Brazil, Sao Paulo: Voting shares in AmBev jumped 8% to close at 939.99 reaison March 3 following the announcement of the brewer's merger with Interbrew. But the company's preferred shares, which are more liquid but do not carry voting rights, fell nearly 20 % at one point before finishing a hefty 14.96 % lower at 647.99 reais, according to Reuters. Analysts attributed the drop to fears that minority shareholders will see their investment diluted by new shares that will be issued to Interbrew.

"The market sees the new share issue as something bad for minority shareholders," said Sergio Goldman, head of equity research at Unibanco Asset Management in Sao Paulo. "But I think that reading may be wrong, because in the long term this is going to create synergies that will make up for the impact of issuing new shares."

Speaking after the two companies announced the agreement, in which Belgium's Interbrew will buy a controlling stake in AmBev, equity strategist Marcelo Mesquita told reporters: "At first glance, (the deal) seems positive because there will be increased synergies and gains of scale.

"There's also going to be money up front for AmBev, but just how much and how soon is not clear yet," he added.

Under the terms of the deal, Interbrew will gain a 57 % stake in AmBev, which controls more than 60 percent of Brazil's beer market, forming a new group called InterbrewAmBev.

The deal includes the issue of about 3.3 billion euros of Interbrew shares to AmBev's controlling shareholders and a cash tender offer to AmBev minority shareholders for 1.2 billion euros. AmBev will also take over Interbrew's North American assets, which include Canada's Labatt, the Labatt USA unit and Interbrew's 30 percent stake in Mexican brewer Femsa.

"At first glance, (the deal) seems positive because there will be increased synergies and gains of scale," said Marcelo Mesquita, Brazil equity strategist at UBS in Rio de Janeiro. "There's also going to be money up front for AmBev, but just how much and how soon is not clear yet."

But the deal may face some snags in Brazil. A source at the country's Securities and Exchange Commission, or CVM, said it would investigate possible insider trading, adding it expected to uncover proof that the terms of the deal were leaked ahead of time.

05 March, 2004