No wonder InBev is remaining “fully committed” to its increasingly expensive-seeming $70 a share bid for Anheuser-Busch: It’s on the hook to pay A-B shareholders $70 a share whether it gets financing or not. That’s according to analysis of A-B proxy statement by Stifel Nicolaus analyst Mark Swartzberg. In other words, InBev’s offer is not contingent on financing. So they’d better close or face a $18.7 billion bill from One Busch Place. Mark comes at that price tag for this “nuclear scenario” by taking the $70 offer price less A-B’s likely current share price without a deal of $45 a share, ignoring fees. Now, it’s true that since InBev has committed financing, it would likely sue its banks for that amount, and that would seemingly motivate the banks to get this deal done.
However, and this is a big however, InBev’s financing is committed only if InBev’s credit rating remains bankable. If InBev’s credit rating gets downgraded to junk, and this gives its banking syndicate the legal right to bail out of the A-B deal, why, then this gives A-B an estimated $18.8 billion dollar claim against InBev, whose market cap is currently floundering around at $20 billion. In other words, in the unlikely event that things go really bad for InBev, it may be Anheuser-Busch who buys InBev, rather than the other way around. Tail wags dog, dog wags tail — either way, lawyers get rich.
Now, Mark says that it’s unlikely InBev’s credit is being readied for a downgrade to junk, as rating agencies typically “telegraph” the downgrade in advance (stable goes to negative goes to review goes to downgrade; InBev is at stable).
Mark also says that the ten dollar a share discount that the market is assigning to BUD shares to the cash offer means that the deal is “more likely than not but hardly probable.” Mark reduces his likelihood of the deal happening to 80% (from 90% previously) due to a set of metrics and calculations that only an analyst would understand. But bottom line, Mark still thinks the deal has a high probability of going through, simply because all parties to the deal — InBev, its banks, and certainly A-B shareholders — all have a big monetary motivation for it to go through.
MILLERCOORS HAS FIRST JOINT MEETING; COLD ACTIVATION ON ALL COORS LIGHT CANS
MillerCoors held its first joint distributor sales meeting last week and this week in Chicago and Dallas, (and BBD was able to slide by the guards and duck into shadows). While there was “little bit of tension” at the beer receptions, says one source, the meeting and sales/marketing plans that MC put forward were “strong,” says same distributor. Miller Lite positioning/marketing was the weakest link, according distribs BBD spoke with, but brand plans, sales plans, and chain looked pretty strong “especially considering the amount of time they had to put this together,” says another distrib. Example: Putting cold-activation on all Coors Light and Banquet can packages by May of next year is pretty big news, probably the biggest news of the meeting.
I was wondering how they were going to handle the Miller-only and Coors-only distributors (because they don’t want competiting distributors seeing each others’ plans). Tom Cardella explained that, while it’s “a bit clunky,” the plan was to have consolidated MillerCoors distributors there for two days, but the Miller-only distributors attend the first day when Miller brands are discussed, and Coors-only distributors attend the second day when those brands are discussed. Problems solved. Those brewery guys are smart, sometimes. However, in the Spring meeting Tom says “it is our intention to conduct a single, unified MillerCoors Distributor Convention….so you will have to leave your knives and guns at the door.”
Not surprisingly, the focus on the meeting was getting back to selling beer after a tension-filled few weeks. MillerCoors president Tom Long acknowledged the controversial agreement right up front, saying, “You spoke, we listened, and now we’re all showing our collective ability to work together as good partners who refuse to let small differences distract us.”
The only other references to the agreement were made by Ed McBrien and Tom Cardella, points which were largely made by Tom in a speech we covered in New York last week. Tom reiterated that while they compromised on a few provisions in the contract, “we are adamant on the buy-sell process. We own the brands, and we believe we should have some say in the future local guardians of these assets. ..Value does not diminish through this process.” Tom also reiterated that state law supercedes the agreement, so sign it so we can sell beer. Selling beer is what you’re good at, and it’s what I’m good at writing about, so let’s take a gander at what MillerCoors has in store. (Incidentally, in previous posts I kept referring to Tom and Ed as senior vp’s, when actually they are presidents of their respective halves of the country. Old habits are hard to kill. My apologies to them both for demoting them).
Tom Long also acknowledged the financial crisis we’re in the midst of, but made the case that tough economic times are the perfect time to invest in the business because in tough times, “big strong brands do best because people gravitate to things they know and trust,” says Tom. He said MC will be stepping up their investment in core brands. Tom said the MillerCoors J-V was an “obvious decision…given that each of us as separate companies ran with operating margins one-third the size of A-B’s operating margins, which means one-third of the ability to re-invest in the business.” He believes InBev will try to “close the gap” with “aggressive chopping” and even by trying to “bring the Modelo brands to their system.”
MILLERCOORS ON NEW GM STRUCTURE. Tom and Ed said that their GM structure, “with control of a fully loaded P&L”, is core to the sales team (“The rest of us exist for just one purpose: to make them, and by extension each of you, successful,” says Ed). MC says their 31 GM’s can make decisions without calling HQ, and make them more quickly, and “you won’t see them chasing volume at any cost. Just like you, they will be rewarded for building brands.”
CARDELLA ON DISTRIBUTOR CONSOLIDATION. Distributor consolidation, from 1970 until now, continued “without a grand strategy or design,” says Tom, “but driven by the fundamental economics of the industry.” But now MC sees a “transformation” and “new realities” of the “need for scale to compete.” What is scale? Tom pointed to consultant Mike Mazzoni’s recent claim that 2.5 million case distributors today are “barely covering their fixed costs.” So with that, Tom says it is “imperative that we have one distributor in each territory selling all our brands.”
Having said that, as previously reported, MillerCoors has backed off its plan to inform preferred distributors by the end of the year but rather take a more “pragmatic and targeted market approach…..however, for the time being, let’s focus more on selling beer.”
MCBRIEN ON COST SHARING. Miller and Coors entered into the J-V with “distinctly different approaches” to cost sharing with distributors that need to be “cleaned up,” says Ed, but still be “cost neutral” to the total system. It’s a “sensitive topic” admits Ed, but necessary. Starting in January, MC is moving toward a single approach to freight and fuel which will be “cost neutral” to distribs on day one, and by January 2010, they will roll out a single plan for price promos, POS, and local media co-op. MC also developing new account surveys (“only 10 minutes a store”), as part of a new sales program called the BEER program.
ON CHAIN SALES. Kevin Doyle, chief customer officer, pointed to MillerCoors increased scale and portfolio with chains which, he believes, will help “drive the size and value of our customers’ beer category and capture a disproportionate share of that growth.” MC will keep and update the Coors Trade-up Flow set (TUF set). Kevin said that in 7-Eleven, for instance, they were able to reclaim some unproductive warm space and call it “7-Eleven Collections” in 51 test stores with craft beers, which gave the stores a double digit beer category boost.
Kevin also extolled distributors to increase service to chains, like night time and weekend deliveries, full scale EDI implementation, cart delivery for c-stores, single pallet UPC’s for supermarkets, and increased merchandising services for key holidays (that always makes a few squirm in their seats). The money quote: “MillerCoors needs to become the best beer company in America because of DSD, not despite it.” Amen on that, brother Kevin.
MOVING TOWARD MILLER KEG AND PALLETS. MillerCoors’ supply chain department, lead by Dennis Puffer (whom Andy England introduced as “Puff Daddy”) will be absorbing $300 of the $500 million in synergy targets, so that tends to be an important cost center. MillerCoors will be transitioning to one keg type, the industry standard Miller half barrel sankey, over the Coors belly-style keg, which will be phased out over the next ten years. MC will also be using the Miller plastic pallet, transitioning over the next five years.
We’ll have more on brand marketing at the MillerCoors meeting tomorrow.
CONGRATS ON A GOOD SUMMER
Just got my dirty hands on the summer supermarket beer scorecard from Dan Wandel at IRI, and it was a pretty darn good summer. Dan measures the summer as the 20 weeks ending October 5, and during that period, the beer industry was up 1.8%. That rivals the summer of 2005, which was up 1.9%. All other summers for the past five years have seen volume declines. Of the top ten beer vendors, four had share gains: A-B gained 0.8 share points (without Grolsch), Yuengling and HUSA gained 0.1 share points, Boston Beer gained 0.04, and Mike’s gained 0.03 share. Pabst lost 0.1 share point, but that’s a marked improvement in their trend (they lost 0.4 share last summer).
More generally, domestic beer was up 2.3% while imports were up a paltry 0.6. Super-premium, which includes brands like Blue Moon, was the category winner, up 23.5.%, while craft growth slowed to being up a still respectable 4.5% (up 11.6% last summer). Malt liquors were up a surprising 5.7%, and sub-premiums were up 0.2%.”There cannot be a crisis next week. My schedule is already full.”
-Henry Kissinger
——— Sell Day Calendar ———-
Today’s Sell Day: 21
Sell days this month: 23
Sell days this month last year: 23
This month ends on a: Fri.
This month last year ended on a: Wed.
YTD sell days Over/Under: +1
BEER SUMMIT 2009 – The Four Seasons, Austin, Texas – Join us for great speakers, intelligent discourse, good food, and of course great beer at the next Beer Summit on March 1 – 2, 2009. Click here: http://tinyurl.com/beersummit
