Is A-B “Running Out of Opportunities” Globally?

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TELEGRAPH.CO.UK

US beermaker risks falling behind if it doesn’t start looking at deals, says Jonathan Sibun

When European brewers Carlsberg and Scottish & Newcastle publish the latest trading figures for their Russian joint venture on Tuesday, one company will be watching more closely than most.

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  •  Anheuser must stop beating about the Busch
    Anheuser needs more buddies in emerging markets

    Anheuser Busch, the US brewing monolith behind the Budweiser brand, has long coveted the Russian business and the coming weeks could present it with its last chance to get its hands on one of the world’s fastest growing brewers.

    Carlsberg looks set to take full control of BBH, the Russian joint venture, after Scottish & Newcastle accepted a £7.8bn joint takeover bid from the Danish brewer and Heineken last month. However, industry insiders believe there is a chance Anheuser could still crash the party.

    That rival brewers and analysts still consider a rival bid a possibility, when the conservative US company has so far steadfastly refused to get involved, is in part down to Anheuser’s position in the global beer market.

    Anheuser is one of the world’s most profitable brewers and through Budweiser and Bud owns some of the world’s most popular brands. While that may seem to place it in a good position, Wall Street analysts and investors are asking where the growth is going to come from.

    Anheuser’s share price has barely moved in five years and while the US company continues to pour out the profits, growth is limited. More than 80 per cent of Anheuser’s sales are in a US beer market struggling to cope with the rising popularity of wine and spirits, against a backdrop of an economy many fear could go into freefall.

    The US brewer missed Wall Street forecasts when it reported full-year results last month. Despite showing strong growth in some of its overseas operations and in import beers, the company said domestic sales to US retailers rose just 1.3 per cent. Figures from AC Nielsen, the research house, show US sales growth at Anheuser last year was just 2 per cent, compared to a market average of 4.6 per cent.

    Given Anheuser controls 48 per cent of the domestic beer market, it is perhaps unsurprising that rumours of a possible merger with rival Belgian brewing giant InBev have resurfaced. The two brewers are believed to have held talks a year ago and a return to the negotiating table will have been driven by Anheuser’s search for exposure to high growth markets. Both brewers have declined to comment on the merger rumours and with S&N not yet a done deal, Anheuser still has cards in its hand. However, according to industry rivals, it needs to act fast.

    One insider at a European brewer said: “For Anheuser it is decision time because it has a problem. They have an historic opportunity with S&N or InBev because they are running out of opportunities. ” Anheuser insists that is not the case. August Busch IV, the company’s 44-year-old chief executive and the latest member of the Busch family to head the brewing company, laid out a plan for growth last month. Armed with an advertising budget of tens of millions of dollars, Anheuser intends to focus on its domestic beer brands. The company is also considering a move into the spirits market.

    Anheuser kicked off that plan last week with the launch of lime-infused Bud Lite which will start selling in May – just in time for the barbecue season. The drink will compete with Miller Chill, a lime and salt beer which has helped revive SABMiller’s flagging US business.

    Analysts welcomed the launch of the new drink but question whether success in turning around the US business – which for now is far from assured – is a long term solution.

    It remains difficult to see where long-term growth will come from in the developed US and western European markets, which is why the battle for control of BBH has been so fierce. Global brewers are well aware that they need a significant presence in the emerging markets.

    That is where Anheuser is suffering. The company has a 50 per cent stake in Modelo, a leading Mexican beer company, and a 29 per cent stake in Tsingtao, China’s biggest brewer. It also owns China’s fifth brewer Harbin, but its presence in other emerging markets, whether in eastern Europe, Asia Pacific or Africa, is negligible. The obvious conclusion is that Anheuser needs to buy its way into the developing world, but its options are limited.

    Should Carlsberg succeed in its takeover of BBH, the Russian market will be largely closed to newcomers and India and China remain difficult and fragmented markets.

    InBev’s position as a leading emerging markets brewer – with a presence in seven of the 10 fastest growing beer markets – makes it an obvious fit. The two brewers already have a partnership in the US, through which Anheuser uses its colossus distribution network to sell InBev’s brands. However, industry insiders believe while there is industrial logic to a deal, a tie-up between the two remains unlikely. Trevor Stirling, an analyst with Alliance Bernstein, believes there would be “considerable upside”, allowing Anheuser to boost operating profits by 20 per cent, but says corporate governance issues make a combination unlikely in the medium term.

    The Busch family has a stake of less than 4 per cent in the brewer but has managed to retain indirect control of the company’s board since Anheuser’s inception in 1860. Stirling says: “In a merger, the Busch family would lose its influence over the company’s management and the board, as the controlling InBev shareholders would have a far greater ownership stake.”

    A reluctance to cede power looks likely to rule out a deal, say industry observers. One competitor says: “The only way a deal is going to get done is if shareholders put management under pressure. That said, there are signs Wall Street is getting tired of the stagnant share price.”

    The answer for Anheuser could be in following the lead of some of its rivals. In October last year SABMiller and Molson Coors announced a plan to combine their US units, giving them a 30 per cent share of the market. That, says one competitor, could have prompted a resumption of talks between Anheuser and InBev. “The way they structured the joint venture, without any money changing hands, might have opened their eyes to the possibilities of select tie-ups with InBev in different countries,” he adds.

    That deal heaped further pressure on Anheuser in the US and the takeover of S&N could push it as low down as fifth in the global beer rankings. In that position, Anheuser could itself fall prey to one of its bigger rivals.

    One of Anheuser’s catchphrases is “making friends is our business”. If the management is to act in the interests of long-term shareholder value, perhaps now is the time to start.

    Anheuser Busch, the US brewing monolith behind the Budweiser brand, has long coveted the Russian business and the coming weeks could present it with its last chance to get its hands on one of the world’s fastest growing brewers.

    Carlsberg looks set to take full control of BBH, the Russian joint venture, after Scottish & Newcastle accepted a £7.8bn joint takeover bid from the Danish brewer and Heineken last month. However, industry insiders believe there is a chance Anheuser could still crash the party.

    That rival brewers and analysts still consider a rival bid a possibility, when the conservative US company has so far steadfastly refused to get involved, is in part down to Anheuser’s position in the global beer market.

    Anheuser is one of the world’s most profitable brewers and through Budweiser and Bud owns some of the world’s most popular brands. While that may seem to place it in a good position, Wall Street analysts and investors are asking where the growth is going to come from.

    Anheuser’s share price has barely moved in five years and while the US company continues to pour out the profits, growth is limited. More than 80 per cent of Anheuser’s sales are in a US beer market struggling to cope with the rising popularity of wine and spirits, against a backdrop of an economy many fear could go into freefall.

    The US brewer missed Wall Street forecasts when it reported full-year results last month. Despite showing strong growth in some of its overseas operations and in import beers, the company said domestic sales to US retailers rose just 1.3 per cent. Figures from AC Nielsen, the research house, show US sales growth at Anheuser last year was just 2 per cent, compared to a market average of 4.6 per cent.

    Given Anheuser controls 48 per cent of the domestic beer market, it is perhaps unsurprising that rumours of a possible merger with rival Belgian brewing giant InBev have resurfaced. The two brewers are believed to have held talks a year ago and a return to the negotiating table will have been driven by Anheuser’s search for exposure to high growth markets. Both brewers have declined to comment on the merger rumours and with S&N not yet a done deal, Anheuser still has cards in its hand. However, according to industry rivals, it needs to act fast.

    One insider at a European brewer said: “For Anheuser it is decision time because it has a problem. They have an historic opportunity with S&N or InBev because they are running out of opportunities. ” Anheuser insists that is not the case. August Busch IV, the company’s 44-year-old chief executive and the latest member of the Busch family to head the brewing company, laid out a plan for growth last month. Armed with an advertising budget of tens of millions of dollars, Anheuser intends to focus on its domestic beer brands. The company is also considering a move into the spirits market.

    Anheuser kicked off that plan last week with the launch of lime-infused Bud Lite which will start selling in May – just in time for the barbecue season. The drink will compete with Miller Chill, a lime and salt beer which has helped revive SABMiller’s flagging US business.

    Analysts welcomed the launch of the new drink but question whether success in turning around the US business – which for now is far from assured – is a long term solution.

    It remains difficult to see where long-term growth will come from in the developed US and western European markets, which is why the battle for control of BBH has been so fierce. Global brewers are well aware that they need a significant presence in the emerging markets.

    That is where Anheuser is suffering. The company has a 50 per cent stake in Modelo, a leading Mexican beer company, and a 29 per cent stake in Tsingtao, China’s biggest brewer. It also owns China’s fifth brewer Harbin, but its presence in other emerging markets, whether in eastern Europe, Asia Pacific or Africa, is negligible. The obvious conclusion is that Anheuser needs to buy its way into the developing world, but its options are limited.

    Should Carlsberg succeed in its takeover of BBH, the Russian market will be largely closed to newcomers and India and China remain difficult and fragmented markets.

    InBev’s position as a leading emerging markets brewer – with a presence in seven of the 10 fastest growing beer markets – makes it an obvious fit. The two brewers already have a partnership in the US, through which Anheuser uses its colossus distribution network to sell InBev’s brands. However, industry insiders believe while there is industrial logic to a deal, a tie-up between the two remains unlikely. Trevor Stirling, an analyst with Alliance Bernstein, believes there would be “considerable upside”, allowing Anheuser to boost operating profits by 20 per cent, but says corporate governance issues make a combination unlikely in the medium term.

    The Busch family has a stake of less than 4 per cent in the brewer but has managed to retain indirect control of the company’s board since Anheuser’s inception in 1860. Stirling says: “In a merger, the Busch family would lose its influence over the company’s management and the board, as the controlling InBev shareholders would have a far greater ownership stake.”

    A reluctance to cede power looks likely to rule out a deal, say industry observers. One competitor says: “The only way a deal is going to get done is if shareholders put management under pressure. That said, there are signs Wall Street is getting tired of the stagnant share price.”

    The answer for Anheuser could be in following the lead of some of its rivals. In October last year SABMiller and Molson Coors announced a plan to combine their US units, giving them a 30 per cent share of the market. That, says one competitor, could have prompted a resumption of talks between Anheuser and InBev. “The way they structured the joint venture, without any money changing hands, might have opened their eyes to the possibilities of select tie-ups with InBev in different countries,” he adds.

    That deal heaped further pressure on Anheuser in the US and the takeover of S&N could push it as low down as fifth in the global beer rankings. In that position, Anheuser could itself fall prey to one of its bigger rivals.

    One of Anheuser’s catchphrases is “making friends is our business”. If the management is to act in the interests of long-term shareholder value, perhaps now is the time to start.

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