Beer Monopoly





  International Reports










Posted July 2008:

USA – Did Grupo Modelo want to save Anheuser-Busch?

If rumours are true that did the rounds in the United States last week, then Grupo Modelo was close to selling its shares to Anheuser-Busch in order to save its Big Brother from InBev’s unsolicited attention.  

The ink on the USD 52 billion sales contract that sealed the fate of Anheuser-Busch had not quite dried on Monday 14 July 2008 when the Mexican brewer Grupo Modelo issued a tersely worded statement. It reminded both InBev and Anheuser-Busch that “our agreement with Anheuser-Busch was carefully constructed to ensure we have a definitive say in who our partner is."

Market observers scratched their heads. This statement was not only “bulls***” in the words of one brewer, it was also highly damaging, coming from amateurs as last week’s rumours were to underline.   

It is true that Anheuser-Busch held a majority stake in Grupo Modelo (50.2 percent) and yet did not have a say in the running of the company. But there is no section in the initial agreement between the two brewers that gives Grupo Modelo the right to chose a partner.

Without doubt, Grupo Modelo could have spoilt InBev’s takeover fantasies if the Mexican family shareholders had decided on time to sell their 49.8 percent stake to Anheuser-Busch, thus making the erstwhile King of Beers a true and expensive heavyweight that InBev would have been unable to swallow.  

That is why over the course of the past month or so Carlos Brito, the CEO of InBev, has repeatedly addressed Grupo Modelo’s CEO, Carlos Fernandez, reminding him not to sell to Anheuser-Busch. If Grupo Modelo wanted to sell out, said Mr Brito, it could do so after InBev had completed its takeover of Anheuser-Busch.

Carlos Fernandez, the youthful 41-year-old CEO of Grupo Modelo, has always brushed aside all allegations that he could be willing to sell and instead let the world know that Grupo Modelo was Mexican and would remain Mexican – an assertion that was not only presumptuous, given Anheuser-Busch’s majority stake, but also far from true.

As the Wall Street Journal revealed last week, August Busch IV, the CEO of Anheuser-Busch and Mr Fernandez were close to signing a deal in July that would have given Anheuser-Busch full ownership of Grupo Modelo.

Who finally prevented the deal from being clinched, we may never find out. Did Anheuser-Busch’s powerful institutional shareholders put their foot down and threaten August Busch IV, saying, “Eh August, don’t mess this up”?  Or had Mr Fernandez got too greedy and attached too many conditions to a sale?

Be this as it may, neither Anheuser-Busch nor Grupo Modelo have issued denials that a deal has been in the works.

As if another rumour could undo the first, a story was leaked to the Wall Street Journal on Wednesday 16 July 2008 by people close to Valentin Diez, who happens to be Grupo Modelo’s major shareholder.

Mr Diez is not exactly a trustworthy character, to which his dealings in the Gambrinus affair testify. As we reported in 2006, it was with the help of sinister machinations that he ousted Grupo Modelo’s U.S. importer, the Gambrinus Company, after years of successfully growing the Corona business in the U.S., only to divert Gambrinus’ profits into Grupo Modelo’s coffers. 

However, in this case there is little reason to doubt Mr Diez story, which will go down in history as “The Incredible Secret Story of the Fish that Got Away“. It refers to an encounter sometime in the early 1990s when August Busch III, the then CEO of Anheuser-Busch, wanted to up Anheuser-Busch’s stake in Grupo Modelo and to that end invited Grupo Modelo’s shareholders to a fishing trip off the coast of Mexico.

The trip was to last for several days. Alas, just as Mr Busch had hooked a big marlin he received a phone call. Apparently, he was to return to the U.S. immediately on important business. Mr Busch, not suffering from an underdeveloped ego, handed the rod to a surprised Mr Diez and told him to bring in the fish quickly so that he, August III, could get back to shore and fly home.

You can imagine what the Grupo Modelo shareholders felt like, many of whom sat on a personal fortune larger than Mr Busch’s. They felt offended. Hard done by. Insulted. Had not Mr Busch invited them to improve Mexican-American relations? Did not Mr Busch want something from them? Their shares, actually. So why did he treat them like servants?

Mr Diez, to cut a long story short, did not land the marlin. The fish disappeared into the depths of the Pacific within minutes.

The rumour of sales talks between Anheuser-Busch and Grupo Modelo taking place and the subsequent rumour of atmospheric tensions between the two seem to contradict one another - yet they do not rule each other out. Therefore, Mr Fernandez felt prompted to issue that incriminating statement on Monday 14 July, which, contrary to his intentions, points to the fact that “something rotten in the state of Denmark”, err, at Grupo Modelo has been going on.

Which is not good when you are dealing with InBev. Now everybody knows: The brewer Grupo Modelo, which is valued in excess of USD 20 billion and runs seven breweries in Mexico with an installed capacity of 60 million hl beer, is willing to sell itself.

Obviously, Mr Brito wants to own the rest of Grupo Modelo like Anheuser-Busch before him. And pronto. He does not want to have to faff around with refractory Mexican shareholders who insist on running the business in their Byzantine ways.

For years, analysts have accused Grupo Modelo of not being as efficient and lean as its Latin American peers, who have all adopted benchmarks set by super-lean AmBev. Which is unjust. People familiar with the matter say that Mr Fernandez has already brought in “the Brazilians” to modernise his company. The “Brazilians” is the industry nickname for ruthless cost killers who already call all the shots at InBev.

With their help, Mr Fernandez has cut costs and made Grupo Modelo a much more streamlined company than it was under the aforementioned Mr Diez whom he ousted some years ago in an effort to break with the past.  

Unbeknown to most, Mr Fernandez has proven himself a disciple of Mr Brito’s creed. Whether that’s enough for him to retain operative control of Grupo Modelo, once it has fallen into InBev’s hands, lock, stock and barrel – who knows. Mr Brito cuts his rivals no slack. After the deal with Anheuser-Busch had been signed, he demoted August Busch IV to a non-executive board member of the new but clumsily called “Anheuser-Busch InBev”. The man, whom his minions have heralded as a marketing genius because he used frogs and nerds to sell beer, has been reduced to a paper shuffler: attending board meetings only to nod consent to Mr Brito’s strategies.

If last week’s rumours that Grupo Modelo was prepared to sell itself to Anheuser-Busch are true, then the assumption that InBev will soon gain the upper hand at Grupo Modelo is as plausible as an Amen in church.

Don’t forget, Mr Brito has inherited Anheuser-Busch’s option to buy the Mexicans’ half of Grupo Modelo if he can match another bidder’s offer. All Mr Brito has to do is to lean back and wait. Eventually, Grupo Modelo will fall into his lap.

Posted 22 July 2008

USA – That’s it: InBev buys Anheuser-Busch

Although last week InBev and Anheuser-Busch were still in loggerheads over some legal quibbles and it seemed that the hostilities could drag on well into the final weeks of the U.S. presidential campaign, the shareholders of Anheuser-Busch decided that enough was enough and pushed Anheuser-Busch towards accepting a sale. That way they prevented Anheuser-Busch and its brands from suffering any irreparable damage.

Today, Monday 14 July 2008 InBev announced that it has combined its business with that of Anheuser-Busch thus bringing five weeks of a heated takeover battle to a close.

In order to buy Anheuser-Busch, InBev had to raise its cash offer from the initial USD 65 per share to now USD 70 per share. That will add another USD 6 billion to the total acquisition price, bringing it up to USD 52 billion.

This may seem a lot. However, in a webcast this afternoon InBev’s CEO Carlos Brito said that the purchase price represented an EBITDA multiple of 12.4 – which is average for the brewing industry. Other than you think, InBev is not overpaying for Anheuser-Busch. After all, Anheuser-Busch also brings a very profitable 50 percent stake in the Mexican brewer Grupo Modelo and a 27 percent stake in China’s Tsingtao Brewery to the table.   

This confirms that Anheuser-Busch was justified in turning down the early InBev offer. Moreover, the board remembered only too well the sale of Scottish & Newcastle last year and the lesson in business etiquette we learnt from it. It’s “never accept the first offer”. Heineken and Carlsberg were forced to top up their opening offer after the board of Scottish & Newcastle had said that it grossly undervalued the brewer.

Apparently, the board of Anheuser-Busch heeded that advice. When it rejected InBev’s advances on 26 June 2008, everybody knew that InBev would have to lure Anheuser-Busch’s shareholders with an extra bonus to sway their opinion towards supporting a sale. For several weeks InBev’s CEO Mr Brito had not tired to call his offer for Anheuser-Busch “good and fair“. Yet, when the analysts, whose job it is to crunch the numbers, had worked out that InBev could afford paying USD 70 per share, everybody knew Anheuser-Busch’s resistance would wane once InBev put such a proposal on the table.

As we reported, the immediate Busch family that has run the company for five generations does not own the majority of shares in Anheuser-Busch. The current CEO, August Busch IV, and his father control less than 2 percent of Anheuser-Busch’s shares. That’s why they had to resort to psychological warfare to postpone the inevitable and make themselves as expensive as possible. They knew as well as everybody else that they could not block a deal if the shareholders wanted it. 

Unluckily for Anheuser-Busch, InBev proved well prepared for guerrilla warfare too. After the Anheuser-Busch board had turned down its original offer, InBev took them to court in Delaware where Anheuser-Busch is incorporated, hoping that the court would allow InBev to sack Anheuser-Busch’s board. True, it’s a crude move but who cares about manners when attempting a hostile takeover? As if this was not enough, InBev a few days later distributed a list of potential Anheuser-Busch board members, most of them corporate has-beens, but, one could assume, more favourably inclined towards a sale – if the price was right.

Anheuser-Busch retaliated last week by suing InBev in turn, blasting the Belgian brewer's USD 46 billion takeover attempt as illegal and misleading to shareholders. In its suit, the St. Louis-based brewer called InBev's attempted buyout an "illegal plan and scheme" to acquire the company at a bargain price through "deceptive conduct." Anheuser-Busch sought an injunction to stop InBev from moving forward with its plan to oust its board and replace directors with an InBev-friendly slate until the Belgian company provided more accurate information. 

In retrospect, it has to be said, though, that InBev has always kept the upper hand throughout. What has struck observers is how quickly InBev got Anheuser-Busch cornered, although Anheuser-Busch’s board should have known what was going to hit them after InBev had approached them 18 months ago to discuss a takeover.

Anheuser-Busch’s response to InBev’s unsolicited offer was to play the patriotic card and rally popular support against a foreign buyer. The campaign had its desired effect. American mass media immediately united against InBev. As the U.S. are in the middle of a presidential campaign, the Democratic presidential candidate Barak Obama could not refrain from commenting on the goings-on in St. Louis. Last week he said: "I do think it would be a shame if Bud is foreign-owned".

To Anheuser-Busch’s shareholders this must have been it. In our time and age, any patriotic campaign is going to miss its target. Who owns Anheuser-Busch anyway? Not the Busch family, that’s for sure. I’d venture the guess that Anheuser-Busch is internationally owned already. For example, Anheuser-Busch’s major shareholder, controlling 6.1 percent of the shares, is a Barclays Bank investment fund. Now does this fund call itself an English fund? No. American? No. Come to think of it, why should it?

Anheuser-Busch’s patriotic smear campaign, rather than hitting InBev, would eventually turn against the brewer itself. The shareholders knew that if Anheuser-Busch was sold and the campaign had taken hold of public opinion, sales of Budweiser and Bud would suffer. No one could have wanted this to happen. Least of all Anheuser-Busch’s shareholders. A few phone calls to Mr Busch and his team probably made sure that he got the message and relented.

Today Anheuser-Busch and InBev said that they have agreed to call the combined company “Anheuser-Busch InBev”. That name is not easy on the tongue and chances are high that part of the name will be dropped eventually. Guess which one it will be? InBev’s, you bet. 

Mr Brito will be CEO of the world’s largest brewer. August Busch IV and another Anheuser-Busch director will join the new board as new directors.

On a pro-forma basis for 2007, the combined company would have generated global beer volumes of 460 million hl, revenues of USD 36.4 billion (EUR 26.6 billion) and EBITDA of USD 10.7 billion (EUR 7.8 billion).

InBev underlined again that none of the 12 breweries Anheuser-Busch has in the U.S. would be closed. Instead, the transaction is to yield cost synergies of at least USD 1.5 billion annually. How Mr Brito plans on doing this without axing jobs, remains unclear.

As part of its defence strategy, Anheuser-Busch two weeks ago announced significant cost cutting measures to the order of USD 1.0 billion by the end of 20010 which included a reduction of its 30,000 odd workforce by 10 percent to 15 percent. Rest assured that this plan will be implemented once Mr Brito and his men can lay their hands on a copy of it. Also rest assured that the new number five global consumers goods company (that’s what Anheuser-Busch InBev is now calling itself) will increase its pressure on its suppliers in well-known InBev fashion.

Finally, it was reported that Budweiser would become one of Anheuser-Busch InBev’s global brands. Which begs the question who is going to buy the Czech brewery Budweiser Budvar once it is put on the market by the Czech government? As we reported two weeks ago, Anheuser-Busch InBev will show little interest in paying a strategic price for the state-owned Budweiser Budvar just to end the annoying trademark dispute. At the moment it seems that the Czech government will be unable to sell the family silver – an unexpected development the management of Budweiser Budvar might cheer in secret.

Due to the limited geographic overlap between Anheuser-Busch and InBev, regulatory hurdles should be overcome soon and the deal closed by the end of the year.

InBev says it has received fully committed financing with signed credit facilities from a group of leading financial institutions, including Banco Santander, Bank of Tokyo-Mitsubishi, Barclays Capital, BNP Paribas, Deutsche Bank, Fortis, ING Bank, JP Morgan, Mizuho Corporate Bank and Royal Bank of Scotland. The transaction will be financed with USD 45 billion in debt, including a USD 7 billion bridge financing for divestitures of non-core assets from both companies. Does this mean that Anheuser-Busch’s theme parks will be sold eventually?

In addition, InBev has received commitments for up to USD 9.8 billion in equity bridge financing. Mr Brito announced that the new company would return to current debt levels in two to three years.

The financial markets will hark his words. And so do we.


USA – It’s tough running a family firm

August Busch IV and Carlos Fernandez have very little in common, except that they got their jobs at their respective companies the same way: because they are family.                        

Don’t assume that just because the international media have stopped pondering the role Grupo Modelo could play in Anheuser-Busch’s strategy to ward off InBev’s unsolicited offer that all is back to normal down in Mexico City. Carlos Fernandez, the 41-year-old Chief Executive of Grupo Modelo is fighting for his life, or less prosaically for his job.

His task is not made easier that he has to fight at two fronts: he has to placate his various family shareholders, many of whom would rather sell to Anheuser-Busch or SABMiller or whoever makes them a decent offer. And he has to put his defences in order in case InBev takes over Anheuser-Busch and will want to have a greater say in how things are done at Grupo Modelo.

Sounds familiar? Well, up north in St. Louis another man, who could hardly be called Mr Fernandez’s best pal, August Busch IV, 43, is fighting a similar battle. Both men, to date, have had fairly smooth careers. They both rose to the top not because they were the best men for the job but because they had been groomed for it. Mr. Fernandez's uncle, Antonino Fernandez, ran Grupo Modelo for three decades. The younger executive's marriage to the daughter of another company elder helped to clinch his rise.

August Busch III ran Anheuser-Busch for decades having masterminded a successful putsch against his own father. After his retirement and a brief interregnum by one of his confidants, his son became CEO of Anheuser-Busch in 2006.  

Still, to blame both Mr Fernandez and Mr August Busch entirely for their companies’ current woes is unfair. Nevertheless, both have run their companies as if they owned them and surrounded themselves with advisors who are equally blinkered. Alas, Mr Busch and Mr Fernandez don’t own their companies. Mr Busch and his father control less than 2 percent of Anheuser-Busch’s shares. Although Mr Fernandez will one day inherit some or most of his uncle’s shares in Grupo Modelo that will not make him a majority shareholder.

For years – if not forever – the executive suites at both Anheuser-Busch and Grupo Modelo have shown a total disregard for their shareholders, especially for those family shareholders who do not work in the company and whose emotional tie to their investment is therefore non-existent. While business is good shareholders will keep quiet. Once business stagnates they will grow restless and demand “shareholder value”. That’s what is happening now.

Mr Fernandez is in a slightly better position than Mr Busch. When it comes to ownership he can rely on his Mexican shareholders who still have the majority of voting rights. Anheuser-Busch only has a 50 percent noncontrolling stake in the Mexican company.

Moreover, the Mexican shareholders are controlled by a voting trust. It was set up in 1993 when Grupo Modelo first had to face an internal shareholder revolt. After the phenomenal success of Corona Extra in the U.S. in the 1980s, sales in the U.S. declined for several years and many shareholders believed that this was it: Corona was on the way down. When Anheuser-Busch’s offer came along several shareholders wanted to sell out.

Anheuser-Busch initially bought a 17 percent stake in Grupo Modelo plus several options to be exercised. To give readers and indication how cautious (read “reluctant”) Anheuser-Busch is when it comes to buying a foreign company: Anheuser-Busch, for many years refrained from exercising these options although it meant that the Americans were losing out in profits. After the slump in the early 1990s, Corona began its phenomenal rise to number one import brand in the U.S. and profits began to bubble nicely.

As concerns the voting trust, it was set up to prevent any Mexican shareholders from selling their shares in order to maintain the now famously askew power relation in the board of Grupo Modelo. Observers have always wondered why the Mexican shareholders have never revolted against being subjugated by their board. Well, they cannot. Whoever masterminded the contract which binds the members of the trust together must have been a genius at scheming. Because according to Grupo Modelo’s 2006 annual report, the trust must always vote collectively. In other words, the members of the trust have to agree unanimously to sell their shares before any other shareholder can sell their shares. For as long as there is only one member of the trust who does not want to sell, the trust has the effect to prevent a change of control at Grupo Modelo. Clever.

That way Mr Fernandez position has been secured. For as long as his uncle is alive and as a trustee will vote against a sale, Mr Fernandez can pretend that nothing can harm him.   

Unluckily, history is about to repeat itself. The sales of Corona Extra in the U.S. have been declining for two years now following the ousting Grupo Modelo’s erstwhile importer, the Gambrinus Company, at the end of 2006. Grupo Modelo formed a joint venture with drinks group Constellation Brands, Crown Imports, to import Corona Extra into the U.S. thus reaping its own profits and snubbing Anheuser-Busch. 

It is more than likely that several Mexican shareholders will now want to sell their shares in Grupo Modelo to the highest bidder, thinking that Corona Extra is again on the way down.

Now, with Belgian-Brazilian brewer InBev's effort to acquire Anheuser taking a hostile turn, Modelo finds itself in a ticklish spot. If InBev wins Anheuser-Busch, observers have remarked, Modelo ends up with a new partner -- not of its own choosing and one much more aggressive than Anheuser-Busch about things like cost cutting.

Nor would InBev be likely to wait as patiently for control of Grupo Modelo as has Anheuser-Busch. Most industry analysts expect that Grupo Modelo ultimately will fall into InBev's hands.

"We are a proud Mexican company," Mr. Fernandez has said of Grupo Modelo recently. 

That holds true only if you have a selected view of reality and ignore that you have Anheuser-Busch controlling half of your company.

In any case, the world around Grupo Modelo is changing fast and even Grupo Modelo with its defences in place will ultimately have to face up to modern times. 


Australia – Foster’s CEO throws in the towel

Anyone volunteering to break up Foster’s wine and beer business? Amid all the razzmatazz surrounding the InBev takeover attempt of Anheuser-Busch, the resignation of Foster’s CEO Trevor O’Hoy at the beginning of June has almost gone unnoticed.                          

On 10 June 2008 Foster's Group Ltd chief executive Trevor O'Hoy, 53, resigned as the company announced an earnings downgrade and writedowns, admitting it had paid too much for its wine assets.

Mr O’Hoy who has been with the company for 33 years spent the past four years at its helm. Since then, everything outside his control that could go wrong, has. An international wine glut, grape overproduction in Australia, and a rapid rise in the Australian dollar have crimped Foster’s revenue.

Things under his control haven't fared much better. Key executives have quit, integration of the beer and wine businesses has been more painful than anticipated and the big cost savings have failed to materialise.

For years, Mr O’Hoy has been under flak from analysts for allegedly having paid too much for Foster’s foray into wine. However, most of his critics prefer to forget that Foster’s strategy for let’s say the past 16 years has always been termed “survival”.

As an independent beer company Foster’s had no chance. Therefore it took it.

Sorry for the blatant paradoxical statement. But some of you will remember that in 1992 Foster’s was lying on the ground bleeding following the disaster of going international in the 1980s. Ted Kunkel, Mr O’Hoy’s predecessor, picked up the pieces, turned the brewer around and by 1999 had to make a decision. By then Foster’s was ranked 17th or 18th among the world’s brewers. The capital it had access to would not be enough for Foster’s to buy itself a rank among the top 5 global brewers. What could it do? Well, the bankers advised Foster’s to buy into wine. Because in the wine business it could still rise to the top with a few clever acquisitions. Foster's bought into wine in 1996 with the AUD 500 million purchase of Australia’s Mildara Blass and then made a big bet in August 2000 with the AUD 2.9 billion purchase of Beringer Wine Estates in California. That catapulted Foster’s to number two position in the global wine company ranking.

As media commentators say, Beringer in particular was a disaster. It underperformed its U.S. peers. Having splashed about AUD 3 billion in capital over five years on this business, Foster's is staring at a paltry return this year of barely USD 200 million, according to estimates by investment bankers Merrill Lynch.

In retrospect you could blame the Beringer acquisition on Mr Kunkel. But Mr O’Hoy has to accept the blame for the AUD 3.2 billion acquisition of Australia’s largest wine company Southcorp announced in early 2005. Many analysts already believed then that the sellers of wine assets were getting a much better deal than the buyers.

“Foster’s has made a poor decision,” said Merrill Lynch analyst David Errington in a research note dated 18 January 2008, which was quoted widely.

Indeed, Mr O’Hoy had told shareholders just two months before the Southcorp bid that he envisaged only organic growth in the 12 months ahead as he worked on improving returns at Beringer Blass.

But his hand was forced by the decision of Southcorp’s biggest shareholder, the Oatley family, to cut their losses and take the first opportunity to sell the stake they had inherited when they sold Rosemount to Southcorp. Mr O’Hoy felt he had to move, at least to keep the big international rivals out of his home market.

Mr O’Hoy knew that he was driven by the powers that finally proved his downfall. In order to generate some returns for his shareholders he gradually sold off the family silver: Foster’s real estate business, its gaming division and most famously, the rights to the Foster’s brand name in certain geographies to Scottish & Newcastle. Following the breakup of Scottish & Newcastle, these rights now belong to Heineken.

Before the release of its 2008 full year results Foster’s admitted that it would have to write down (or off) AUD 600 million to AUD 700 million in assets on these two wine acquisitions. That’s ten percent of their takeover value.

Observers pointed out that there will be much more to come, although it is on the cards that some kind of restructure or spin-off could see Foster's move ahead from here.

The admission by Foster's chairman David Crawford that the company's wine acquisitions had failed is a timely reminder that most big acquisitions do not work for shareholders. Yet, they always work for bankers and lawyers and other fee-takers and that’s the reason why they love them.

In Foster's case, it has been estimated that it paid AUD 300 million in fees for acquiring Beringer and Southcorp. That’s 5 percent of the takeover price. Now work out for yourselves on the back of an envelope how much money in fees alone InBev will pay for its takeover of Anheuser-Busch and the figure – USD 2.3 billion or so – will make your head spin. 

Mr O'Hoy lost the confidence of institutional investors last year when it became painfully clear that his multi-beverage strategy had failed. The thinking behind this was, broadly, that if you had more beverages in your portfolio you would build more market power with distributors and could therefore charge more for your product. Unfortunately, Mr O'Hoy made the near fatal mistake of discounting some of Southcorp's famous flagship brands and tore up earnings for a time, particularly in Britain.

Moreover, in Australia, his integrated beverage company was up against the formidable market might of the duopolist retailers Coles and Woolworth’s, which have moved into pubs and bottle shops en masse. Naturally their buyers thought they deserved a discount for buying extra product and besides, wine and beer are vastly different products.

Although Foster’s has had to face a number of problems, it’s number one problem is that it paid too much for the wine businesses in the first place: in the order of AUD 7 billion for assets which, on Merrill's numbers, are generating a mere AUD 450 million in EBIT.

Because of the disappointing returns, Melbourne-based Foster's began a review of its wine operations in April that will be overseen by the chairman. The review may ultimately lead to a break-up of the beer and wine businesses and both businesses being sold. Already journalists have been speculating that Foster’s Australian beer business, one of the most profitable beer businesses in the world still, could become an ideal takeover target for Heineken or SABMiller.

For many of Foster’s employees the eventual demise of this company isn’t exactly a reason for great joy. And only a cynic would argue that “hey, didn’t Foster’s manage to put off the inevitable for 16 years?”

The board said it had accepted the resignation of Mr O'Hoy. Mr O'Hoy has agreed to stay on until the appointment of his successor. "The board will now begin a rigorous international search to identify a successor," it was announced. Well, good luck.


Australia – Where is growth going to come from?

With Foster’s Group and Lion Nathan now enjoying 95 percent of Australia’s beer market, growth by acquisition of new customers is limited and thus company performance depends heavily on the configuration of the “value chain” with regard to deployment of resources and delivery of products to customers.     Read on


Brazil – FEMSA takes over another Coca-Cola bottler

On 26 June 2008 Coca-Cola FEMSA, the largest Coca-Cola bottler in Latin America, announced that it has successfully closed a transaction with The Coca-Cola Company to acquire its Refrigerantes Minas Gerais Ltda. (“Remil”) franchise territory. The transaction valued at USD 364.1 million, is subject to the customary approval of the antitrust local authorities.    Read on


Denmark - Carlsberg sells water brands to The Coca-Cola Company

Some way to finance the takeover of Scottish & Newcastle. At the end of June Danish brewer Carlsberg said that it had sold two mineral water brands in Denmark to Coca-Cola as part of a broader deal with a total sale price of USD 225 million.    Read on


Egypt – Thou shalt have no alcohol at my hotel

In a stunning display of religious orthodoxy, the Saudi owner of a five-star hotel in Cairo in May banned the serving of alcohol by reportedly dumping more than USD 300,000 of beer, wine and whiskey into the river Nile. Read on    


Germany – Einbecker: Back to the future

Good beer, great story, but shame about the past. With a new team at the top Einbecker Brewery, one of Germany’s oldest breweries, is hoping to reverse its fortunes and imbue its beer brands with that aura of aspiration that made Einbecker Europe’s most popular beer brand 600 years ago.             

If you travel the world and see people paying good money for one of Belgium’s high alcohol beers, it saddens you to think that many of these consumers will probably never get a chance to try the original stuff, an Einbecker Ur-Bock. Einbecker Ur-Bock, the beer that made the small town in Lower Saxony world-famous (in the Middle Ages, that is), compares favourable with all of Belgium’s strong beers. It is served in a small bottle and has its own historic glass. Yet, ask any beer drinker in the United Kingdom if he has ever heard of Einbecker or tried one and he will say “no” – unless he has been with the army and been stationed near Einbeck.

The town of Einbeck, to the south of Hannover and Hamburg, comes straight out of Germany’s fairy tale books. Lying amid softly rolling hills and lusciously green fields, Einbeck is a town of narrow cobbled streets and timber framed houses that have survived the vagaries of history. It was here that people brewed the “Ainpöckische Bier” (in contemporary German “Bock Bier) that was first documented in 1378. In the 14th century each citizen of Einbeck had the right to brew beer. However, he was allowed to keep only a certain amount. All excess production was bought up by the council that sold the beer to the farthest corners of Europe. Although the Bavarians do not like to admit it, the ducal court in Munich used to be one of Einbeck’s main customers. In the late 16the century more than 1,300 hl of Einbecker bock beer were sent to Munich on ox drawn carts because the spoilt and choosy courtiers did not like the local brew. 

Having been praised by the reformator Martin Luther as “the best drink that he knew”, Einbeck’s 700 odd brewhouses continued to flourish and in the 17th century formed several brewing cooperatives. A couple of centuries and several mergers and renamings later, the Einbecker Brauhaus was founded in 1967 as a public company.

Despite its impressive historical record, Einbecker bock beer has fallen victim to changing consumer tastes. In the off-trade sector, bock beers today represent 0.5 percent of Germany’s beer sales. Including on-premise sales, total market share may be 1 percent. That need not be fatal as the example of the Belgium beer market shows where speciality beers have a market share of about 30 percent of consumption. No, what has kept Einbecker bock beer back and impacted its potential as an export product were corporate mismanagement. That’s the sad and simple fact.      

For most of its existence as a public company Einbecker brewery has been under the umbrella of a larger German brewing group. Not only was the brewery regularly cashed out, several generations of managers also stuck to the erroneous decision to brew an Einbecker pils, which made them neglect the Einbecker bock beer. In the 1970 and 1980s pils was the growth segment so everybody wanted to take a slice of the market. Einbecker pils is not a bad beer. Far from it. Yet, it has to compete with lots of national beer brands that have more clout and financial muscle.

In the 1990s when Einbecker was with the Brau + Brunnen group (now part of the Radeberger Group, Germany’s number one brewing group), management made the mistake of expanding Einbecker’s production capacity. Until the fall of the Iron Curtain, Einbeck was located almost right next to it. There were no markets east of Einbeck to be served. Yet, when the wall came down and eastern German citizens were thirsting for a decent beer, Einbecker Brewery was expanded to serve these new markets. Unfortunately for Einbecker Brewery, within a few years, eastern Germany’s breweries had been refurbished and their capacities increased. The effect? Einbecker Brewery suddenly found itself burdened with capacity it could not utilise. Its then management, having no other option, decided to take on own-label production of beer.

The demise of Germany’s Brau + Brunnen brewing group, which in its final year produced more than 6 million hl of beverages, was long and agonising. That’s when some clever investment bankers from Düsseldorf came up with the idea to buy out Einbecker Brewery. The investment company Ender& Partner for an undisclosed sum bought Einbecker Brewery in 1997. However, instead of taking it private, they maintained Einbecker’s status as a public company. Someone must have made some money somewhere along the line because most market observers agreed then that keeping a brewer listed is near suicidal in a beer market that is in long-term decline.

Let’s put it this way: How was Einbecker Brewery going to deliver the growth stories that investors want if overall beer consumption is going down? That’s nearly impossible.

No wonder that there have always been rumours going round that Einbecker Brewery will be sold. Not to a foreign brewer, obviously. Because a brewery that does less than one million hl of beer is too small to provide a foreign brewer with scale quickly. However, the Radeberger Group, which already owns a host of breweries around Germany and prides itself for keeping Germany’s beer diversity alive, has regularly been ticked as a potential buyer.

Ten years on, Einbecker Brewery still awaits its sale. If the investors behind Ender&Partner ever pursued an exit strategy, they had to abandon it eventually and do something with their investment. Einbecker Brewery’s share price development reflects this change in plans. Over the past ten years, the price has dropped to EUR 15 per share from EUR 27 in 1998.

Whether the investors wholeheartedly believe in Einbecker Brewery remains to be seen. In the meantime they have put a new management team in place that has to clean out the metaphorical cobwebs and convince employees and customers alike that there is life yet in the brewery and its brands. With Andreas Berndt, 48, Marketing Director, and Bernhard Gödde, 51, Board Member for Marketing, two marketing experts were brought in last year who have decades of experience in the brewing industry behind them, having worked at Flensburger Brewery, Jever Brewery and later Brau + Brunnen. Besides, Mr Berndt spent years at REWE, one of Germany’s powerful food retailers. What is more, both marketers are of northern German origin. That will help them in their efforts to reform Einbecker’s corporate culture which, in typical northern German fashion, is slow and deliberate.

Both Mr Berndt and Mr Gödde have a lot of persuading and prodding to do to convince their people that the management’s new way of doing things is the right way.

In 2007 Einbecker Brewery had a turnover of EUR 41.8 million, down 3.9 percent on 2006, an EBITDA of EUR 5.7 million, down 13.5 percent on the previous year and an EBIT of EUR 565,000, down 41.4 percent year-on-year. Still, Einbecker Brewery managed to give most its profit away as dividend: EUR 0.25 per share. That’s the same dividend Einbecker Brewery had paid the previous year. Alas, the 2006 dividend payment was only made possible with the help of new debt.

In 2997 Einbecker Brewery sold almost 800,000 hl of beer, 129,000 hl less than in 2006. 209,000 hl of these were distributor-own-brands. Einbecker Brewery has seen the volume of these low-yielding hectolitres go down over the years – minus 40,000 over 2006. Fortunately, Einbecker could compensate some of these losses by selling more of its own brands: +10,000 hl over 2006.

For this year and next, Mr Gödde and Mr Bernd have secured the support of their advisory board to increase Einbecker’s marketing budget. But spending more on selling their beers is not enough. They will have to do some subtle pruning of their bloated brand portfolio. Einbecker Brewery also owns a brewery in Kassel and the brands of a now discontinued brewery in Göttingen, both south of Einbeck.

Their strategy, confirm Mr Berndt and Mr Gödde, is simple: premiumisation of the Einbecker pils in its regional market, a stronger penetration of the national market with the Einbecker bock beer and increased export activities.

Obviously, Mr Berndt and Mr Gödde are aware that their task is far from easy. Hopefully, with Einbecker’s shareprice in the doldrums, they will be given enough time by the investors to achieve the turnaround before they have to start worrying about who will own Einbecker Brewery next.


Germany – Beck’s Ice to hit the market

With the launch of its clear beer mix "Beck's Ice", accompanied by a large-scale marketing offensive, Beck’s Brewery hopes to defend its leadership position in the beer mix segment – and make everybody forget its less than glamorous performance last year.     Read on


Germany – Berentzen could be sold

After years of declining sales, Berentzen’s owners have decided to explore all options, including the sale of Germany’s oldest distillery.     Read on


Nigeria – Three cheers to Pabod Breweries

The resurrected Pabod Breweries scored a victory over its rival Nigerian Breweries (NBL) when on 30 June 2008 a Rivers State court ruled that NBL’s injunction over Pabod’s use of a contested bottle could not be upheld.

The rift between Nigerian Breweries Limited (NBL), which is majority-owned by Heineken, and Pabod Breweries, a state-owned brewery in the Niger river delta, assumed a new dimension when NBL insisted at the Federal High Court in Port Harcourt that about two million Grand Beer bottles belonging to Pabod must be destroyed.

In March the court had granted NBL an injunction which forbade Pabod Breweries to sell its Grand beer in a proprietary bottle which NBL claims violates the design concept and patent of its Star bottle.

Despite strong evidence given by the witness, West African Glass Industries, the producers of the contentious bottle who identified 12 distinguishing factors showing the two bottles of Star and Grand were “radically different,” the presiding judge, I.N. Buba agreed to NBL’s request for an interlocutory injunction against Pabod’s use of the bottle.

Fortunately, the judge was promoted in May and a new judge finally cast a verdict on 30 June 2008, saying that NBL’s injunction could not be upheld as the two bottles were really “radically different”. Nevertheless, this victory does not render Pabod a big service as NBL now has 30 days to appeal against the verdict. Until the end of that period Pabod Breweries is prevented from using its proprietary bottle.

In order not to have to pour its beer into the river, the management of Pabod decided that while the case was pending it would use Nigeria’s generic beer bottle. In May 2008 – that’s four months after it was supposed to launch Grand into the market - Pabod Breweries announced that it had released millions of generic bottles containing the much coveted Grand beer.

The Acting General Manager of Pabod Breweries, Mr Sonny Williamson lamented the delay by the court in delivering judgement on a matter that was supposedly on the accelerated hearing list of the court but added that the company had taken the decision to employ the generic bottle in response to overwhelming pressure by beer consumers and because of the determination of the company to take the lead in the beer market in its coverage area.


Russia – Kaltenberg beer distributed nationally

In June the long-expected roll-out of HRH Prince Luitpold’s Kaltenberg beer by Russia’s number three brewer Ochakovo began.    Read on


Ukraine – Not five but one

SABMiller has agreed to acquire the country’s number four brewer CJSC Sarmat for an undisclosed sum. Sarmat which is controlled by one of eastern Ukraine’s Russia-leaning oligarchs is said to be worth some USD 130 million. Before the sale the Sarmat group of breweries operated in five regions of the Ukraine. However, SABMiller will buy only the Donetsk brewery.

Sometimes you got no choice but to do business with people whose reputation is not exactly pristine white. In order to enter one of Europe’s fastest growing beer markets, SABMiller had to do business with the Ukraine’s richest oligarch, Rinat Akhmetov. Mr Akhmetov, who once ran a mafia-style protection money racket, is the godfather of the Donetsk clan of oligarchs, whose political inclinations tend to go towards Russia. Today the 42-year-old Akhmetov controls assets in steel, coal, energy, banking, hotels, telecoms, television and brewing, with the Donetsk football club thrown in for good measure. 

Although Mr Akhmetov is said not to enjoy alcohol, he still gobbled up breweries, softdrink plants and maltings in several parts of the Ukraine, including the Crimea. Still his venture was not crowned with success. The Sarmat group of breweries has seen its market share dwindle over the years. In 2007 it was 7 percent, down from 12.4 percent in 2005. This decline is even more remarkable as beer consumption in the Ukraine has gone up steadily.

In 2006 an average Ukrainian drank 45 litres to 50 litres of beer and industry experts argue that this was not sufficient to satisfy their needs. Russians drink 60 litres of beer annually while in the more mature European markets consumers knock back some 70 litres per year.

According to Ukrpyvo association, beer consumption in Ukraine in 2006 increased 12.4 percent to 26.7 million hl. About 95 percent of this was produced by four largest companies: Obolon (34.8%), Sun Interbrew Ukraine (34.7), Baltic Beverages Holding (15.8%) and Sarmat CJSC.

With Sarmat losing business to its competitors Mr Akhmetov lost interest and decided to put the group on the market. However, SABMiller only wanted to buy the Donetsk brewery, which has an annual production capacity of 2.9 million hl says SABMiller. Which leaves Mr Akhmetov stranded with the rest. Who will take these breweries off his hands now?



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