BUSINESS NEWS: May 2007

Brewers guilty of running cartel, Heineken, Grolsch and Bavaria have been fined e273.8 million for running a cartel in the Dutch beer market from 1996-99…Sabmiller and diageo circle S&N, Diageo and SABMiller are in talks to break up Scottish & Newcastle, according to reports…

Brewers guilty of running cartel
Heineken, Grolsch and Bavaria have been fined e273.8 million for running a cartel in the Dutch beer market from 1996-99.

Heineken suffered most with a e219.3m fine while Grolsch and Bavaria had to pay e31.58m and e22.9m respectively. InBev was also found guilty but dodged a fine after supplying the European Commission with further information about the cartel.

The Commission began investigating the cartel in 2000 and, five years later, claimed that the brewers had broken EU competition rules by fixing prices, allocating customers and exchanging commercially sensitive information.

Competition commissioner Neelie Kroes said: “It is unacceptable that the major beer suppliers colluded to hike up prices and carve up the market amongst themselves.” According to Kroes, “the highest management of these companies” knew their behaviour was illegal.

Grolsch plans to take legal action against the Commission, while Heineken called the fines “excessive and unjustified” and plans to appeal the decision.

Meanwhile, InBev is facing further potential legal contests from ex-management over the financial terms of their golden-handshake agreements following the merger of Interbrew and Companhia de Bebidas das Américas in 2004. Those said to be contesting their settlements include the brewer’s former CEO and an ex-sales director.

Sabmiller and Diageo circle S&N
Diageo and SABMiller are in talks to break up Scottish & Newcastle, according to reports.

A potential takeover plan would involve SABMiller buying the company for around £9 billion, including debt, and Diageo acquiring S&N’s beer business for around £3bn. Should the deal go ahead, S&N’s Kronenbourg business would be sold, while  SABMiller would retain control of international asssets including a stake in United Breweries and Chinese brewer Chongqing.

SABMiller would also control a 50% stake in Baltic Beverages Holding, which has approximately 36% of the Russian market, working in tandem with Carlsberg, BBH’s other shareholder. Both Diageo and SABMiller have denied the rumours.

Admiral buys Punch pubs
Admiral Taverns has bought 869 pubs from Punch Taverns in a deal worth £326 million. Admiral, the third largest tenanted pubs operator in the UK, has bought 1,205 pubs from Punch Taverns in the past two and a half years. Admiral’s estate will total 2,700 pubs following the deal’s completion.

Gary Landesberg, Admiral’s CEO said: “This is an excellent acquisition for Admiral. The majority of pubs are freehold and the estate provides Admiral with further significant scale nationwide and excellent synergies with our existing pub estate.”

The deal has been financed through £3.5m of preference shares and £322.5m in cash.

Sabmiller sales up
SABMiller sales volumes were up 10% in the year ended 31 March, thanks to strong sales in its newly-acquired South American business and China.

According to SABMiller, its performance in South America reflects good economic conditions, improved market shares and “the impact of initiatives to rejuvenate the beer category”, including new marketing and merchandising at point of sale. SABMiller spent US$4.8 billion on a majority stake in Bavaria, Latin America’s second largest brewer, in October 2005.

In China, SABMiller witnessed volume growth of 30% driven by Snow lager. The company has high hopes for the Chinese market. SABMiller sold 50 million hectolitres in China last year – total beer sales in the UK amounted to 57m hectolitres, in the same period.

There was less cause for celebration in the US, where full-year domestic sales to retailers were level with the previous year and were down 3% on an organic basis due to weak market conditions.

Overall, total lager volumes for the brewer, whose brands include Miller, Peroni and Pilsner, were up by 23% year-on-year.

Brewing up a storm
This month, investors take an interest in all things beer-related

This month’s action takes place in the brewing sector. Lion Nathan‘s share price was up 14.64% amid rumours that the group is planning to sell one of its breweries in New Zealand. The company reported solid Q1 figures despite mixed performance in New Zealand. The Trans-Tasman brewer and wine group also recently acquired the Inner Circle Rum company in Australia, boosting its drinks portfolio further.

Closer to home, Inbev saw its share price rise by nearly 16%, despite rumours of redundancies in Europe and the US, thanks to the announcement that AmBev has agreed to buy Brazil’s dominant brewer Cintra for US$150 million. The deal does not include the Cintra brand or its distribution network but AmBev has an option to buy these assets at a later date.

Neither Anheuser-Busch nor Heineken appear to have suffered, despite having had a difficult month. Anheuser-Busch denied that it was using one of its alcoholic brands, Spykes, to target children, while Heineken has been hit by an alleged strike in Russia. The company denies that it is a strike and claims to have been the victim of a “manipulation of public opinion”.

This month’s graph shows the recovery of the MSCI Emerging Markets Beverages Index  after it dipped last month, outperforming the MSCI ACWI Beverages and MSCI World Beverages indices.