Aquas Minerales S.A. & Cadbury Schweppes (A)
The case deals with the cross-border acquisition valuation of the largest mineral water company in Mexico, Aquas Minerales S.A. (AMSA). The UK-based beverages and confectionery multinational, Cadbury Schweppes pls, is contemplating a full or partial acquisition of AMSA in February 1992. The proposed deal represents one of the largest acquisitions of a Mexican business by an overseas company. The setting in which the acquisition is being contemplated is interesting -- the context is a developing country (Mexico) that is undergoing rapid economic transformation as it reemerges from the debilitating debt crisis during the early 1980s, and is trying to integrate itself with the global economy.
The main purpose of the case is to take students through a fairly straightforward, yet rigorous M&A valuation exercise in the cross-border, emerging markets context, emphasizing both valuation techniques as well as issues relating to the treatment of country risk in cost of equity calculations. The case can serve a number of ancillary purposes as well: (1) raise issues of strategic fit; (2) raise issues of how the deal should be structured: full or partial ownership, and if partial, whether it should be joint venture or just an equity sharing agreement; (3) examine whether the acquisition should be financed with debt or equity, or some combination; and (4) raise issues of cost of capital estimation in the cross-border context, in particular, the role of country risk in emerging markets; and (5) provide background information on an important developing country in Latin America that is undergoing rapid transformation as it integrates with the United States and Canada via the North American Free Trade Agreement.