SUN Brewing (B)

Abstract

In July 2004, Shiv, Nand, and Uday Khemka are discussing their holdings in SUN Interbrew, a leading Russian beer producer that is part of the family's global portfolio of businesses. SUN Interbrew has been operating as a joint venture since 1998, when the Khemka family, who founded its predecessor company SUN Brewing in the early 1990s, decided to partner with Belgian beer giant Interbrew to survive the Russian financial and economic crisis. Since then, the family has used Interbrew's capital and beer industry know-how to successfully grow the business.

Now several developments prompt the Khemka family to consider a liquidity event. The family's five-year lock-up arrangement with Interbrew has just expired. In March 2004, Interbrew has announced its plans to take a controlling stake in Brazilian giant AmBev, a deal that will create the world's largest brewer. In addition, the Alfa Group, a Russian conglomerate that has become the third largest shareholder in SUN Interbrew, has announced its intention to take part in the company's management and attain a leading position in the Russian beer market. Is there a role for the Khemka family in the future of this company? Should they maintain some stake in the company and continue to participate in its management? Should they auction off their shares to the highest bidder and exit? Or should they play a role in the global beer industry through a stock-for-stock sale to InBev, and if so at what price? The decision the Khemka family have to make calls for a financial valuation of the company, which the case provides the necessary data to perform using DCF, trading multiples (comparable companies) and transaction multiples. The company's dual-class stock structure, including a voting and a non-voting class that are both publicly traded, facilitates the computation of a voting premium and the estimation of the value of a vote. The case can be used to discuss the drivers of this premium and its effect on the valuation of the family's cash flow and control rights. Can be taught as a sequel to SUN Brewing (A) or as a stand-alone case.

Keywords: Family business, dual-class stock, voting premium, valuation, joint ventures, acquisitions, emerging markets

JEL Classification: G32, G34, G3