Beer Monopoly




    International Reports







Posted September 2015


United Kingdom – SABMiller awaits next letter from AB-InBev

So it will be MegaBrew after all? AB-InBev, the world’s number one brewer has approached the world’s number two brewer, SABMiller, to explore a tie-up, which analysts have dubbed MegaBrew. In a statement on 16 September 2015, SABMiller said it had been informed that AB-InBev intends to make a bid proposal for the company.

No proposal has yet been received and the board of SABMiller has no further details about the terms of any such proposal,” it said. “The board of SABMiller will review and respond as appropriate to any proposal which might be made.”

Doubtlessly, another letter from AB-InBev with a specific offer will soon drop through SABMiller’s letter box. Readers will remember that, when InBev bought Anheuser-Busch in 2008, InBev’s CEO Carlos Brito sent a letter to August Busch (11 June 2008) and five weeks later Anheuser-Busch was sold.

This time round things could happen equally quickly. In any case, under UK takeover rules, AB-InBev has 28 days, specifically until 5 p.m. in London on 14 October 2015 to either make an offer or walk away. Known as the “put-up-or-shut-up” rule, if AB-InBev decides to walk away from the transaction it can’t come back for six months.

It is unclear if SABMiller really wants a deal. It all depends on how the cigarette company Altria, the largest shareholder in SABMiller with a 27 per cent stake, views the offer. AB-InBev will also need to persuade the family of Alejandro Santo Domingo, among the richest clans in Colombia and the owner of a 14 percent stake in SABMiller.

After years of speculations, analysts say that AB-InBev will now have to pay at least a 30 percent premium over SABMiller’s undisturbed share price, which isn’t easy to determine, but which has been put between GBP 30.00 and GBP 32.00. If AB-InBev pays around GBP 40.00 a share, which Nomura, a bank, thinks likely, SABMiller will be valued USD 100 billion. Plus debt and minority interests this will add up to USD 112 billion, says Nomura in its most recent report (17 September 2015).

Although media commentators salivate at the idea that the transaction would create MegaBrew, controlling over 30 percent of global beer volumes and – more importantly – an estimated 58 percent of the global beer profit pool, this is far from certain. Rest assured that the deal will face objections from several anti-trust agencies.

In fact, the combination could set off a chain reaction that would force valuable assets onto the market and lead to a shakeout in partnerships and alliances around the industry.

There is consensus among market observers that AB-InBev will need to sell off SABMiller’s stake in MillerCoors, its U.S. joint venture with Molson Coors, and its stake in the CR Snow joint venture in China. This could lead to perhaps USD 15 billion in disposal proceeds.

Likewise there are question marks behind SABMiller’s partnerships with Castel in Africa and with Efes in Russia and Turkey. AB-InBev likes to control its businesses, which is why SABMiller’s long tail of associates could be sold.

Nomura analysts believe that AB-InBev is foremost interested in SABMiller’s Latin American units and the large, cash generating markets of South Africa and Australia, where SABMiller has strong positions. Unlike the media and its penchant for global domination metaphors, analysts think that AB-InBev is motivated by hard financial logic only. Therefore, if there is an opportunity for disposals, most of SABMiller’s businesses in Europe and Africa (except South Africa) will go.

Eventually, when an offer is on the table, AB-InBev will have to explain its rationale. It will probably sound very convincing. But as observers concur: there is strong pressure on both managements to create value for shareholders, especially in a world in which currency fluctuations and slower macroeconomic conditions are creating more headwinds for profit growth. No wonder, a deal may seem like a good idea right now.


USA – Craft brewer Lagunitas goes Dutch with Heineken

And we thought the announcement of the deal between Heineken and the Californian craft brewer Lagunitas would be followed by a mass suicide. But lo, there was just outrage that one of the craft brewing industry’s best loved companies, Lagunitas, willingly fell into the arms of a Big Brewer.

The co-founder of Scottish anarcho brewer BrewDog, James Watt, was among the most prominent opponents. Upon hearing of the transaction on 8 September 2015, he told his followers via Twitter that his bars will no longer stock Lagunitas’ products.

The news certainly made big waves the world over. Founded by Tony Magee, 55, in 1993, Lagunitas was the sixth largest craft brewer in the U.S. by volume in 2014, selling an estimated one million hl beer this year.

It is best known for its brand Lagunitas IPA, which Heineken says is now the largest IPA brand in the country. The company has breweries in Petaluma, California, and Chicago, with a third brewery under construction near Los Angeles, which is expected to open in 2017.

Financial terms of the deal were not disclosed but, if we apply the going rate for craft brewers (USD 1,000 per hl), Lagunitas could be valued at about USD 1 billion, which puts the sum Heineken may have had to fork out at roundabout USD 500 million. Read on


USA - MillerCoors buys craft brewer Saint Archer

It probably just suited them fine that with all the hullabaloo over the Heineken-Lagunitas combination, SABMiller’s announcement on 10 September 2015 that they are purchasing a majority stake in Californian craft brewer Saint Archer from San Diego received far less attention than it otherwise would have got.

According to local media, rumours had been flying around for weeks that the company was being acquired by the Big Brewer MillerCoors, the U.S. joint venture between SABMiller and Molson Coors. Of course, when the transaction was announced, there was no mention of the money which changed hands but local pundits claim it was in the region of USD 75 million. If true, and considering that the Saint Archer brewery was only founded in 2013 and sells an estimated 40,000 hl beer, this is not bad for two years of work.

Saint Archer’s quick ascent and speedier exit comes down to its clever business model. It included bringing in athletes (pro surfers, skaters, snowboarders and associated cool-sport icons) as business partners, making good beer, then have those 20 or so partners promote it through social media and show up for parties. That’s how Saint Archer became a cultural phenomenon, according to locals. And now it’s paid off, big time. Read on


USA – AB-InBev buys Virtue Cider company

With all that heady deal-making in the U.S. craft beer sector, the world’s largest brewer AB-InBev did not want to be left out. However, AB-InBev’s subsidiary Goose Island decided to buy into the booming cider category by taking a majority stake in the Virtue Cider Company, which is located in Michigan and known for its barrel-aged ciders. Virtue Cider's brands include RedStreak, an English style cider, and The Mitten, a bourbon barrel aged cider.

Announced on 4 September 2015, the deal comes four years after Goose Island’s brewmaster Greg Hall, son of founder John Hall, left the Chicago brewery when it was sold to Anheuser-Busch for USD 38.8 million. The same year, Greg Hall and his business partner Stephen Schmakel founded Virtue Cider in Fennville, Michigan. Read on


Belgium – AB-InBev’s family shareholders receive EUR 2.2 billion in dividends

Being the biggest is also best for shareholders, it seems. In the past three years alone, the Belgian family shareholders in brewer AB-InBev received dividends totalling EUR 2.2 billion (USD 2.5 billion), a report by the Belgian magazine Trends (16 September 2015) says. By comparison, the Heineken family received about EUR 950 million in dividends between 2000 and 2014, according to estimates by the UK’s Sunday Times and Dutch media.


United Kingdom – Revival of Diageo-SABMiller merger speculation

Will it be SABGEO rather than MegaBrew? As the heady rumours of a takeover of SABMiller by AB-InBev, termed MegaBrew, have all but died down, the financial markets have dug out another possible M&A scenario in the beer and spirits industry: that of a merger of equals between Diageo and SABMiller, jocularly called SABGEO. Diageo is the world’s number one drinks company with a market capitalisation of GBP 43 billion (USD 66 billion), while SABMiller is the world’s number two brewer with a market capitalisation of GBP 48 billion (USD 74 billion).

A few days after the UK’s Sunday Times on 30 August 2015 carried the gossip that SABMiller had hired a boutique consultancy to investigate deal options, the investment bank Nomura circulated a note (4 September 2015) which ran the rule over a possible SABMiller-Diageo merger. Read on


United Kingdom – EU court snubs law for alcohol minimum pricing

Plans to introduce minimum unit pricing for alcohol in Scotland face further delay, following an initial ruling by Europe's highest court. The European Court of Justice advocate general, Yves Bot, said on 3 September 2015 that the move risked infringing EU rules on free trade. In an official opinion, he said minimum pricing would only be legal if it could be shown no other mechanism could protect public health. Read on


China – The end of the BRIC hype

With Brazil and Russia in recession and India not yet living up to its promises, is the fall of China a timely reminder that emerging markets are, well, a risky investment? Many wonder these days: is China going to be the new Russia for global brewers? In retrospect, will 2013 be the last year before things took a turn to the worse? In 2014, China’s beer market shrank to 492 million hl. This translates into a loss of 14 million hl over 2013, says the beer economist Germain Hansmaennel.

In the first half of this year, consumption was down 4.5 percent, AB-InBev reported. But this was before China’s economy took a hit. All things considered, including the recent stock-market crash, beer consumption will probably decline further.

Contrary to market research company Mintel, which forecasts a 1 percent drop for 2015, Mr Hansmaennel predicts that beer consumption will shrink even more in the second half of 2015 as a consequence of China’s wobbly economy. He fears that the decline could amount to a total of 20 to 25 million hl beer this year over 2014.

From what we have heard, brewers desperate to maintain volumes are engaging in price wars, which will hit China’s beer profit pool badly. Average profit per hl is only USD 3.

German brewers already feel the heat. Last year German beer exports to China stood at an estimated 1.5 million hl. Selective evidence suggests that export volumes have risen to 1.2 million hl for the first six months 2015 but prices, especially for beer in cans, are much under pressure.

As wrote the Economist the other week: The great fall of China - some fears are overdone and others misplaced, but investors are right to be nervous. Same for the brewers.


United Kingdom –SABMiller’s share price development raises takeover concerns

Long time, no hear about anyone courting the world’s number two brewer SABMiller. Deal rumours died down after in September last year Heineken publically rebuffed an offer by SABMiller to combine.

With no heady offer in the offing, SABMiller’s share price has dropped 10 percent between January and the end of August, it was reported, taking SABMiller’s market capitalisation down to GBP 48.8 billion (USD 75 billion).

But it should rise a bit after it was leaked to the Sunday Times on 30 August 2015 that SABMiller has reportedly called on the services of boutique advisory firm Robey Warshaw to help build its defences against a possible GBP 75 billion (USD 115 billion) takeover offer from AB-InBev. Read on


Germany – A victory for the Puritans

Is saying something “agrees with you” actually the same as saying “it will do you lots of good”? That’s what a German law court thinks and in its verdict on 25 August 2015 prohibited a small brewery from using the word “bekömmlich” (“agreeable” and derived from the toast “wohl bekomm’s”) on its beer bottles.

Funnily, the Härle brewery from Leutkirch near the German Alps, has been praising its beers for nearly 80 years as “bekömmlich”. Every German knows what it means: it’s agreeable and does not upset your tummy.

However, the brewery’s traditional moniker does not take into account EU law. In 2012 the European Court of Justice forbade the use of “bekömmlich” in connection with alcoholic beverages because the term, in the judges’ view, implies that the beverage has health benefits – which cannot be the case if the beverage has more than 1.2 percent ABV.

Gottfried Härle, the brewery’s owner, probably could have gone on using the moniker had not a Berlin club called “Verband Sozialer Wettbewerb” (“Association for Social Competition) succeeded in getting an injunction which declares the brewery’s use of “bekömmlich” taboo.

Mr Härle said he will file an appeal. And according to local media, he will engage pupils to paint over the word “bekömmlich” on tens of thousands of beer bottles. Would it not have been more “bekömmlich” if the unspeakable EU law were blackened?


Ireland – Guinness sales rise in Ireland but remain flat globally

Who remembers the infamous Guinness Light, a wheat beer called Breo and Guinness Black Lager? They were the not-so successful product launches by Guinness. Fortunately, others have done better. Last year, Guinness introduced a number of new products in the key Irish and UK markets, including two new porters and a golden ale, it was reported. Read on

USA – Boston Beer’s founder Jim Koch may sell to a foreign brewer

Hark his words. Boston Beer, the maker of Samuel Adams beer and Angry Orchard hard cider, would be worth more to a foreign owner unburdened by the U.S. tax structure, founder Jim Koch, 66, told a Senate committee on 31 July 2015. Because of that, Mr Koch said he is regularly approached by investment bankers looking to strike a sale. He’s been turning them down — for now.

While the senate’s hearing was all about corporate taxes in the U.S. – and why U.S. companies prefer to skip them by relocating their headquarters elsewhere - Mr Koch’s comments may be a sign that he sees a sale as the eventual fate of his company.

Mr Koch founded Boston Beer 31 years ago. Its market value is currently USD 2.9 billion. Mr Koch probably isn’t in a rush to sell. And the decision is up to him. He controls the company’s Class B shares with all the voting rights, so he can wait as long as he wants. Read on


USA – Will craft brewers succumb to the lure of Wall Street money?

The Brewers Association’s definition of a craft brewer stipulates that in terms of ownership less than 25 percent must be controlled by a Big Brewer. This implies that craft brewers could keep their clout as the better beer guys if they were to take in non-beer investors, right? This reasoning must be behind the recent discussions among craft brewers that Wall Street’s money should not be rejected outright. Media reported in August 2015 that Brooklyn Brewery is reconsidering its initial gut reaction against taking money from investment firms. Read on


Belgium – Unibra buys stake in private label brewer Martens

Unless you shop for your beer at the discount supermarket Aldi, you would not know that behind Aldi’s big seller Karlsquell beer is the family-owned Belgian brewer Martens.

Located in eastern Belgium close to the German border, Martens is a “giant”, well, in the Belgian beer market. With an estimated annual output of 3 million hl beer, it is the number two brewer behind AB-InBev. Locally its best-known brands are Martens Pils and Sezoens, but the bulk of its production is private label beers for the likes of Aldi, Carrefour and Metro. The 257 year old family brewery, which has been going for eight generations, exports 85 percent of its production.

Because of its focus on private label production, Martens has preferred to keep a low profile, which is also true for the Belgian Relecom family, which owns Unibra. Only after an investigative journalist broke the news that Unibra had bought a 29 percent stake in Martens’ holding company Bockhold for EUR 17.14 million at the end of July 2015 did Martens send out a press release confirming the transaction in August 2015. Read on


USA – Constellation Brands buys stake in cocktail firm Crafthouse

So it’s craft cocktails now. The number three brewer in the U.S., Constellation Brands, with brands like Corona and Modelo, has acquired a minority stake in bottled cocktail brand Crafthouse Cocktails through its new start-up investment arm, media reported on 19 August 2015. The terms of the acquisition were not disclosed.

The Chicago firm Crafthouse Cocktails is the first minority acquisition of the recently launched Constellation Ventures, which was set up by Constellation to

identify small-scale investment opportunities related to innovative concepts and emerging categories. Crafthouse Cocktails was co-founded in 2013 by the bartender Charles Joly, who was crowned winner of Diageo Reserve World Class 2014. Read on


United Kingdom - Embassies to serve Scottish gin

What? Gin not Scotch whisky? UK embassies were told to serve gin at official functions as the UK’s government makes a concerted push to double the level of gin exports, media reported on 28 August 2015.

Britain is the largest exporter of gin in the world and some 70 percent is produced in Scotland. Exports of gin reached almost GBP 400 million (USD 620 million) in 2014 – an increase of 37 percent in the space of five years, it was reported. The UK’s government has said it wants to double these figures to “bring them in line” with the GBP 4 billion generated by Scotch whisky exporters. Read on


Denmark – Carlsberg’s new CEO debuts with profit warning

Not exactly the premiere he must have hoped for. Carlsberg’s CEO Cees ’t Hart, the former head of the Dutch dairy company Royal FrieslandCampina who took over at Carlsberg in June, had to break the bad news on 19 August 2015 that the world’s number four brewer was expecting a slight fall in profit for the full year after reporting first half organic volume declines of -1 percent in Western Europe and a drop of -18 percent in Eastern Europe, which were not offset by volume sales in Asia (+5 percent). Read on


Belgium – Government mulls introduction of sugar tax

Governments have every reason to be concerned about the damaging impact of sugar on health - from people's rotting teeth to type 2 diabetes and bulging waistlines. But the jury is still out on the question if a sugar tax is the appropriate measure to make people change their consumption habits.

This has not stopped the Belgian government from pushing ahead with a “sin tax” on “unhealthy” foods and beverages, as was reported at the end of July 2015.

What the Belgians mean by this tax is not immediately clear. It can only involve some sort of sugar and fat tax. Insiders are rightly worried that all beverages containing sugar or sweeteners, namely soft drinks, Radlers, fruit beers and beer mixes like Desperados (Heineken), will become a target. Read on


Germany – AB-InBev to sell the Gilde brewery in Hannover

AB-InBev must be glad that they have found a buyer for their Hannover brewery, which has long been surplus to their requirements in Germany. According to estimates, beer production at Gilde is only 150,000 hl although the plant has a capacity of over 1 million hl. The buyer will be TCB, a German producer of private label beers with three plants – two in Germany and one in France – which have a combined capacity of 10 million hl beer. The rumoured price for Gilde is EUR 15 million.

When Belgium’s Interbrew bought Gilde in 2002 for EUR 575 million they were mainly interested in Gilde’s subsidiary, the Hasseröder brewery, which then brewed a popular eastern German brand. To clinch the deal with Gilde, which was valued at EUR 64 million then, Interbrew had to buy out the city of Hannover, which held a 10 percent minority stake in Gilde. In return for the city’s consent, Interbrew had to give a guarantee that they would keep Gilde running until 2020. Over the years there has been frequent speculation that Gilde could be closed down.

At the end of July 2015 the city of Hannover formally agreed to Gilde being sold again, which means the transaction can go ahead over the summer.


United Kingdom - Jobs threat after Coke’s European bottlers merge

Hasn’t Coca-Cola’s corporate strategy in recent years resembled a zig-zag course? Six years ago, The Coca-Cola Company touted it wanted to re-engage with bottling, thus pulling the two sides of its value chain – marketing and bottling - closer together. All this was to help Coke and its bottlers to double their combined revenues to USD 200 billion by 2020. Now Coke wants to pull out from botting again and assign the more arduous – and capital intensive - task to independent bottlers.

That’s, at least, the implication of the recent mega-merger among its bottlers, announced on 7 August 2015, which will see Coca-Cola Enterprises (CCE) combine with the privately held Coca-Cola Iberian Partners SA and Germany's Coca-Cola Erfrischungsgetränke AG to create a European Coke bottler with pro forma 2015 revenue of about USD 12.6 billion and EBITDA of USD 2.1 billion.

The new entity, called Coca-Cola European Partners (CCEP), will be Coke’s biggest bottler in Europe, ahead of Coca-Cola Hellenic Bottling Company (Coca-Cola HBC), which is headquartered in Switzerland. Read on


USA – Coke’s CEO Muhtar Kent gets a deputy and possible successor

The Coca-Cola Company has promoted an insider to the number two job which got media pundits and analysts speculating that Chairman and CEO Muhtar Kent needed a powerful deputy to help manage the far-flung business and try to reverse flagging soda sales. On 13 August 2015 the company said it named the Englishman James Quincey, 50, President and Chief Operating Officer. Mr Quincey has been with Coke for 19 years. According to insiders the board has been encouraging the 62-year-old Mr Kent to appoint a deputy for some time. Coke’s structure consisted of a CEO and numerous executive vice presidents reporting to him—but no official COO or clear number two.

Mr Kent has been Chairman and CEO of Coca-Cola since 2008 and came under fire last year when shareholders, including Warren Buffett, called Coke’s pay plan for executives “excessive”. According to estimates by the Associated Press Mr Kent took home USD 18.1 million. Read on


United Kingdom – Britain back on the map as brewing powerhouse

A surge during the past two years has seen microbreweries opening up at rate of three every week. Figures from the British Beer and Pub Association show there are more than 1,400 breweries in the country. Even though microbreweries may be on the rise, the demise of the pub continues. Twenty-nine pubs close each week across the UK, according to the Campaign for Real Ale. These days there are about 53,000 pubs, down from about 67,000 in 1982. In the first six months this year alone the UK lost 750 pubs, compared with 145 openings. Read on


USA - Brewers add alcohol to root beer

How hard is this? After the “hard ice tea” craze, the U.S. is falling for another fad: “hard soda drinks”. The first such drink to see alcohol added to it is root beer. Root beer, which soared in popularity as a pre-Prohibition temperance drink, is leaving its roots behind. An alcoholic version called Not Your Father’s Root Beer with 10 percent ABV has become one of the fastest-growing products in U.S. beer aisles. It was first introduced late last year by the Small Town Brewery located in Wauconda, Illinois. Read on



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