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Posted May 2014

USA - Former Anheuser-Busch PR head loses discrimination suit

Anheuser-Busch did not discriminate against their former executive Francine Katz even though they paid her significantly less than a male predecessor, a jury in St. Louis decided on 16 May 2014.

After the high-profile three-week trial, the jury deliberated for more than ten hours over two days before siding with Anheuser-Busch, the company now owned by AB-InBev.

Read this and cry: including bonuses and stock options, Ms Katz earned about USD 1 million annually after her 2002 promotion to Vice President of communications and consumer affairs and her appointment to the company’s influential strategy committee.

Ms Katz filed a suit against Anheuser-Busch in 2009, after she had left the brewer following its sale to InBev. Her attorney said she was entitled to at least USD 9.4 million in back pay from 2002 to 2008, plus another nearly USD 5 million in interest and an unspecified amount of punitive damages, it was reported.

In 2008, her final year with the company, Katz declared more than USD 14 million in income on her federal tax returns, including stock options she cashed in. Read on

 

Belgium - Brewers reiterate need for level-playing field in trade talks

The German Chancellor Angela Merkel has backed the call from the Brewers of Europe, a trade body, to end the discrimination for small European breweries exporting to the United States. The fifth round of talks between the EU and the United States on the Transatlantic Trade & Investment Partnership (TTIP) began in Arlington, Virginia, on 19 May 2014.

As the Brewers of Europe said on 19 May 2014, in her meeting with President Obama earlier this month, Chancellor Merkel responded to scepticism about the need for such a deal by referring to the difficulties experienced by smaller German breweries exporting to the United States.

Currently, small US brewers exporting to the EU are eligible for a reduced tax rate both in the US and the EU, whilst a European brewer exporting to the U.S. gets no such break. Read on

 

Australia - Restructure for Coca-Cola Amatil

Alison Watkins, the new Group Managing Director of Coca-Cola Amatil (CCA) is not to be envied her task at hand: turning CCA around. Nothing less will do. CCA’s stock is down over 40 percent since May last year, reducing the soft drink-to alcohol-producer’s market value to AUD 7.3 billion (EUR 4.9 billion).

According to broker CIMB, CCA is now the world's cheapest listed Coke bottler.

To make matters worse, first half group earnings (end of June 2014) are expected to decline by around 15 percent.

That’s why it came as no surprise that she has begun her reign at CCA with a reorganisation. It was announced on 12 May 2014 that Ms Watkins has split CCA's non-alcoholic beverages and licensed and alcoholic beverages divisions in two.

As of June this year, the Australian non-alcoholic beverages business and the licensed and alcohol business units will report separately to Ms Watkins, who took the helm from Managing Director Terry Davis in February, when he retired after 13 years as CCA’s Chief Executive.

The restructure left no suitable role for John Murphy, who was Managing Director Australian Beverages, and he plans to step down at the end of June. Mr Murphy, who previously ran Foster's Carlton & United Beverages business, oversaw CCA's entry into the beer market in 2010 and its return to that market late last year.

Many think that the reorganisation of CCA was on the cards from early 2014 when CCA realised that the soft drink business was not going well. Therefore, CCA has prioritised the revival of its struggling carbonated soft drinks business but that will not be at the expense of developing growth businesses including alcohol, Ms Watkins assured investors.

Analysts said the latest changes indicate Ms Watkins is keen to strengthen CCA's relationship and alignment with the Coca-Cola Company, which owns about 30 percent of the bottler. This relationship has been tested in the past few years by weakening volumes and CCA's diversification away from soft drinks into beer and spirits.

People familiar with CCA have said that CCA should get into alcohol “properly” i.e. in a bigger way, or stay out. Remaining at the edge, as appears to be happening at present, will not be advantageous in the long-term, even given the good margins associated with alcohol in Australia.

Unsurprisingly, CCA’s present woes have sparked speculation that CCA could be a takeover target soon. Vague rumours that the Kirin-owned brewer Lion may be interested have been around - on and off - for some time. Observers say there would be no anti-trust concerns in this case as CCA's current commitment to alcohol is relatively minor. However, all this deal speculation rests on the assumption that the Coca-Cola Company will be willing to move its affiliations, which is not very likely.

In the meantime, CUB’s Bluetongue brewery at Warnervale has closed quietly with about 70 odd redundancies.

 

Denmark - Carlsberg issues profit warning

The civil war in the Ukraine is having its effect on global brewers. The world’s number four brewer Carlsberg was forced to issue a profit warning after it swung to a net loss in the first quarter, the brewer announced on 7 May 2014.

The company reported a 14 percent net revenue decline in Eastern Europe in the January to March quarter, compared with a year earlier, and its overall operating profit fell by about a third.

Carlsberg, whose eastern European region (mainly Russia but also the Ukraine) contributes the most to group volumes and profits, has downgraded its full-year outlook for net performance, saying it now expects net profit to grow by a low-single-digit percentage in 2014, instead of the mid-single-digit percentage it previously expected. Read on

 

Belgium – AB-InBev banks on Football World Cup

Despite rising sales during the first quarter, AB-InBev reported on 7 May 2014 that its net profit slumped by almost 24 percent. AB-InBev said net profit fell to USD 1.4 billion in the January through March period from USD 1.8 billion in the same quarter a year earlier.

The company says revenues rose to USD 10.6 billion from USD 9.2 billion last year. In the U.S., its beer sales grew 2 percent, representing about a quarter of global sales. The company expects the World Cup tournament starting in June to provide a boost to its sales in the host country Brazil but also "in many of our markets around the world."


Nigeria – Heineken to merge Nigerian Breweries and Consolidated Breweries

Heineken announced on 9 May 2014 that its majority-owned subsidiaries Nigerian Breweries and Consolidated Breweries will merge, pending regulatory approval. It is intended that Nigerian Breweries, as the remaining legal entity, will stay listed on the Nigerian Stock Exchange after the completion of the merger.

The transaction is expected to derive benefits from increased economies of scale, enhance operating and administrative efficiencies while increasing the new company's speed and agility in response to market developments, Heineken says.

Nigeria is the continent's largest economy, with a significant beer and malt drinks market, underpinned by favourable demographics: an expanding population of almost 180 million people, of whom more than 70 percent are under the age of 30; increasing levels of urbanization and a rapidly developing middle-class supported by rising income levels.

Nigeria has annual beer sales of around 18 million hl, second only to South Africa on the continent. Heineken has around a 70 percent market share in Nigeria, with Diageo's Guinness accounting for over 20 percent. Read on

 

USA - New York’s city mayor to resume predecessor’s fight to ban big sodas

New York City Mayor Bill de Blasio has announced that the city will continue Michael Bloomberg’s fight for a ban on sodas over 16oz per serve, U.S. media reported in early May 2014.

The city will appeal to the state’s highest court in a continuation of the former mayor’s ban. Mr de Blasio’s predecessor, Michael Bloomberg, had ordered the ban through the city’s Health Department without the city council’s consent, but in March 2013, a state judge blocked the ban, saying that Mr Bloomberg had overstepped his authority.

The law would have prohibited city restaurants, delicatessens and other businesses from selling soft sugary beverages larger than 16oz.

Mr de Blasio, a Democrat, previously said he supported the law in an effort to combat obesity, but hinted he would consider City Council legislation rather than a Health Department edict.

City lawyers will argue the case at the Court of Appeals on 4 June 2014.

 

Belgium – AB-InBev’s need for SABMiller mega-deal grows. Oh really?

The last week in April 2014 launched a new fashion in corporate takeovers: the return of the “big deal”, as The Economist newspaper wrote on 30th April. We learnt that Pfizer and AstraZeneca, two drugmakers, Holcim and Lafarge, cement companies, and Publicis and Omnicom, advertising firms were planning to combine. Among other big deals (see table below), GE and Siemens are both bidding for Alstom, a French industrial rival. According to The Economist, there have been 15 transactions each worth more than USD 10 billion so far this year, the most since the record mergers & acquisitions rush of 2007.

Although these big moves come in fashionable waves over many different industries, pressure is piling on almost all industries to do “statement deals”. The reason? Well, plenty of companies, all of them leaders in their industries, have been generating huge amounts of cash but don’t really know what to do with it. “Having run out of scope for placating shareholders with share buy-backs, and having found that expanding into China and India was no panacea for their dim domestic prospects, they now hope that plausible-sounding mergers will do the trick”, The Economist argued.

What makes these big deals interesting is their rationale. In the Noughties, many of the big deals were moves into emerging markets. This year’s transactions appear to be about cost savings, pricing power and economies of scale, rather than acquiring operations on the ground or markets themselves.

Obviously, each company has its own motives for deal-making. However, we should never underestimate the power of investors in forcing deals. I am sure I am not alone in believing that the investment banking community is still very influential in effecting change, even if only for change’s sake.

That’s why I have been wondering about how long AB-InBev will be able to resist going after SABMiller, respectively ranking one and two in the global brewing industry. Of course, AB-InBev + SABMiller has been the most speculated about deal in beer land, even before the recent spate of mega-deals. For several years, in between the silly season and the reporting season, we have had the “who-could-buy-SABMiller”-season, marked by a flurry of articles and reports on the issue. Usually, it would have been an investment outfit that fed the media a report detailing why AB-InBev buying SABMiller made perfect sense. But, as we all know, nothing has come of this speculation – yet.

This year might prove different. In early March 2014 Bloomberg wrote that “slowing growth at Anheuser-Busch InBev and a dearth of big takeover targets may finally drive the world’s biggest brewer to swallow its USD 79 billion rival, SABMiller Plc.” Bloomberg added that tapping into SABMiller’s presence in faster-expanding regions such as Africa would allow AB-InBev to get that growth flowing again, quoting Alpine Woods Capital Investors LLC and Henderson Global Investors. The remarkable thing is that both Alpine Woods and Henderson are shareholders in AB-InBev and decided to go public with their opinion.

That followed a February 2014 report by investment bankers at Goldman Sachs saying that AB-InBev had “headroom for USD 145 billion of acquisitions”. This suggests that AB-InBev could afford buying SABMiller even at a premium.

I have no idea how SABMiller’s executives responded to all those analysts’ reports outlining the feasibility of such a tie-up when they sat down with their investors for a face-to-face. Read on

 

USA – Warren Buffett opposes Coke’s compensation plan but did not vote against it

Mr Buffett wasn't going to do anything about the Coca-Cola executive compensation plan, which, according to some detractors, might dilute Coke’s shareholders up to 16.6 percent and hand Coke’s executives up to USD 24 billion worth of stock at today’s share price.

Over the past few weeks, Coke has been the subject of a very public outcry over its executive compensation plan. Specifically, the equity piece of it, which is huge, has drawn the criticism of Wintergreen Advisors, a Coke shareholder, who went public with its distaste over this plan.


Interestingly, at Coke’s annual shareholders meeting on 23 April 2014 the controversial plan passed with 83 percent of the vote in favour, but less than half the shareholders voted, media say.

Billionaire Warren Buffett, whose Berkshire Hathaway holding has a 9 percent stake in Coke and is the beverage giant’s largest shareholder, spent the weekend of 3 and 4 May 2014 meeting with his shareholders, where he defended his decision to abstain from voting on Coke’s compensation plan.

Mr Buffett said Coke can easily adjust the compensation plan he has called “excessive”, and he explained the quiet way he handled his objections.

It was the most effective way to behave for Berkshire,” Mr Buffett told investors, pointing out that he withheld his vote for two reasons: one, he didn't want to “go to war” with the beverage maker's management, which he supports, and, two, he didn't want to endorse a public campaign against the equity plan by a smaller Coke shareholder by voting “no”.

Mr Buffett indirectly responded to criticism by fellow Coke shareholder Carl Icahn, who had slammed Mr Buffett in an article in Barron’s magazine on 3 May 2014 (“Why Buffett is wrong on Coke”) for not standing up for what's right.

Mr Icahn wrote: “My colleagues and I have fought long and hard to change fellow board members' attitudes and beliefs concerning their responsibility to shareholders, even if this change angers the CEO and some of his cronies sitting on the board. But if a man of Warren Buffett's stature openly states he abstains from voting on plans he doesn't agree with because he ‘loves’ management and he doesn't want to ‘express any disapproval’, how can we expect other board members in this country to voice their opinions, especially if they are opposed to the CEO's interest?”

Mr Buffett replied by saying: “I think our style actually would be more effective than the style that might be proposed by Carl.”

Meanwhile, Coke has said it will likely revise its executive compensation plan before it takes hold next year. Mr Buffett also said that Coke can make the compensation plan acceptable by spreading the stock options over more years than the four initially proposed.

Still, this does not change the fact that Coke’s management is winning at the expense of shareholders.

 

USA – Coke and Pepsi drop controversial ingredient BVO from all drinks

Coca-Cola and PepsiCo said on 5 May 2014 they're working to remove a controversial ingredient, brominated vegetable oil (BVO), from all their drinks, including Mountain Dew, Fanta and Powerade, following petitions on the website Change.org by a 17-year-old Mississippi teenager who wanted it out of PepsiCo's Gatorade and Coca-Cola's Powerade.

Health concerns about BVO stem from its use of bromide, the element found in brominated flame retardants, according to the Mayo Clinic. BVO has been linked to negative health effects, including reports of memory loss and skin and nerve problems. Read on

 

Netherlands – Heineken reports “continued challenging beer market conditions” in Russia

When releasing first quarter 2014 figures on 24 April 2014, Heineken said it has returned to growth in its crucial Western Europe market in the first quarter, after a long period of stagnation. Organic sales - a figure which strips out the effects of currencies and acquisitions - grew by 3.4 per cent.

However, Heineken’s reported sales fell because of the strong euro and because its Eastern European sales declined, especially in Russia and Poland. Beer volumes in central and eastern Europe dropped 6.8 percent. Sales in the region fell 8 percent to EUR 562 million. Read on

 

United Kingdom – Diageo said to discuss the sale of Whyte & Mackay to Philippines

On 2 May 2014 media reported that Diageo, the world’s major drinks group, is holding talks to sell the Whyte & Mackay (W&M) spirits business to Alliance Global Group, a Philippines-based company which produces Emperador brandy.

Diageo acquired Scotland’s W&M last year when it purchased a controlling interest in W&M’s Indian parent, United Spirits. Diageo subsequently offered to sell most of the business to assuage concerns by the UK competition watchdog, the Office of Fair Trading (OFT).

The sale to the Philippines company could value W&M at about GBP 400 million (USD 675 million), it was reported. United Spirits bought W&M for GBP 595 million in 2007. Read on

 

Germany – Executive directors will continue to run Oettinger Brewery

After the sudden death of the chief of Oettinger Brewery, Dirk Kollmar, his previous co-executive directors will continue to run the company, Sales Manager Jörg Dierig said on 7 May 2014. The management includes Mr Dierig, Michael Mayer (human resources and finance) and Karl Liebl (engineering, purchasing , logistics) .

Mr Kollmar, who was the Managing Partner of Germany's third largest beer company, died of a heart failure on 3 May 2014, aged 50. Read on

 

Australia - CUB warned over misleading craft beer labels

Too “crafty” for their own good? Australian brewers have been put on notice over misleading craft beer labels after SABMiller-owned CUB was fined for potentially fooling drinkers, Australian media reported on 29 April 2014.

Last year CUB caught the attention of the Australian Competition and Consumer Commission for implying that Byron Bay Pale Lager supplies came from a small brewery in New South Wales, whereas in fact they were brewed at a CUB plant 630 km away as part of a licensing and distribution deal with Byron Bay Brewing Company’s parent.

The small Byron Bay Brewing Company only brews draught beer at its Byron Bay site.

Media reported that CUB was fined AUD 20,400 (EUR 14,000) and had to change the advertising. Read on

 

China – AB-InBev buys Chinese brewer Ginsber

After months of speculation, AB-InBev, the world's major brewer, confirmed on 24 April 2014 that it has fully acquired the Chinese beer company Siping Ginsber, but did not disclose financial terms of the purchase. The acquisition was approved in March by the Chinese Ministry of Commerce and Chinese media valued the deal at EUR 450 million (USD 622 million).

That’s a neat sum for a brewer whose beer volumes are around 5 million hl, according to market research company Canadean. Besides, most of Ginsber’s brands are mainstream. There will be a bit of local premium in there but certainly not “high end”. Read on

 

USA – Will Altria sell its stake in SABMiller? New deal speculation

Altria Group is the parent company of Philip Morris USA, the largest U.S. tobacco company, and of the smokeless tobacco and wine manufacturer UST. The company formerly owned Miller Brewing, Kraft Foods and Philip Morris International, which housed its international tobacco business. Although considered a “sin stock”, the company is known for its high dividend pay-out, averaging at about 80 percent of profits.

In April 2014, the Motley Fool, a website for investors, wondered what will become of Altria’s near 30 percent stake in SABMiller. Will they sell it eventually or keep it? The Fool’s - unsurprising - answer is: No, they won’t sell it but they might expand their beverages holdings and buy a company like Constellation Brands (the drinks company which owns the Corona beer business in the United States). Read on

 

South Africa – SABMiller to review its stake in Tsogo hotel group

April 2014 was an interesting month for SABMiller watchers. Not only did the world’s number two brewer announce job cuts at its South African soft drinks operations, it also released full year volume figures which were modest and led Reuters news agency to title: “African troubles hamper SABMiller sales” on 15 April 2014.

The brewer reported overall sales volume growth of 2 percent for the financial year ended 31 March 2014, with lager volume up merely 1 percent and soft drinks up 5 percent. This moderate volume increase was attributed to troubles in a number of African markets that have been fuelling growth for the past few years. Read on

 

South Africa - SAB to cut jobs

In much of the developed world, layoffs have become an increasingly common part of corporate life—in good times as well as bad. But for an economy like South Africa’s, they don’t bode well. Not only does South Africa have the third highest unemployment rate in the world for people between the ages of 15 to 24, according to the World Economic Forum (WEF) Global Risk 2014 report (more than 50 percent of young South Africans between 15 and 24 are unemployed, with the official unemployment rate standing at 24 percent in 2013). The country also heads to the polls on 7 May 2014 for general elections.

Still, the soft drinks division of South African Breweries (SAB) plans to cut more than 10 percent of its workforce in a restructuring programme aimed at reducing costs, SAB confirmed on 15 April 2014, South African media reported. The confirmation came a day before SABMiller released its full year lager volumes. Read on

 

 

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