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Posted April 2013

Netherlands - Beer and coffee anyone?

So brewers have woken up and smelt the coffee? Several families with interests in - rival - breweries have clubbed together with Germany's Joh. A. Benckiser (JAB), the investment vehicle of the Reimann family, to make a bid for Dutch company DE Master Blenders, best known for its Douwe Egberts coffee brand.

On 12 April 2013 DE Master Blenders agreed to be bought for EUR 7.5 billion (USD 9.84 billion).

JAB, which already owns a portfolio of global coffee brands, including Caribou Coffee and Pete's Coffee & Tea, is looking to build a beverage company to eventually rival Nestlé (Nescafé, Nespresso). JAB operates as a holding company and through its subsidiaries LABELUX Group GmbH, Coty Inc., and Reckitt Benckiser Group, offers household and personal care products in Germany.

JAB was already the largest shareholder in DE Master Blenders with a stake of more than 15 percent. To fully take over DE Master Blenders it led a consortium of buyers, including the Belgian families Van Damme and Van der Straten Ponthoz, who, according to the Belgian magazine "Trends", had a 11.03 percent stake in AB-InBev in 2011.

Again, according to "Trends", the Belgian families were joined by the Colombian family Santo Domingo. Through their investment firm Bevco, the Santo Domingos own a 15 percent stake in brewer SABmiller.

Who could have brought the Belgian and Colombian families to the table? Most likely Peter Harf, who is Chairman and Chief Executive Officer of Joh. A. Benckiser. Mr Harf served as Chairman of first InBev, then AB-InBev, from 2006 until 2012.

Incidentally, Mr Harf is also Deputy Chairman of the Board of Reckitt Benckiser, where SABMiller's CEO Graham Mackay was appointed a Non-Executive Director in 2005. Read on
 

Finland - Heineken to sell Hartwall

That's it. Heineken hopes to exit Finland. According to media reports on 11 April 2013, Heineken has initiated sales procedures for its Finnish beer and beverage business Hartwall.

According to anonymous sources, Heineken has sent preliminary information on Hartwall to potential buyers and requested indicative bids by the end of April.

Hartwall is believed to fetch about EUR 500 million, with interest most likely to come from equity investors, the sources said.

Heineken acquired Hartwall in 2008 as part of its joint purchase of Scottish & Newcastle with Carlsberg.

In February 2013, British media had revealed that Heineken may look to offload the Finnish unit. At the time, Heineken only admitted that it had started a review of its Finnish operations with a decision to be taken in the course of this year
 

India - Diageo's bid for a majority stake in United Spirits is set to fail

That's tough: stumbling in the home straight. For years, Diageo, the world's number one drinks group, has tried to buy part of Vijay Mallya’s United Spirits group. In November 2012 it finally managed to clinch a deal for a 53 percent stake in the company.

That bid for majority control is likely to fail, leaving Diageo with less than a third of India’s largest distiller, media reported in early April 2013. Read on

 

Poland - Heineken buys 3.21 percent stake in Zywiec from Harbin

Who on earth is Harbin? It was only a small news item on 9 April 2013 that Dutch brewer Heineken, via its Austrian unit Brau Union AG, bought a 3.21 percent stake in bewer Zywiec from the minority shareholder Harbin.

The stake is worth some PLN 159.9 million (EUR 39 million/USD 51 million). Zywiec, which is Poland's number two brewer with a market share of 32 percent, has a market capitalisation of USD 1.6 billion.

Before the transaction Heineken's unit Brau Union AG controlled 61.94 percent of Zywiec, while Harbin NV, a private company Heineken described in one of its documents as its partner at Zywiec, controlled 36.22 percent.

Now who happens to be Harbin? Well, that's a long story of big risks, even bigger daring and plain good luck. The story takes us right back to 1990 when Poland's communist regime fell and in the course of what was later called "economic transformation" former state-owned breweries were privatised.

The man who gambled high was the Australian Allan Myers, 66, a commercial lawyer whose area of expertise includes taxation and revenue. Insiders say he can command up to AUD 20,000 (USD 21,000) a day in fees for appearing as leading counsel in large and complex cases.

A few years ago, "The Australian" newspaper revealed that Mr Myers had amassed one of the nation's largest fortunes, estimated to be more than AUD 700 million, through a far-sighted investment in Polish brewing in 1990. Read on

 

USA – AB-InBev faces storm in a beer glass

Who are these people that are suing Anheuser-Busch for millions of dollars in damages over claims that that the brewer is watering down its Budweiser, Michelob and other brands? Since the end of February 2013 at least eight lawsuits have been filed against Anheuser-Busch (A-B), the U.S. unit of AB-InBev, accusing it of adding water to several beers, bringing the alcohol levels in the beers below those stated on the labels.

Hello, are these plaintiffs suffering from the symptoms of mass hysteria? Or are there any merits to their claims that they have received less bang for their buck?

In the European Union, for example, labelling regulations permit an "analytical tolerance" of +/-0.5% ABV for all beers below 5.5% ABV. As a consequence, a beer with stated 5% ABV can in fact be 4.5% ABV or 5.5% ABV. If the beer has over 5.5% ABV, the legal tolerance is +/-1.0% ABV.

These fairly wide tolerances are meant to help small brewers that may have trouble in always getting the stated alcohol content right. However, it is assumed that big brewers on the whole manage to get within +/-0.1% ABV of the stated alcohol content. Food monitoring agencies in all EU countries keep a close eye on these things to prevent any "systematic exploitation" of these tolerances.

In the U.S., there are labelling regulations in place with similar tolerance ranges. If the U.S. plaintiffs and their lawyers had bothered to read the law concerning alcohol labelling, they would have found the following:

Tolerances. (1) For malt beverages containing 0.5 percent or more alcohol by volume, a tolerance of 0.3 percent will be permitted, either above or below the stated percentage of alcohol. Any malt beverage which is labelled as containing 0.5 percent or more alcohol by volume may not contain less than 0.5 percent alcohol by volume, regardless of any tolerance.”

This means that a 5% ABV Budweiser can have an alcohol content as low as 4.7%. A 4.2% ABV Michelob Ultra could legally drop to 3.9% ABV and still be in compliance with what its label says.

In wine, tolerances are even wider. Wineries in the U.S. can actually decide which alcohol content to put on their labels. A wine with an actual alcohol of 13.3% ABV has within its label alcohol options a range from 11.8% ABV to 14.0% ABV.

Have consumers complained if the label said “14% ABV” and all they got was a 13.3% ABV buzz? Read on

 

USA – AB-InBev and DoJ close to a settlement

The U.S. Department of Justice (DOJ) and AB-InBev jointly requested on 5 April 2013 that a stay in their legal fight be extended to 23 April 213. However, they said they had reached the framework of an agreement to settle.

The DOJ had filed a lawsuit on 31 January this year to stop AB-InBev, the world's major brewer, from buying the 50 percent of Mexico’s Grupo Modelo it does not already own for USD 20.1 billion, saying that it would seriously hamper competition in the U.S. beer market, where AB-InBev and Miller Coors already control close to 80 percent.

However, the most recent statement indicates that AB-InBev’s Plan B – to sell Modelo's Piedras Negras brewery in Mexico near the U.S. border to wine company Constellation for USD 2.9 billion plus the perpetual rights for the Corona brand and other Modelo brands in the U.S. – seems to have won the DOJ over.

If the DOJ and AB-InBev finalise an agreement, it will need to be approved by the court. The proposed transaction must also be approved by Mexico’s competition authorities

The revised deal will make Constellation, whose wine labels include Robert Mondavi wines, the third largest U.S. beer company.
 

Netherlands – Heineken’s executive committee reshuffle

What can it mean that Alexis Nasard, formerly Heineken’s Chief Commercial Officer, has been appointed President Western Europe & Chief Marketing Officer as of April this year?

For Mr Nasard to become President Western Europe, Didier Debrosse had to vacate this post. At the end of March Mr Debrosse was sent to Latin America to take on the challenge of Managing Director Heineken Brazil. Whether Mr Nasard volunteered for the new job or whether the portfolio was pushed his way in the recent committee reshuffle announced in February this year, we cannot say.

What is beyond doubt is that Heineken’s unit Western Europe remains the brewer’s main building site. You don’t need to be a clairvoyant to predict that beer volumes in Western Europe will continue to decline and that competition among brewers will grow even fiercer. Among the top 4 global brewers, only Heineken and Carlsberg still significantly depend on Western Europe for their profits. While AB-InBev make 7 percent (EBITDA) and SABMiller 17 percent (EBITA) of their profits in these markets, Heineken realise 32 percent (EBIT) and Carlsberg 46 percent (EBIT) there.

In actual fact, Western Europe has long been Heineken’s “engine room”, a much-liked metaphor among brewers, providing the profits needed to fund Heineken’s acquisitions. Read on

 

Belgium – AB-InBev says CVC owes them money

Sue me if you can”, seems to be CVC’s attitude in an ongoing spat between AB-InBev and the private equity company CVC. According to the fine print on page 27 of AB-InBev’s recent regulatory filing (25 March 2013), AB-InBev says that CVC owes them money from the 2009 sale of AB-InBev’s central European unit which later became StarBev.

The hitherto undisclosed dispute which has been raging since last year – when CVC disposed of StarBev to Molson Coors - is now headed to court. Read on

 

UK – Bring out the Radlers

And we thought the Brits would fight all continental “muck” on their beaches. Apparently not. They even seem to produce it themselves. Judging from the recent launches, this year will be the year of Radlers – courtesy of the global brewers Carlsberg, Molson Coors and Heineken.

Radler-style beers — a blend of beer and lemonade — are said to have been invented in the early years of the 20th century by German publicans seeking to offer cyclists a refreshing beverage to enjoy after a bike ride. The category has already enjoyed some success in Europe where it comprises 3 percent of the total beer category in Germany, 5.8 percent in Austria, 3.9 percent in Hungary and 9.1 percent in Croatia.

Brewers in the UK seem to be unsure if they should use the German word "Radler" for their beer mixes (or “flavoured beers” as some like to dub them). While Molson Coors and Carlsberg have zestily avoided the issue altogether by calling their launches brand extensions (“Carling Zest” and “Carlsberg Citrus”), only Heineken dared to speak its name. In March 2013 Heineken UK brought Foster’s Radler - a 2.0% ABV mix of Foster’s beer and cloudy lemon juice - into the market. Read on

 

USA - Consumer lawsuit could delay AB-InBev’s takeover of Modelo

The name “Joseph Alioto” is probably mud at AB-InBev, or unprintably worse. Mr Alioto is a San Francisco antitrust attorney who on 22 March 2013 filed a private antitrust lawsuit in California on behalf of nine consumers, thus hoping to prevent AB-InBev’s USD 20.1 billion takeover of Grupo Modelo.

Mr Alioto is not an unkown at AB-InBev. In 2008 already he filed a lawsuit seeking to block InBev's purchase of Anheuser-Busch, but to no avail.

Nevertheless, AB-InBev seem to take this lawsuit seriously as it could throw a spanner in their works. On 25 March 2013 AB-InBev said in a regulatory filing: “Even if we, Grupo Modelo, Constellation and Crown Imports resolve the litigation with the Department of Justice, the court in this private action could enjoin the parties from completing the combination with Grupo Modelo, or could further delay it.” AB-InBev added: “We intend to defend against it vigorously.”

Whatever AB-InBev’s lawyers think of this lawsuit in private – whether it will get Mr Alioto and his clients anywhere or not – a suit is a suit and hence it poses a business risk.

Therefore, shareholders had to be told in the regulatory filing. Read on
 

Germany - Big German brewers accused of running a beer cartel

Ho ho – a German beer cartel? At first sight, it cannot have been a very effective cartel, if brewers in Germany fail again and again to drive the price of a crate of beer above EUR 10 (for 10 litres of beer). But then, perhaps it’s a novel kind of cartel, aimed at dropping the average retail price of beer even further?

Whatever the case, German media reported at the end of March 2013 that for more than a year now Germany’s antitrust authorities have been investigating a dozen major brewers, including Carlsberg, AB-InBev, Bitburger, Erdinger and Radeberger, over alleged price fixing.

German brewers Warsteiner and Krombacher confirmed that they are under investigation as did Carlsberg. AB-Inbev and Radeberger refused to comment.

The antitrust authorities would not say how much longer the investigation will draw on. If brewers are found guilty they could face million euro fines, running to three-digit figures.

In a separate proceeding, the antitrust authorities have been investigating several Kölsch brewers in Cologne since December 2011 after a whistle-blower accused them of price fixing. This case is also still pending.
 

Mexico – SABMiller expects competition watchdog ruling this month

How SABMiller can be so sure that their complaint with Mexico’s competition watchdog will be successful this time, is beyond me. Through their – legal -exclusivity contracts with retailers, Grupo Modelo and Heineken have held the Mexican market in a tight grip, thus preventing SABMiller from gaining significant market share. After 20 years of trying, SABMiller has only managed to gain just 0.7 percent of market share.

Now SABMiller has joined with several microbreweries to challenge exclusivity contracts and a ruling is expected this month. "We're feeling positive about [the market] opening up," said Karl Lippert, SABMiller's Latin America regional chief, at an investors’ presentation on 25 March 2013.

In Mexico, Heineken-owned FEMSA Cerveza controls about 38 percent of the beer market in volume terms, while Grupo Modelo has around 59 percent, leaving just 3 percent to other players. Both major brewers have used exclusive contracts with retailers to “compete” in Mexico’s roughly 70 million hl market.

SABMiller’s lawyers must be well known to the Mexican authorities by now. According to the 21st amendment law blog, in 2004 SABMiller filed a complaint with the Federal Competition Commission (“FCC”) in Mexico alleging unfair competition stemming from Modelo’s exclusive contracts. In 2006, Mexico’s antitrust agency initially found in favour of SABMiller; but, on appeal, Modelo was able to get the ruling reversed, allowing Modelo and others to continue entering into exclusive contracts.

In 2010, SABMiller filed a second complaint with the FCC claiming the country’s beer duopoly—Modelo and FEMSA— is unfairly restricting competition by offering payments, loans, and refrigerators to restaurants and retailers that agree not to serve other brands. Read on

 

New Zealand – Lion hits back at craft brewers with new beer range and advertising

The new Crafty Beggars range of beers, produced by Lion, has been banned by a retailer because its advertising material is “an insult to a great industry". In early March 2013 the retailer Liquorland Newmarket tweeted that it would no longer stock Crafty Beggars brews due to the tagline causing a backlash among drinkers.

The range is marketed with the following description: “Someone should make a craft beer you can actually drink. That's the conclusion we Crafty Beggars came to. A rogue society, hidden deep within the industry, made up of nine brewers of unsurpassed skill and fanaticism, who all agreed that beer had gone in two directions - either hopelessly middle of the road, or so snobbily crafty that one overpriced sip will blow your face off in a blitzkrieg of hops and whatever else has been arbitrarily thrown in. Something had to be done.“

Although there may be a kernel of truth in this, Lion was quick to point out that the promotional bumf was pure irony. The range was designed for mainstream drinkers interested in trying something new but who were not yet ready for some of the extreme flavour options available from the craft beer community.

Lion also insisted that the nine brewers mentioned are real people within the company. Read on
 

Namibia - SABMiller to begin construction of brewery in Namibia

Norman Adami, former South African MD of SABMiller would not do it. So the task fell to his successor Mauricio Leyva Arboleda: to honour their commitment to build a brewery in neighbouring Namibia.

In April 2013 ground will be broken in Okahandja, a town north of capital Windhoek, for the construction of a USD 34 million 260,000 hl brewery. It is to open in 2014.

The Namibia entity is 60 percent owned by SABSA Holdings, a wholly owned subsidiary of SABMiller. The other 40 percent is held by local Namibian partners comprising 20 percent Onyewu Investments and 20 percent by three charitable trusts for the benefit of local communities. Previously, SABMiller had said that the new brewery will create some 150 new permanent jobs – which are desperately needed in the Okahandja region.

SAB, the South African unit of SABMiller, has been trying for nearly 20 years to set up a brewery in the country of its main competitor in the region, Namibia Breweries Limited (NBL), the brewer of Windhoek Lager. But when Heineken, Diageo and NBL were granted permission to jointly build a brewery in Johannesburg, South Africa, in 2008, the Namibian government must have felt pressured into dropping its resistance to SABMiller’s plans in 2009. Construction was scheduled to start the following year.

SABMiller blames the three-year delay on “rezoning obstacles”. However, if truth be told, Mr Adami was probably not all that keen on investing in Namibia, a relatively small and mature beer market (per capita consumption is fairly high at 40 litres beer), with a total population of about 2.1million people, which could easily be served by importing beer from South Africa. Currently, SABMiller controls under 20 percent of the beer market in Namibia, sources in Namibia say. Read on

 

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