Posted July 2008:
USA – Did Grupo Modelo want to save
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
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
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
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
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?
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
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
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
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
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.
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
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
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
Australia – Foster’s CEO throws in the
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
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
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
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
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
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
Brazil – FEMSA takes over another
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
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.
Egypt – Thou shalt have no alcohol at my
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
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
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
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
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
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
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
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
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
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
In June the long-expected
roll-out of HRH Prince Luitpold’s Kaltenberg beer by Russia’s
number three brewer Ochakovo began. Read
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
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?
december 08 ·
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· july 08
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