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Posted September 2008:

Germany – Heineken on the prowl?

Heineken’s investment in Germany has been far from running smoothly. Board room disputes regularly get leaked to the media. Small wonder that Germany’s largest privately owned brewery Krombacher was quick to deny rumours that it was in talks with Heineken over a possible sale.                  

When Heineken and Stefan Schörghuber, the German hotelier to brewing tycoon, clinched their joint venture deal in 2001, the future seemed bright. But seven years and not quite as many sacked CEOs later, little love seems to be lost between the two partners. Their joint venture, Brau Holding International (BHI), in which Heineken has a 49.9 percent stake, has never really been a challenger to Germany’s leading brewing groups: Radeberger (privately owned by the food giant Dr Oetker) and InBev. BHI still trails them by a wide margin, realising only EUR 700 million in annual sales, it was reported.

BHI is a hodgepodge collection of breweries and brands, most of which are regional and confined to southern Germany. Its most important brands are Paulaner and Kulmbacher. Apart from the general malaise which is the German beer market, the group is bogged down by overcapacities, a decline in sales, low margins, unprofitable subsidiaries, and rather fierce infighting.

For example, in May this year, Mr Schörghuber sacked two of Kulmbacher’s board members just days before Kulmbacher’s Annual General Meeting. The reason? Apparently, Kulmbacher’s board lacked vision and direction.

BHI probably thinks the same of Dr Weber, the majority owner of the Karlsberg brewery, in which BHI bought a 45 percent stake in 2003 for an estimated EUR 120 million. Karlsberg brewery, which sells the beer mixes Desperados and Mixery and for years has been Germany’s most innovative brewery, is struggling hard. To date, BHI has had to write down EUR 100 million on its purchase. This year Karlsberg’s financial situation is going to get even worse: debts are believed to run into two-digit figures. So it’s hardly surprising that BHI does not want to pay EUR 48 million for a 15 percent stake in Karlsberg by 2010 as agreed upon originally.

Dr Weber’s longstanding PR man has already left the sinking ship, while Dr Weber himself seems to spend an inordinate amount of time in court as BHI has been showering him with writs. Relations between BHI and Dr Weber are frosty, if anything, not least since BHI has tried to sack Dr Weber as Managing Director of Karlsberg with the help of the courts. However, what makes the whole matter rather embarrassing for everybody involved is that Dr Weber until recently was President of the German Brewers’ Association.

To what extend Heineken is involved in BHI’s turbulences is hard to fathom. One thing is certain: the Dutch cannot be happy. That is why people close to the action have been wondering for a while if there may not be a grain of truth to the other rumour that Heineken is bullying Mr Schörghuber so hard that the Bavarian entrepreneur will eventually throw in the towel and sell his majority stake to Heineken – for a song. But what good would it do Heineken to have a messed-up business drop into their lap eventually?

Nevertheless, according to recent speculation in the German media, Heineken through its joint venture BHI is sizing up Krombacher, Germany’s major beer brand, which sold almost 6 million hl in 2007. Apart from adding size and scale to BHI, Krombacher has the advantage of being a national brand. Thus it could provide BHI with a distribution network in the western and northern part of Germany. Whether there have been talks or not – Krombacher was quick to deny the allegation that it was for sale.

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Cameroon – Warsteiner in joint venture with Groupe Castel

One way to conceal defeat: join your opponent. That’s what Germany’s Warsteiner brewery has done. Failing to get its Cameroonian brewery off the ground, the privately owned Warsteiner brewery decided to form a joint venture with its competitor Groupe Castel, whose Cameroonian subsidiary controls almost 80 percent of the domestic beer market.    Read on        

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Nigeria – It’s an all out trade war

Although a court declared Pabod Breweries’ bottle not to infringe upon the Star bottle design, Star’s parent, Nigerian Breweries (NBL), which is controlled by Heineken, has decided not to let matters rest but to lodge an appeal against the verdict. The court has adjourned the matter until 23 October 2008. The upstart Pabod Breweries whose launch has been held back because of Nigerian Breweries’ actions by more than half a year, has suffered significant losses yet remains upbeat.                     

Seeking justice is one thing. Obtaining justice quite another. This is certainly true for Nigeria. Surprisingly, justice often prevails in Nigeria – although you may have to wait for it for a very long time.

The court case that NBL launched against Pabod Breweries has dragged on for most of this year with no end in sight. Pabod may have managed to ward off NBL’s allegation that Pabod’s bottle infringes upon Star’s trademark design by way of a court ruling, yet NBL, in which Heineken is the major shareholder, has decided to lodge an appeal against the verdict. This has extended Pabod’s ordeal until 23 October this year.

Never mind that NBL may eventually have to pay Pabod compensation. But what is a compensation payment of EUR 2 million or EUR 3 million if ultimately you achieve your objective - which is to run your competitor into the ground?

Pabod has already run into losses in the order EUR 2.5 million because the court case has prevented Pabod from launching its beer in its own bottle – whose selfsame design NBL has contested. As Pabod cannot use its own bottle and has had to resort to Nigeria’s generic beer bottle, all advertising had to be scrapped too as it had focussed on the new bottle. No marketing, no beer sales, no revenues for new marketing. That’s why Pabod has been trapped in a vicious circle for months now. Add to that the fact that NBL in the meantime is using its muscle to agitate against a helpless Pabod and you will understand that Pabod is falling very short of its own targets.

With the federal Rivers State government being Pabod’s major shareholder, transitional funds to help Pabod along have not been forthcoming. Nigeria is suffering from a drop in crude oil production which has hampered the state’s revenues.  All parties interested in keeping Pabod going are currently investigating their options. However, settling with NBL out of court is not one of them.

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Turkey – Russian Georgian war impacts brewer Efes

Obviously, Turkish Efes does not have to takes sides in the conflict. Yet shareholders fear that the brewer will lose business as a result of tensions in the Caucasus. Shares of Anadolu Efes fell the most in more than a year in Istanbul trading on 27 August. Anadolu Efes’ shares plunged 1.40 liras, or 11 percent, to 11.50 liras, the biggest drop since June 2006.   Read on                  

 

India – Diageo will not buy a stake in Cobra beer

In July 2008 leading drinks company Diageo was reportedly holding talks with Cobra Beer over the acquisition of a 30 percent stake in the brewer for USD 80 million to USD 100 million. Well, no more. Diageo confirmed at the end of August 2008 that negotiations have ended.   Read on

 

USA – Read and weep

The chief executive of Anheuser-Busch, August Busch IV is to receive a payoff and contract worth USD 125 million on completion of the deal with InBev.   Read on

 

Australia – Foster’s wine woes

The Foster's Group, the world's second-largest wine company, announced on 26 August 2008 that its annual net income fell 88 percent, owing to a large write-down on its global wine operations. Net profit fell to AUD 117.7 million (EUR 67 million) from AUD 966.2 million a year earlier, the company said in a statement. The firm, whose assets include seven of the top ten selling brands of beer in Australia, said it was taking a write-down of AUD 602.9 million (EUR 346 million). This is the first loss Australia's biggest beer and winemaker posted in 16 years.

Read on

 

South Africa – Norman Adami is back

Norman Adami, previously President and CEO of SABMiller Americas, will return to SABMiller to assume the position of Managing Director and Chairman of SAB Ltd in South Africa. Tony van Kralingen, who currently holds this position, has been persuaded to sidestep. He will become Director of Human Resources and Supply Chain for the group.   Read on

 

France – Adieu to the French Paradox

For years now the world has looked to the French for their relaxed attitude to alcohol and their lean figures. Apparently, this is soon to be history. Increasingly, French teenagers are becoming fat and drunk. Rates of obesity among the young are rising at 17 percent per year and one report suggests that by 2020 the French will be “as fat as the Americans”.   Read on

 

Australia - Constellation causes consternation

Following a review, Constellation Brands, the world’s largest wine company, will undertake a massive AUD 154 million (EUR 89 million) restructure of its Australian operations. Of concern is news that Constellation Australia will sell about half its vineyards in the country and reduce production sites from ten to seven. The number of products, especially the cheaper priced ones, will also be cut to increase efficiency and reduce debt.   Read on

 

Australia – Coopers wins New Zealand contract for Budweiser

Distribution company Premium Beverages, 80 percent owned by Coopers Brewery, has won the distribution rights to distribute the Budweiser beer brand in New Zealand. Imported beer is a fast growing category in the New Zealand beer market. The deal with Budweiser takes effect on 1 October 2008 and replaces a deal with wine distributor Negociants.    Read on

 

Japan – If it’s liquid Kirin will sell it

Wine and beer don’t mix, but they're part of an increasingly complex cocktail the acquisitive Kirin Holdings is serving up to its shareholders. Australia’s National Foods group, which the Japanese brewer acquired last year for USD 2.4 billion, agreed in August to buy Australia's Dairy Farmers for USD 790 million. Kirin's operations now include beer, wine, soft drinks, drugs, milk and cheese, flowers and seeds and real estate.    Read on

 

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