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Posted February 2011

India – Glass half full or half empty for SABMiller

We have been saying for ages that India is not a single market. It’s a cluster of 28 states and seven union territories, suffering from chronic over-regulation and under-governance. Although SABMiller, the country’s number two brewer, has done the only feasible thing and tackled the huge market on a state-by-state basis, it has nevertheless seen its market share drop to little above 20 percent, down from 35 percent in 2008, the high-brow newspaper The Times of India reported on 7 February 2011. SABMiller, with a portfolio of popular brands such as Foster's, Royal Challenge Premium Lager and Haywards 5000, has struggled to hold on to its one-fifth share during the last quarter 2010, the newspaper said. Read on

 

USA – When will Coca-Cola sell its rebuilt bottlers?

Why should I care about the rubbish I said yesterday?” Germany’s first post-war Chancellor Konrad Adenauer allegedly retorted when asked why he had done a U-turn on certain policies. Whether Coca-Cola’s CEO Muhtar Kent will get away with an explanation like this, once he sells off the company’s bottlers – and reneges on current company doctrine -, remains to be seen. But pressure from Wall Street to reap the rewards from a disposal of the bottlers is mounting. Read on

 

USA – PepsiCo cuts its full-year earnings growth target

PepsiCo, Coke’s arch-rival reported on 10 February 2011 that last year net revenue grew 34 percent, while net income rose 6 percent. Not bad, you’ll say. But shares of PepsiCo fell 2.0 percent on the news that in its fourth quarter (ended 31 December 2010) earnings dropped 5 percent to USD1.36 billion from USD 1.43 billion in the year-ago period, while revenue rose to USD 18.12 billion from USD 13.3 billion thanks to PepsiCo’s acquisition of its two largest bottlers. Matters weren’t improved when CEO Indra Nooyi sounded a cautious note for 2011. She said consumers remain pressured by high unemployment. Besides, PepsiCo expects raw materials costs to remain high. Competition, especially with rival Coca-Cola Co., remains stiff and Pepsi's numbers suggest Coke is taking business. Read on

 

UK – Emerging markets boost Diageo’s sales

Diageo, the world's number one drinks group, said its net profit rose by 17.5 percent in its first half (ended 31 December 2010) with strong sales growth in Asia/Pacific and other emerging markets. Diageo reported on 10 February 2011 that better trading in Latin America, Africa and Asia had helped to offset weaker sales in Europe where consumers moved to cheaper drinks. These market regions make up about a third of Diageo’s earnings. Read on

 

Ethiopia – Privatisation of breweries – here we go again

In case you are interested, bids have to be submitted in “wax-sealed envelopes to the privatisation agency before 28 March 2011.” Yep. On 26 January 2011 Ethiopia’s privatisation agency officially invited bids for two of its breweries. The government currently owns 100 percent of equity in the Harar and Bedele breweries and intends to sell at least 51 percent of these enterprises to an investor or a group of investors ready and capable of operating and developing them. But there is no need to get overexcited that these breweries will definitely be sold this time. They have been put on the market before. As previously, the agency reserves the right to reject any or all bids. Read on

 

Australia - Labelling changes?

A report prepared by an independent panel, commissioned by the Australian & New Zealand Food Regulation Ministerial Council, recommends that all alcoholic beverages should carry labels warning pregnant women of the risks of drinking alcohol and also that labels should have details of the relevant energy contents. These recommendations to the Federal Government are amongst more than 60 presented by the Blewett panel. Brewer Lion Nathan, with a market share of 43 percent, promptly announced on 28 January 2011 that it would voluntarily print a warning on its labels to caution pregnant women against the dangers of alcohol to unborn babies. It also agreed to start using a generic warning message, which the labelling review has suggested might be “Alcohol can damage your health”, or “Drinking to excess is a danger to yourself and those around you”.

Beer market leader, The Foster’s Group, has no immediate plans to follow the lead of rival Lion Nathan by adopting consumer health messages on its labels. Though it supports labelling reform, it remains unconvinced about the effectiveness of product health warnings. Read on

 

USA – Will AB-InBev swallow SABMiller?

What have we been saying for months? That SABMiller is a likely takeover target. Coincidentally, the beverage economist Germain Hansmaennel and I discussed this possibility in our presentation at Rüdiger Ruoss’ Bündner Runde, a German beverage industry summit in Davos (report out next week in this newsletter), while two days later, on 2 February 2011, over in New York, analysts at Credit Suisse threw the idea into the open that AB-InBev could merge with SABMiller.

According to Credit Suisse, the reason for the biggest deal yet in the brewing industry is simple: because it can be done. SABMiller does not have any strong or dedicated shareholders. Add to that the fact that AB-InBev has lowered its debt load ahead of time to very manageable levels and a takeover or merger becomes a viable option.

Alas, the price tag on SABMiller will be high: with a market capitalisation of USD 54 billion SABMiller could be sold for up to USD 71 billion, says Credit Suisse in a research note.

From the point of view of the analysts, taking over SABMiller makes perfect sense. It would give AB-InBev greater exposure to emerging markets such as Latin America and Africa and would counter the continuing ills of the U.S. domestic beer market.

While Mr Hansmaennel and I maintain that SABMiller is vulnerable, we think that a tie-up between AB-InBev and SABMiller carries too many risks for AB-InBev to even consider it.

The bankers who run AB-InBev know very well that anti-trust watchdogs in the U.S. would put their foot down and force AB-InBev to dispose of Miller Brewing (or parts of it), at a loss of 62 million hl of volume.

In Africa, SABMiller is only strong in South Africa. SABMiller’s joint venture partner in the rest of Africa, France’s Groupe Castel, might oppose this deal and exit the joint venture. Another loss to AB-InBev.

In China, SABMiller’s joint venture partner China Resources Enterprise (CRE) might consider doing the same. After all, CRE already controls 20 percent of the Chinese beer market. Any combination with AB-InBev, which would take their combined market share to over 30 percent, could propel the Communist government into action to block it. In the past, the Chinese authorities have never looked favourably on foreign companies getting too large a stake in their market.

SABMiller’s share of the European market is small – it ranks fourth behind Heineken, Carlsberg and AB-InBev – and upon a closer look, AB-InBev might merely think SABMiller’s investments in Poland and Russia worth its while.

Ultimately, the only interesting bits that AB-InBev might eye up in SABMiller are its Latin American territories – Colombia and Peru.

In sum, we do not think it likely that AB-InBev will splash out such huge amounts of money to gain so little.

Which leaves us with the big question: does SABMiller want to be taken over? Not necessarily but SABMiller has no say in the matter as it will be decided by its major shareholder, the cigarette company Altria, which controls 27 percent of the brewer.

In the meantime, all SABMiller could do to fend off a takeover is to make itself even more expensive by taking over Foster’s beer unit CUB.

Self-protection through an acquisition - that strategy has already worked well for SABMiller in the past. When in 2001 SAB was threatened by an unwanted offer by Interbrew, then headed by CEO Hugo Powell, SAB rushed to clinch a deal with Miller Brewing in the United States. If anything, this deal has bought SABMiller time.

Ten years on, many pundits wonder: will history repeat itself and will Foster’s be SABMiller’s means to this end?


UK – Heineken chosen as Official Lager Supplier of London Olympics 2012

Dutch brewer Heineken has beaten London’s only remaining family brewer Fuller’s Brewery to become the Official Lager Supplier of the London 2012 Olympic and Paralympic Games in a tier three sponsorship deal announced on 3 February 2011.

Fuller’s, the west London-based brewery, best known as the makers of the iconic beer London Pride, is said to be “disappointed” that the 2012 organisers have opted not to use a traditional British brewery as an official sponsor and instead go for a bigger international company. But, come on, what planet does Fuller’s live on? Compared to Heineken it does not exist. Read on

 

France – Let them buy handbags in China

Happy Chinese New Year, luxury goods industry. LVMH’s net income for 2010 soared 73 percent. Less than two years after the financial crisis indulgence is back in style. Bernard Arnault, creator of LVMH Louis Vuitton Moët Hennessy, is one of the biggest beneficiaries. Consumers sipped Dom Pérignon Champagne and Hennessy cognac, donned Hublot watches and sported Louis Vuitton handbags in record numbers last year, especially in Asia, driving sales at LVMH, the world’s largest luxury goods company, to new heights and sharply lifting profitability. No wonder, LVMH’s market capitalisation has almost tripled to EUR 60 billion in 2010 from EUR 23 billion in 2008, making it one of the most lucrative investments in the wider consumer goods industry. Read on
 

Germany – How cheap can beer get?

In case you wondered how several of Germany’s major beer brands managed to keep or even raise sales volumes in a declining market, the answer is: through heavy discounting. In the month of December 2010 alone, ten beer brands (Beck’s, Bitburger, Radeberger, Warsteiner among them) witnessed over 10,000 price promotions all over Germany, twice the number of promotions they had in December 2009, says Drotax, a market research company.

But, as you will say, there’s promotions and promotions. Indeed.

Last time, Germany’s leading brewers issued a recommended retail price for their so-called national premium brands was in 2008 and the price bracket was EUR 12.45 to EUR 12.99 for a crate of 20 half-litre bottles of beer.

Since then, Germany’s consumers would have had trouble finding their favourite brands at such a price – yet they would have had no trouble finding it at a price promotion in any of Germany’s supermarkets selling at less than EUR 10.0 per crate. Read on

 

Belgium – A ban on alcohol advertising?

The world gives little thought to Belgium. But it should. Chronic bickering between Flemings and Walloons since the general election in June 2010 has left a caretaker government in office for 230 days … and counting. That’s a European record. At the end of January 2011 Belgium is on course to beat Iraq’s 289 days without a government. Perhaps it’s no surprise that some political groups are trying to use their country’s political inertia for their own purposes. On 26 January, the Walloon parliament passed a resolution aimed at preventing binge drinking among the young, which called amongst other things for a ban on alcohol advertising in Wallonia. Read on
 

Belgium – AB-InBev bosses pocket EUR 850 million bonus bonanza

It’s bonus season for bankers in the UK, including at banks bailed out by taxpayers. Many Britons’ underlying resentment of highly paid bankers has come to the fore.

So it’s hardly surprising that the London newspaper Sunday Times reported on 30 January 2011 that bankers are not the only ones receiving big bonuses. Forty top executives at AB-InBev too could be in line for payments worth hundreds of millions of euros in return for meeting targets related to reducing the brewer’s debt.

If the Stella Artois maker cuts its debt to 2.5 times its earnings (EBIT) by the end of 2013, bosses will reportedly receive 28.4 million stock worth EUR 850 million at the current share price. Chief executive Carlos Brito could alone receive share options worth almost EUR 100 million.

Half of the shares managers can sell as early as January 2014, the other half they have to keep until 2019.

Many analysts believe that already this year AB-InBev will have an EBIT of EUR 11 billion with debts standing at EUR 23.5 billion – or 2.2 times EBIT. Pay day is coming!

AB-InBev told media that “the selected executives for the options-grant are key for a successful integration of Anheuser-Busch's business, which underpins the rapid de-leveraging of the group.”

 

Egypt - Heineken suspends production in Egypt

After several days of protest against President Mubarak’s regime, several large oil companies and other multinationals, Heineken among them, have shut down operations. Chemicals company Akzo Nobel, Dutch brewer Heineken, consumer-products giant Unilever, Japanese automaker Nissan Motor Co. French building materials company Lafarge and General Motors all halted production, repatriated ex-pats and told local staff to stay at home as tension rises in the country. A spokesman for Heineken told media on 31 January 2011 that it was not immediately clear when production could be resumed or what the financial impact would be from the production halt.  Read on

 

Australia - SABMiller clearing the way for a Foster's bid?
Spreading rumours is a wonderful thing. Especially if rumours contradict each other. Take Foster’s. At the end of January 2011, several people I spoke to in Australia still were sceptical if Foster’s split into beer and wine will ever materialise, while a few days later it was plastered all over the world that Foster's board might give approval for the demerger on 15 February. “Might”, “could”, “would” – nothing’s for certain. Not even that SABMiller is really getting ready to pounce on Foster’s. That was the third rumour within a single week.
Read on

 

Switzerland –“Nigeria is a safer place for our company than Greece” says Heineken CEO

Davos, Switzerland, became the temporary capital of the planet during the last week of January 2011 as business and policy leaders converged at the World Economic Forum to tackle pressing issues. Two questions come to mind: Why do they do it? Will it make any difference?

France’s President Nicolas Sarkozy, well-known for his pithy sayings, made a big show of Franco-German “united-we-stand” and gave, unwillingly, an answer to the two, when he warned off those who speculate against the currency: “For those of you, who want to bet against the euro, be careful how you invest. We are determined to ensure the strength of the euro," he said. Hedgies (aka hedge funds) were probably trembling in their sky boots. Read on

 

UK- Molson Coors buys Sharp's Brewery for EUR 23.5 million

A big leap forward? On 2 February 2011 Molson Coors UK, which produces Carling and Grolsch lagers, announced it has bought Sharp's, the Cornwall-based craft brewery, for GBP 20 million or 12 times profits. The acquisition is probably not going to consolidate the UK brewing industry in any major way, but it should allow Molson Coors, the UK’s number two brewer with a market share of perhaps 20 percent, to expand its portfolio, which is currently dominated by mainstream lagers. Read on

 

Belarus – Carlsberg ups stake in Olivaria brewery

Belarus may be Europe’s last dictatorship, but Carlsberg obviously believes that the country of 10 million people with an average beer consumption of 49 litres is a promising and important market. Politically speaking, it was bad timing that on 17 January Danish brewer Carlsberg paid USD 17.7 million (EUR 13 million) to raise its stake in Olivaria Brewery from a minority to 67.8 percent to gain a stronger foothold in a growing market. That was just a few days before European Union foreign ministers on 31 January 2011 imposed an asset freeze and visa ban on Belarus President Alexander Lukashenko and other top officials in response to a crackdown on the opposition after December's election.  Read on 

 

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