Malmendier, Moretti & Peters (2011)

114

Youarebetteroffbuyingsmallratherthanlargetargets…withcashratherthanstock

Aswath Damodaran

114

115

Andfocusingonprivatefirmsandsubsidiaries,ratherthanpublicfirms…

Aswath Damodaran

115

116

GrowthvsCostSynergies

Aswath Damodaran

116

117

Synergy:Oddsofsuccess

Aswath Damodaran

117

¨ Studiesthathavefocusedonsynergieshaveconcludedthatyouarefarmorelikelytodelivercostsynergiesthangrowthsynergies.

¨ Synergiesthatareconcreteandplannedforatthetimeofthemergeraremorelikelytobedeliveredthanfuzzysynergies.

¨ Synergyismuchmorelikelytoshowupwhensomeoneisheldresponsiblefordeliveringthesynergy.

¨ Youaremorelikelytogetashareofthesynergygainsinanacquisitionwhenyouareasinglebidderthanifyouareoneofmultiplebidders.

118

Lesson7:Foracquisitionstocreatevalue,youhavetostaydisciplined..

Aswath Damodaran

118

1. Ifyouhaveasuccessfulacquisitionstrategy,stayfocusedonthatstrategy.Don’tletsizeorhubrisdriveyouto“expand” thestrategy.

2. Realisticplansfordeliveringsynergyandcontrolhavetobeputinplacebeforethemergeriscompleted.Byrealistic,wehavetomeanthatthemagnitudeofthebenefitshavetobereachableandnotpipedreamsandthatthetimeframeshouldreflecttherealitythatittakesawhilefortwoorganizationstoworkasone.

3. Thebestthingtodoinabiddingwaristodropout.4. Someone(preferablythepersonpushinghardestforthemerger)

shouldbeheldtoaccountfordeliveringthebenefits.5. Thecompensationforinvestmentbankersandothersinvolvedin

thedealshouldbetiedtohowwellthedealworksratherthanforgettingthedealdone.

119

AReallyBigDeal!

120

TheAcquirer(ABInBev)

LatinAmerica42%

Africa0%

AsiaPacific11%

Europe11%

NorthAmerica36%

RevenueBreakdown(2014)

121

TheTarget(SABMiller)

CapitalMix Operating MetricsInterest-bearingDebt $12,550 Revenues $22,130.00LeaseDebt $368 OperatingIncome(EBIT) $4,420.00MarketCapitalization $75,116 OperatingMargin 19.97%DebttoEquityratio 17.20% Effectivetaxrate 26.40%DebttoCapitalratio 14.67% After-taxreturnoncapital 10.32%BondRating A3 ReinvestmentRate= 16.02%

LatinAmerica35%

Africa31%

AsiaPacific14%

Europe19%

NorthAmerica

1%

RevenueBreakdown(2015)

122

Settingupthechallenge

¨ SABMiller’smarketcapitalizationwas$75billiononSeptember15,2015,thedayABInBev announceditsintenttoacquireSABMiller.

¨ Thedealwascompleted(pendingregulatoryapproval)amonthlater,withABInBev agreeingtopay$104billionforSABMiller.

¨ CanABInBev create$29billioninadditionalvaluefromthisacquisitionandifsowherewillitfindthevalue?¤ Themarketseemstothinkso,adding$33billioninmarketvaluetothecombinedcompany.

123

TheThree(Value)ReasonsforAcquisitions

¨ Undervaluation:Youbuyatargetcompanybecauseyoubelievethatthemarketismispricingthecompanyandthatyoucanbuyitforlessthanits"fair"value.

¨ Control:Youbuyacompanythatyoubelieveisbadlymanaged,withtheintentofchangingthewayitisrun.Ifyouarerightonthefirstcountandcanmakethenecessarychanges,thevalueofthefirmshouldincreaseunderyourmanagement

¨ Synergy:Youbuyacompanythatyoubelieve,whencombinedwithabusiness(orresource)thatyoualreadyown,willbeabletodothingsthatyoucouldnothavedoneasseparateentities.Thissynergycanbe¤ Offensivesynergy:Highergrowthandincreasedpricingpower¤ Defensivesynergy:Costcutting,consolidation&preemptingcompetitors.¤ Taxsynergy:Directlyfromtaxclausesorindirectlythroughdent

124

Fournumberstowatch

1. AcquisitionPrice:Thisisthepriceatwhichyoucanacquirethetargetcompany.Ifitisaprivatebusiness,itwillbenegotiatedandprobablybasedonwhatothersarepayingforsimilarbusinesses.Ifitisapubliccompany,itwillbeatapremiumoverthemarketprice.

2. StatusQuoValue:Valueofthetargetcompany,runbyexistingmanagement.

3. RestructuredValue:Valueofthetargetcompany,withchangestoinvesting,financinganddividendpolicies.

4. Synergyvalue:Valueofthecombinedcompany(withthesynergybenefitsbuiltin)– (Valueoftheacquiringcompany,asastandaloneentity,andtherestructuredvalueofthetargetcompany)

¨ TheAcidTest¤ Undervaluation:Pricefortargetcompany<StatusQuoValue¤ Control:Pricefortargetcompany<RestructuredValue¤ Synergy:Pricefortargetcompany<RestructuredValue+ValueofSynergy

125

SABMillerStatusQuoValue

SABMiller +CoorsJV +ShareofAssociates SABMillerConsolidatedRevenues $22,130.00 $5,201.00 $6,099.00OperatingMargin 19.97% 15.38% 10.72%OperatingIncome(EBIT) $4,420.00 $800.00 $654.00InvestedCapital $31,526.00 $5,428.00 $4,459.00Beta 0.7977 0.6872 0.6872ERP 8.90% 6.00% 7.90%CostofEquity= 9.10% 6.12% 7.43%After-taxcostofdebt= 2.24% 2.08% 2.24%DebttoCapitalRatio 14.67% 0.00% 0.00%Costofcapital= 8.09% 6.12% 7.43%

After-taxreturnoncapital= 10.33% 11.05% 11.00%ReinvestmentRate= 16.02% 40.00% 40.00%Expectedgrowthrate= 1.65% 4.42% 4.40%Numberofyearsofgrowth 5 5 5ValueoffirmPVofFCFFinhighgrowth= $11,411.72 $1,715.25 $1,351.68Terminalvalue= $47,711.04 $15,094.36 $9,354.28Valueofoperatingassetstoday= $43,747.24 $12,929.46 $7,889.56 $64,566.26+Cash $1,027.00- Debt $12,918.00- MinorityInterests $1,183.00Valueofequity $51,492.26

Price on September 15, 2015: $75 billion > $51.5 billion

126

SABMiller:PotentialforControl

SABMiller ABInBevGlobal Alcoholic Beverage Sector

Pre-taxOperatingMargin 19.97% 32.28% 19.23%

EffectiveTaxRate 26.36% 18.00% 22.00%

Pre-taxROIC 14.02% 14.76% 17.16%

ROIC 10.33% 12.10% 13.38%

ReinvestmentRate 16.02% 50.99% 33.29%

DebttoCapital 14.67% 23.38% 18.82%

127

SABMiller:ValueofControl

Status Quo Value Optimal valueCost of Equity = 9.10% 9.37%After-tax cost of debt = 2.24% 2.24%Cost of capital = 8.09% 8.03%

After-tax return on capital = 10.33% 12.64%Reinvestment Rate = 16.02% 33.29%Expected growth rate= 1.65% 4.21%

Value of firmPV of FCFF in high growth = $11,411.72 $9,757.08Terminal value = $47,711.04 $56,935.06Value of operating assets today = $43,747.24 $48,449.42+ Cash $1,027.00 $1,027.00+ Minority Holdings $20,819.02 $20,819.02- Debt $12,918.00 $12,918.00- Minority Interests $1,183.00 $1,183.00 Value of Control

Value of equity $51,492.26 $56,194.44 $4,702.17Price on September 15, 2015: $75 billion > $51.5 + $4.7 billion

128

TheSynergies?

Inbev SABMiller

Combined firm (status

quo)Combined firm

(synergy)LeveredBeta 0.85 0.8289 0.84641 0.84641Pre-taxcostofdebt 3.0000% 3.2000% 3.00% 3.00%Effectivetaxrate 18.00% 26.36% 19.92% 19.92%DebttoEquityRatio 30.51% 23.18% 29.71% 29.71%

Revenues $45,762.00 $22,130.00 $67,892.00 $67,892.00

OperatingMargin 32.28% 19.97% 28.27% 30.00%OperatingIncome(EBIT) $14,771.97 $4,419.36 $19,191.33 $20.368

After-taxreturnoncapital 12.10% 12.64% 11.68% 12.00%ReinvestmentRate= 50.99% 33.29% 43.58% 50.00%ExpectedGrowthRate 6.17% 4.21% 5.09% 6.00%

129

Thevalueofsynergy

Inbev SABMiller

Combined firm (status

quo)Combined firm

(synergy)CostofEquity= 8.93% 9.37% 9.12% 9.12%After-taxcostofdebt= 2.10% 2.24% 2.10% 2.10%Costofcapital= 7.33% 8.03% 7.51% 7.51%

After-taxreturnoncapital= 12.10% 12.64% 11.68% 12.00%

ReinvestmentRate= 50.99% 33.29% 43.58% 50.00%

Expectedgrowthrate= 6.17% 4.21% 5.09% 6.00%

Value of firmPVofFCFFinhighgrowth= $28,733 $9,806 $38,539 $39,151Terminalvalue= $260,982 $58,736 $319,717 $340,175Valueofoperatingassets= $211,953 $50,065 $262,018 $276,610

Value of synergy = 276,610 – 262,018 = 14,592 million

130

PassingJudgment

¨ Ifyouadduptherestructuredfirmvalueof$56.2billiontothesynergyvalueof$14.6billion,yougetavalueofabout$70.8billion.

¨ Thatiswellbelowthe$104billionthatABInBev isplanningtopayforSABMiller.

¨ Oneofthefollowinghastobetrue:¤ Ihavemassivelyunderestimatedthepotentialforsynergyinthismerger(eitherintermsofhighermarginsorhighergrowth).

¤ ABInBev hasoverpaidsignificantlyonthisdeal.Thatwouldgoagainsttheirhistoryasagoodacquirerandagainstthehistoryof3GCapitalasagoodstewardofcapital.