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Thursday, June 12, 2008

A $47 BILLION Bud? That's What InBev Will Pay

The rockin' huge news of the day--sorry, I'm late posting on it--is Belgian beer behemoth InBev's unsolicited bid to buy out Anheuser-Busch. (As penance, there's some value-added analysis below.) The deal:

BRUSSELS -(Dow Jones)- InBev (INB.BT) wants to turn Budweiser into its "global flagship brand" as part of the Belgian brewer's plan to buy Anheuser-Busch & Co. (BUD) for $47 billion, InBev executives said on a conference call Thursday.

The merger, which values of Anheuser at $65 a share, would create the first global beer company, combining InBev's sales in Western Europe, Latin America and Canada with Anheuser's dominant position in the U.S. market.

InBev, maker of Stella Artois, Beck's and Brahma, will use its global distribution networks to boost sales of Budweiser, the iconic U.S. beer, in places such as China, Canada and Latin America, InBev executives said on the conference call. The goal is to capitalize on a growing demand for imported beers that can be sold as premium products.

"Budweiser is known by consumers but it's not available in many cases," said InBev chief executive Carlos Brito.

Brito and Chief Financial Officer Felipe Dutra downplayed the role that cost- cutting will play in the merger, focusing instead on opportunities to boost sales of Budweiser and other Anheuser brands outside the U.S. and InBev brands in the U.S. The merged company won't close Anheuser's U.S. breweries, which Brito called "highly efficient."

Background
First: who the hell is InBev? InBev is the result of extremely aggressive growth by a Belgian company called Interbrew that started gobbling up cool little breweries back in the late 80s--including a whole raft of venerable and exquisite Belgian labels. It's big national brand was Stella Artois, which it started to turn into an international brand during this massive growth spurt. In 1995 it bought Labatt's and later snapped up England's Bass (2000) and Germany's Beck's (2001). The big change came in 2004, when it bought Brazil's AmBev (becoming ImBev) and became the world's second-largest brewery--after A-B. Now it has over 200 brands, including large holdings across Europe. It seemed to be very successful at snapping up post-Soviet breweries, too, and has a number of labels from the Czech Republic, Ukraine, Russia, etc.

Business Aspects of the Deal
For A-B, it probably means "streamlining"--creating efficiencies by cutting jobs and consolidating management. This is a regular feature of the now-familiar InBev method. It means taking A-B international, which brewery analysts criticize Bud for not having focused on. The Budweiser label may enjoy greater international fame, but residents of St. Louis are not happy:
Calling the offer to buy Anheuser-Busch deeply troubling, [Missouri Governor Matt] Blunt conceded that he lacked any immediate way to block such a sale. He called the St. Louis-based brewer “a great employer, a great corporate citizen and the maker of great products that are enjoyed in Missouri and around the world.”
For other US macros, it's terrible news. SABMiller was courting InBev and now has to confront a titan with twice the institutional advantage. As many of you know, macros have flatlined in recent years, leading to consolidation as the mini-macros (Miller and Coors) try to compete with A-B. This would further weaken their position--and probably lead to further consolidation.

Craft Aspects of the Deal
This could be a biggie, and we dive now into fully speculative waters. As the hops and barley crisis have shown, small breweries can be seriously affected by brands against whom they don't compete. The hops markets, in particular, are global, so the Lucky Labs of the world have a stake in this thing. Craft breweries have left juice to swing deals for hops, and many of the little guys are left on the outside. With InBev controlling some massive percentage of the world's beer production, this seems like a scary proposal.

Then there's the institutional advantages afforded by having such a huge stake in the market. Recall my recent post on distributors--InBev's bid would make A-B distribution deals all that much sweeter. In markets on the West Coast this won't be as big a deal as it will in smaller markets.

Finally, what about breweries in other countries? If InBev is trying to increas Bud's reach internationally, that means aggressive marketing that will overwhelm many small, venerable national brands elsewhere. One of my favorite things about international travel is sitting down with the local beer and seeing how regional tastes have evolved to suit the culture and climates there. The Buddification of the world is a nasty thought.

Local Aspects of the Deal
Bud has a stake in Widmer and Redhook--two locals who are in the process of merging right now. My guess is that it won't much affect their operations or the merger. A-B's stake is a minority one, and they haven't been involved in day-to-day operations. But I sent an email to the brewery, so I'll report back when I hear.

Could be storm clouds passing, but all things considered, I don't see any upside in this development.

[Update: No comment from Rob Widmer.]

7 comments:

Anonymous said...

A-B has a much more substantial stake in Redhook than Widmer, I believe.

One of the perils of working for someone else is that one day you find yourself working for another someone else, who you don't know and have no reason to trust. So the Widmers might find quite a bit of change in their world if this happens.

Anonymous said...

Widmer could end up being a contract brewery... brewing Stella Artios!

InBev might want a nice little Stella brewery in the West....

OR!

Widmer could be converted to brewing Hoegaarden Brews!!!

Hmmmm....

Widmer Hefe vs. Hoegaarden Verboden Vrucht

I'll take the Verboden! The NW could acquire a nice little Belgian outpost brewery!



;-}

Jeff Alworth said...

A-B has a much more substantial stake in Redhook than Widmer, I believe.

I am less familiar with that deal. Do you know if it's a majority stake?

DR WORT said...

Not too long back, we just had the Widmer/Redhook merger. Remember WIDHOOK???

Widmer is no longer just a little Kurt and Rob Family Brewery; It's a WID-HOOK conglomerate Company that has AB distribution. AB also owns a nice chunk of the corp.

AB ran distribution for both Breweries when independent and owned roughly 43-48% of each company. The difference between of how much AB owned of Rehook vs. Widmer is pretty much irrelevant at this point since the two Breweries have merged. We can generally say that AB owns 40 something percent of WIDHOOK and their distribution. Possibly soon to be owned by InBev.


Widhook is small potatoes to InBev. InBev could buy out Widhook in a microsecond.... Since they would own 40+% of Widhook already, the buyout would be easy.

Some people in the NW seems to ignore or at least, down play these MERGERS. In reality these MERGERS lead to buyouts by larger companies. More on that later.

BUYOUT is not a merger! It can mean slash and destroy, and close doors.

The question is..... What would InBev do with Widhook?? My guess would be to streamline both brands and their beer portfolio into one WIDHOOK name brand. They would only keep what sells;i.e., Hefe-crappin and Redhook ESB per se. They wouldn't want to deal with restaurant, so they'd close the Gasthaus to make room for MORE beer storage....

Of course, they could just buyout and shut down both Widmer and redhook and reopen them as Bud or BECKS Breweries... I guess that would be worse case scenario!

I've written before about why buyouts and mergers were dangerous to the beer business. I receives lots of nasty little jabs and scoffing from others, but the reality that some seem "NOT" want to see or realize is.... Small independent breweries are under the BIG BOYS radar and keep them safe. When you get these big DEEP POCKET mergers like Pyramid and Magic Hat, it's just drawing attention to be bought out by a big commercial gluttons. Then everybody loses!

Breweries fold, Quality falls, Labels are dropped... Condense, combine and control. WE end up with 10 different colored BUDS with different names. ; -}

The NW brewers and owners should be paying attention to this BUY OUT.

On my Blog, I posted an article on how mergers would cause the end game to the brewing world. People laughed and called me crazy....

Wake up NW! It's happening and it needs to stop....

THOMAS 'Tom' CIZAUSKAS said...

In 2002, when InBev was still lil' ol' InterBrew, it purchased DeWolf-Cosysns, a Belgian malting house that unique specialist malts. Let alone small and regional Belgian breweries, many small US breweries highly prized DWC malts. (Ask old-timer craft brewers about 'Special B'.) Soon afterward, for the stated purposes of cost-cutting and efficiency, InterBrew closed the facility, in effect depriving the craft breweries of Belgium and elsewhere of this quality malt. That's just ONE datum indicative of InBev's corporate ruthlessness.

DR WORT said...

Special "B" is still made and used in the industry. It's made by the Belgian Maltsters 'Dingeman's" and is available to Craft and homebrewers alike.

That said..... You made A GREAT EXAMPLE of InBev's slash and burn philosophies. Other BIG Corporate Brewing CO's have the same Philosophy.

This is why I believe all small breweries need to think twice about merging with others and creating larger brewing Corps. This puts them in the "SPOT LIGHT" for the big boys to pluck up.

It's better to stay small and brew for the love of beer, than brew and expand for the love of money.

I read a lot Brewing & Beer Posturing here in the NW; i.e., WE DO THIS; WE CAN DO THAT; WE HAVE BETTER THIS OR THAT... This is all a waste of time to me. Every time a quality brewery in gobbled up by one of the major Brewing Co., there is a loss in the brewing community.

The larger NW breweries can be decimated by the big boys in months... Nothing to brag about then in the brewing community! Brewers with a true passion for brewing want to make great beer, not make multi million dollar deals. Hmmm.... I think I know some people that reflect that concept.

Stand Tall; Stay Small...!

;-}

Anonymous said...

I was just at A-B last week on a business trip, and needless to say, the employees there are a little nervous about a buy-out. InBev is known as a cost-cutting machine. Bye-bye tours...

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