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.
USA – When will Coca-Cola sell
its rebuilt bottlers?
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.
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
UK – Emerging markets boost
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.
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.
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.
USA – Will AB-InBev swallow
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
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
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
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
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.
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.
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.
Belgium – A ban on alcohol advertising?
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.
Belgium – AB-InBev bosses pocket
EUR 850 million bonus bonanza
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.
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
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.
of the shares managers can sell as early as January 2014, the
other half they have to keep until 2019.
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!
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
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.
Australia - SABMiller clearing the
way for a Foster's bid?
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.
Switzerland –“Nigeria is a safer place for
our company than Greece” says Heineken CEO
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
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.
UK- Molson Coors buys Sharp's Brewery for EUR
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.
Belarus – Carlsberg ups stake in Olivaria
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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