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Posted December 2008

Nigeria – SABMiller to buy majority stake in Pabod Breweries

Looks like the Nigerian beer market is going to witness some real action in the months to come. On 27 November 2008 it was announced that the world’s number two brewer SABMiller has entered into agreement to acquire a majority stake in the recently resuscitated Port Harcourt-based Pabod Breweries. The days of Nigeria’s beer duopoly seem truly over. Now Heineken und Guinness have to face competition from both SABMiller and the Castel Group.                         

What a year it was for Pabod Breweries. Having lied dormant for more than a decade, the Rivers State government and Germany’s consultancy Brewtech worked out a plan as to how to re-start Pabod Breweries again. Unfortunately, theirs was a shoestring budget. They had enough funds to kit out the brewery but not enough to run an expensive marketing campaign. That campaign was to be financed by incoming revenues once Pabod’s Grand Lager beer hit the market. 

Alas, all this fell through when Pabod’s national competitor Nigerian Breweries Ltd., in which Heineken holds the biggest stake, took Pabod to court on the claim that Pabod’s customised beer bottle looked like NBL’s Star bottle. This being Nigeria, the court case has dragged on and on, preventing Pabod from fully launching its product range.

On 30 June 2008, after months of adjournments, Pabod was victorious for the first time. Pabod managed to convince the court that it had not infringed upon the trademark design of the Star bottle. However, NBL being determined to frustrate Pabod’s marketing effort, decided to appeal the decision of the Federal High Court. That case is still pending. If NBL fails to make its case again, it will have to pay compensation to Pabod. Pabod is certain that justice will prevail in the end.

Alas, until then it cannot do very much. The situation forces Pabod to focus on its malt beverage Grand Malt and package its beer in Nigeria’s generic beer bottle. This is a quick fix but not a long-term solution to Pabod’s problems as the generic beer bottle does not enjoy a premium image.

While Pabod’s products have attracted commendable acceptance, sales are still very slow and the company is far from reaching a break-even point.

The reason for this slow start is attributable to the stiff competition on the market, which demands that to break-in, a huge marketing budget is required. Another reason behind Pabod’s low sales, explains Pabod’s Chairman Christopher Briggs, is the introduction of the non-returnable can into the market. This has affected sales in returnable bottles. Unfortunately, he says, Pabod’s finances do not allow the brewer to install a canning line in its plant at present.

To meet the challenges on the market with respect to packaging, it is the plan of Pabod’s Board to install in the immediate future a canning line and in the medium term a water bottling line. It is also the plan of the Board to place an order for more bottles and crates as the current stock cannot carry full operation. Furthermore, Pabod is in dire need of new of sales vehicles, which given Nigeria’s bad road conditions, cannot withstand the stress for long.

Owing to the obstacles placed in Pabod’s way by NBL, all its marketing and advertisement programmes were rendered redundant and useless, notwithstanding that a lot of funds have been committed to the programme. Currently, there is absolutely no advertisement of Pabod’s products nor does Pabod have any Point of Sales materials. Pabod is also not doing any promotion for the products. This situation has severely affected its sales.

The Rivers State Government as the majority shareholder has done a lot towards the reactivation and the eventual return to operations of Pabod. To date, the Government has raised an unsecured term loan of NGN 1.0 billion (EUR 6.7 million) in 2007 and another NGN 250 million (EUR 1.6 million) loan in July this year.

Although the Rivers State Government has been instrumental in bringing Pabod back to life, it knew very well that it had to exit the company once an outside investor had been found. In recent months, the Rivers State Government and Brewtech, the management partners, have been able to broker an arrangement whereby Brewtech will pull out of the project and give room to another investor to whom both the Rivers State Government and Brewtech will transfer some of their shares. In this arrangement, Strategic Alliance JV 2, a subsidiary of SABMiller, will acquire the shares of Brewtech as well as some of the shares of the Rivers State Government and participate in a share capital increase such that it will hold the majority shareholding in the company.

As borrowing from banks has become suicidal in view of the very high interest rates, the Board has considered it appropriate to increase the Authorised Share Capital from the current NGN 600 million to NGN 1.6 billion. When this increase is approved, the Board will be able to raise fresh capital with it for the operations of the company.

On Pabod’s new board SABMiller will have five seats, the Rivers State government two, the Bayelsa State one, and all others also one.

For SABMiller, buying into Pabod Breweries represents a market entry through the back door. SABMiller has been eying up Africa’s second largest beer market for many years but for reasons it kept to itself SABMiller has refrained from opting for a green-field site solution.

In another significant diversion from its business principles, SABMiller has now accepted a deal which will not make it the sole owner of a brewery. SABMiller has never been happy with governments sitting on its boards for the obvious reason that governments have different agendas to businesses when it comes to running a company. However, Nigeria’s growth prospects and the size of the market seem to have convinced SABMiller’s executives that a pragmatic approach was called for.

SABMiller may have chosen to be pragmatic, but what about Mr Castel? Although the two companies are in a joint venture in Africa, they seem to have had an agreement that they would never operate in one market in tandem. That way they would never endanger each other’s monopolies. In the case of Nigeria, this rule apparently does not apply any longer.

Readers will remember that earlier this year the Castel Group acquired the majority stake in International Breweries in Ilesha from Germany’s Warsteiner Brewery. People close to the situation say that International Breweries’ minority shareholders still have to approve the deal. Even if they do, the brewery will require significant investment especially when it comes to sexing up its rather unsexy brand. Pardon my French. In other words, some precious time will be wasted before Mr Castel will be able to make a significant impact on the Nigerian beer market.

This would explain SABMiller’s willingness to invest in Nigeria. The situation at Pabod is such that SABMiller will be able to barge ahead while Castel is still sorting itself out.        

 

Germany – Brewer and hotelier Stefan Schörghuber dies at 47 

Stefan Schörghuber, the owner and Chief Executive Officer of the Munich-based Schörghuber Corporate Group, died unexpectedly on 25 November. He was 47 years old. The privately-owned Schörghuber Corporate Group which holds a controlling stake in Germany’s number three brewer, BrauHolding International, is also active in the real estate and construction business as well as in hotels and aircraft leasing. Mr Schörghuber’s sudden death renews rumours over the future of BrauHolding International, which is 49.9 percent owned by Heineken. Read on

 

Australia - Mystery buyer named

Someone has been buying up shares in Foster’s. Who could it be? A bank? An investment fund? A competitor? Step forward - North American brewer MolsonCoors. Interestingly, the three brewers have been in bed together before. The three-way relationship came to an end a decade ago when Foster’s sold its half share in Canadian venture Molson Breweries for AUD 1.1 billion to Molson, as the beer maker was known before its merger with Adolph Coors. Now MolsonCoors has been revealed as the mystery buyer of a significant stake (5%) in Foster’s in October 2008. The market responded positively on 6 November 2008 with shares rising 24¢ to AUD 6.09 and some watchers think Molson “is buying a seat at the table” ahead of any carve up of Foster’s brand portfolio.  Read on

 

Australia – Lion Nathan merging with Coca-Cola Amatil?

Whoa. Just when everybody thought that the Australian beer market was a neatly carved up duopoly with Coca-Cola-Amatil looking after the rest, we were forced to rethink our assumptions. On 17 November 2008 Australia’s number two brewer Lion Nathan confirmed that it is in discussions with Coca-Cola Amatil (“CCA”) regarding a potential merger. Lion Nathan said it would acquire all of the issued shares in CCA via a scheme of arrangement. If CCA accepts the offer, the resulting entity would resemble a complicated foursome as Lion Nathan is majority-owned by Japan’s brewer Kirin (46%) and CCA is in cohorts with SABMiller.  Read on

 

United Kingdom – Cobra Beer put up for sale

The Indian entrepreneur Lord Bilimoria has decided to put Cobra, the beer business he founded 18 years ago, up for sale for an estimated GBP 200 million after sales talks with Diageo had collapsed a few months ago. Read on

 

Ireland - C&C Group appoints former S&N Chief Dunsmore as its new CEO

It’s a funny old world. The man partly responsible for C&C’s problems in the United Kingdom, the former boss of Scottish & Newcastle, John Dunsmore, 49, has been named the new CEO of the troubled Irish Drinks group.

Read on

 

India - UB Group and Diageo in exclusive talks

Why should Diageo engage with Cobra Beer if it can get into partnership with a mightier player? India's UB Group said that its subsidiary United Spirits and Diageo have entered into exclusive talks for a limited period. Apparently, Diageo hopes to gain better access to the subcontinent’s growing middle class with its whisky brands. Read on

 

India – Beer consumption to rise five-fold over next five years

Global brewer SABMiller expects beer consumption in India to rise five-fold over the next five years irrespective of high taxes and a low number of retail outlets.  Read on

 

China - China OKs InBev’s purchase of Anheuser-Busch but with some restriction

China's Ministry of Commerce said on 17 November 2008 it approved InBev's acquisition of Anheuser-Busch – albeit with some restrictions on the new firm's investments in China.  Read on

 

Namibia – The wolf at the door

What could possibly possess Namibia’s government to grant a licence to South African Breweries? For years, SAB’s applications for a bottling licence which would allow the South African brewing giant to package some of its beer in neighbouring Namibia, have been rejected by the Namibian government. This has given the country’s only brewer, Namibian Breweries, a quasi monopoly. Apparently, not for much longer.  Read on

 

South Africa – Beer consumption declines

Brewer SABMiller says lager sales are down 1 percent in its South African operation, SA Breweries (SAB), for the period April to September 2008 as consumers feel the effect of high food and fuel prices and competition in the premium beer segment.  Read on

 

Russia – Putting on a brave face

Carlsberg has said it is confident it will benefit from the Russian market in the long-term, despite a recent slowdown. In October 2008, Carlsberg saw its share price decline 25 percent after it cut its 2008 growth outlook for the Russian beer market to 1 – 2 percent from 5 percent. Earlier this year Carlsberg had taken a big gamble on Russia when it bought a part of UK-based brewer Scottish & Newcastle for around DKR 57 billion (USD 9.8 billion). The deal included the 50 percent of Baltic Beverages Holding, which Carlsberg didn't already own. Now Carlsberg relies on the Russian market for 40 percent of group earnings.  Read on

 

United Kingdom – It’s a give … and take!

Chancellor Alistair Darling has announced a 2.5 percent cut in VAT to 15 percent until the end of next year - but this will be offset with an eight percent increase on alcohol duty. As a consequence, licensees will not be able to drop the price of a pint of beer as had been hoped in the light of the VAT cut. Both the VAT drop and the alcohol duty rise came into effect on 1 December 2008. Needless to add that the future of Britain’s pubs has been put at risk just as the UK economy is facing a downturn.   Read on

 

Germany – The comeback man

It is one thing to part company with a former executive. However, it is quite another to drag your ex-CEO through the courts on bogus charges which cannot be upheld. The privately-owned Warsteiner Brewery has done just that. For more than a year now the various court cases against its former CEO Prof. Dr. Gustavo Möller-Hergt, 46, have been widely publicised. Guess what? The nation laughed, the nation cried. Because Warsteiner has not been able to prove any of its allegations that there were some “irregularities” during Mr Möller-Hergt’s reign. In the meantime, Mr Möller-Hergt has made a comeback as a Senior Partner of the privately-owned Droege International Group AG where he runs the company’s direct investment division as Managing Director. Read on

Posted_December_2008

  

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