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AB InBev SABMiller logo

Energy and persistence conquer all things (Benjamin Franklin)

After four unsuccessful bids, it is befitting that the deadline set by the U.K.’s Takeover Panel for beer giant Anheuser-Busch InBev NV to submit a fifth and final offer for SABMiller Plc. was extended to 5 p.m. GMT on 11th November : Armistice Day !

Sabmiller-share-priceRumours that AB InBev were about to bid for SABMiller started over twelve months ago, gaining substance shortly afterwards. What ensued was a succession of bids of ever increasing value to seduce the initially reluctant shareholders of SABMiller – until they surrendered to a staggering offer of USD 107 billion, or £ 71 billion. They can hardly be blamed for grabbing the cash and running, given that SABMiller’s share price at the end of November stands 37% higher than it was on 14th September, as a direct result of AB InBev’s mounting bids. Whilst SABMiller’s share owners might drink to celebrate having realised value growth earlier than expected, many other stakeholders are guaranteed a nasty hangover as a result of the forthcoming merger.

The combined business is set to rake in annual revenues of USD 73 billion, which is more than companies such as Pepsico or even Google. But more importantly, the integration of the two companies aims to generate annual cost synergies of USD 1.4 billion, a significant part of which will come from headcount cuts. With AB InBev employing 155,000 people worldwide, and SABMiller a further 70,000, it is easy to imagine how much duplication there will be at headquarter level as well as in many back-office functions. Having paid 15% more to acquire SABMiller than their initial bid of £ 38 per share, there is no doubt the pressure to realise the cost synergies very fast will be extreme.

A foreseeable domino effect on the beer market

Combined-brandsBeyond the USD 1.4 annual savings, much of the business case underlying the acquisition of SABMiller rests on growth in Africa and Latin America. This is because AB InBev cannot expect much growth in Europe and North America where consumers are beginning to seek product differentiation and thereby generating growth at the other end of the beer market spectrum : micro-breweries or so-called “craft brewers”.

Nonetheless, the combined companies’ market share in North America and the fact that AB InBev own wholesale distributors in several states of the USA might be sufficient to restrain the route to market of many smaller players and this may reduce consumer choice in bars and retail outlets; so this could be bad news for those who have thus far developed well by offering consumers something that differs from the usual mass product.

Global market share of five biggest beer companies

Anheuser-Busch InBev – 20.8%

SABMiller – 9.7%

Heineken – 9.1%

Carlsberg – 6.1%

China Resources Enterprise – 6%

Source: Euromonitor, based on 2014 figures

In spite of SABMiller selling its stake in a venture with Molson Coors for USD 12 billion and thereby letting go of the Coors and Miller brands, the combined AB InBev and SABMiller will be selling one in every three pints of beer worldwide, leaving a huge market share gap between themselves and the next player on the podium. Heineken and Carlsberg must now be furiously re-thinking their strategies; a number of other takeovers and mergers will inevitably happen as the industry seeks a new equilibrium.

According to Bart Watson, chief economist at the Brewers Association, there are already rumours about a Heineken and Molson Coors tie-up as these two companies are now seeing their main competitor become even bigger. Others are likely to follow. Some companies such as Diageo, which is now focusing on its spirits business, could stand to benefit from this new wave of upheaval on the beer market by finding an acquirer prepared to pay over the odds for Guinness as the few remaining global players grapple to keep pace with AB InBev / SABMiller. Interesting times ahead…

Africa : two different interpretations of public health

My thoughts regarding the impact this merger will have on consumer choice have not changed since the blog I published in September 2014 (“Something big could be brewing”), but one new aspect which is now surfacing is the very strong opposition and criticism of the merger which is now emanating from public health circles regarding the African continent, which is a critical growth area in the combined company’s strategy. According to Dr Jeff Collin, director of the Global Public Health Unit at the University of Edinburgh, the AB InBev SABMiller merger aims to “exploit Africa’s low per capita consumption of beer” by targeting low income consumers to generate sales growth.

drunk-300x251In an article published in the British Medical Journal, a team of experts warn of “disturbing implications” relating to the growing alcohol related harm being witnessed in low and middle income countries. And therefore the issue is not specifically African, but also affects other regions targeted in the combined company’s growth plans, notably Latin America and China, the latter being the world’s largest beer market in which SABMiller has a joint-venture producing the country’s Nr 1 beer brand, Snow.

Unsurprisingly, SABMiller see things very differently, stating that more than half of the alcohol consumed on the African continent is what they call “informal”, in other words beverages produced in unregulated facilities, ranging from home made beer brewed in a back yard to dubious distilled beverages containing potentially dangerous by-products such as methylated spirits, reminiscent of the Moonshine that was distilled during the Prohibition in the USA. Based on that premise, SABMiller see their mission as a noble task; as per their spokesperson: “The backbone of SABMiller’s growth strategy in Africa is to ensure the affordability of our beers so that local, low income consumers move from drinking poor quality, and potentially lethal, alcohol to enjoying our high quality beers made with local ingredients.”

Many people will consider that strategy to be a little cynical; but there is one undoubtedly positive element in that statement: “local ingredients”. In the beer industry, the supply chain costs can be a substantial component of the value chain because of the unfavourable weight/volume to value ratio. Consequently, unlike wine and distilled beverages, there is a strong incentive for beer to be produced locally. And that, for emerging economies, is better than burdening the balance of trade with the cost of imported drinks.

Money now vs. safeguarding against a possible longer term threat

Beer on tapAs in the more developed economies, low and middle income economies will see a growing tension between the priorities of their public health programmes and the fiscal requirements of their treasury; migrating the production of beer from back yards and speak-easy environments to a registered and regulated business is a source of corporation tax and possibly some form of alcohol tax as well. This also promotes employment in hygiene conscious factories, which is also important in developing economies.

The authors of the article in the British Medical Journal argue that company’s proposed expansion in low and middle income countries “echoes that of transnational tobacco companies” whilst benefiting from less stringent regulation and controls. That might be the case, but faced with the dilemma of choosing between the certainty of a stream of income and the longer term avoidance of a possible health risk, I will not be surprised if the said low and middle income economies will welcome the growth of AB InBev/SABMiller in their respective countries.

Even in the absence of strong political opposition to the merging of the world’s two largest players, implementing the integration of these huge businesses will be a monumental task. Let’s wish them luck (and perseverance), and hope this will not end up with a big hang-over for all those involved. If it does, maybe the other mega-merger which is currently under discussion, namely the USD 160 billion bid by Pfizer to acquire Allegan, will be able to provide the cure to that hang-over!

A bitter saga

Shareholder concerns
A shareholder presentation by Sika’s management illustrates the extent to which the current acquisition offer has destroyed shareholder value both at Sika and Saint-Gobain

Whatever the outcome of the challenged take-over of Sika by Saint-Gobain, which was first announced in December 2014, there will be bitter lessons to be remembered in the future, and other companies whose capital structure includes shares with preferential voting rights might see their value plunge unless they can provide the clarity that is so obviously missing in the case of Sika.

When a minority shareholder holds the majority of the voting rights, that shareholder can unilaterally make decisions that serve self-interest but are seriously detrimental to the interests of the shareholder majority  –  and this is what is happening at Sika, whose founding family’s holding company owns 16% of the shares but 52% of the voting rights, allowing them de facto to do whatever they please.

An inevitable conflict of interest

German magazine BLICK asks how many jobs losses will be caused by what they describe as the Burkard family's appalling greed
German magazine BLICK asks how many job losses will be caused by what they describe as the appalling greed of the Burkard family (pictured above)

Saint-Gobain are offering a 78% premium for the stake of the Burkard family and it is easy to understand why that family is eager to accept the USD 2.9 billion they are being offered.  However, Saint-Gobain have no intention of making an offer on the rest of Sika’s capital; why acquire any more when their proposed acquisition of 16% of the capital will suffice to give them full control of the company.  It is hardly any wonder that the proposed transaction caused an immediate outcry from the remaining shareholders who claim that the deal should not be allowed to proceed unless a public offering is made for the remainder of the share capital.

Saint-Gobain and Sika are today direct competitors.  If the deal goes ahead, Saint-Gobain will only reap 16% of Sika’s future profits, therefore the synergies and any other benefits resulting from the acquisition will be biased to benefit Saint-Gobain far more than Sika, thereby weakening Sika and further undermining the value of the other shareholders’ investment.  These other shareholders include the Bill and Melinda Gates Foundation whose high profile has given the Saint-Gobain Sika deal worldwide exposure.  The Gates trust released a statement declaring that “the proposed transaction makes no strategic sense, is an affront to good corporate governance and is not in the interest of Sika’s business, employees, customers or public bearer shareholders”.  It is obvious from that statement that the Gates trust will fight tooth and nail to block the proposed sale. This is war.

The narrow interpretation of the law

Just like many other Swiss companies, and indeed companies across Europe, Sika’s articles of association contain a number of oddities, in this particular case an “opt out” clause which stipulates that a sale of 33.33% of the company’s voting rights can be made without an open public offer to bid for the rest of the capital.  As the Gates trust rightly states, this clause flies in the face of good corporate governance, but the Swiss federal administrative court confirmed on 1st September the opinion voiced earlier by Switzerland’s M&A Commission (COPA, Commission Suisse des OPA) that Sika’s opt-out clause is legal under Swiss law, according to which opt-out clauses must be challenged within 2 months of being introduced, after which they are binding. The only possibility of removing such a clause after that deadline is to modify the company’s articles of association, which requires a majority vote by the shareholders; quite a challenge when 52% of the votes are in the hands of the Burkard family who argue that investors in the company should have been aware of Sika’s share structure.

Nonetheless, whilst the COPA declared the opt-out clause to be legal, it did not attempt to clarify whether this particular instance the opt-out clause was being invoked in an abusive way.

New creative tactics and a criss-cross of legal challenges

With the opt-out clause confirmed as legal under Swiss law, but in theory still open to challenge as to whether it was being invoked in an abusive manner in this particular instance, the remaining shareholders sought other ways of proving that the Burkard family was serving its own interests to the detriment of the other shareholders and the company as a whole.  This was prompted by the Swiss trust fund ETHOS which requested at a shareholders’ meeting that the controversial opt-out clause be removed; the objective of that request was to prove that by opposing ETHOS’ proposal, the Burkard family was voting in self-interest and more importantly against the interest of the majority of shareholders.

To add to the confusion, it was unclear whether the special shares to be sold by the Burkard family were subject to the restriction requiring sales of more than 5% of the capital to be approved by the Board of Directors.  And in an separate further legal case, as the majority of the Directors are opposed to the transaction, the Burkard family is arguing they were prevented from using their full 52% voting rights to elect new Board Director and remove some of those in place.

In an additional layer of legal complexity, the Bill and Belinda Gates Foundation is now attempting to sue Urs Burkard, who represents the family and is the only member of that family on the Sika Board of Directors, for failing to act in the company’s best interest when he negotiated the sale of his family’s shareholding to Saint-Gobain.  Legal claims against specific members of a Board have a weaker legal basis in Switzerland than they would in the United States, and Urs Burkard’s spokesperson has so far dismissed the threat of such legal action.

So far, the only actors in this dramatic saga to benefit from the current criss-cross of recriminations and court cases have been the lawyers.

The final legal verdict vs. company reputation

Saint-gobainOn 15th September, the Swiss Competition Commission (COMCO) had little other choice than to unconditionally authorise the acquisition by Saint-Gobain of control over Sika, given the favourable ruling on that matter by the European Commission in July and the decisions made earlier by other competition regulators, particularly in China and in the USA.

Done deal? Not yet, mainly because of the on-going legal proceedings, but also because Sika’s directors and shareholders will continue to obstruct this acquisition by every possible means.  Initially, the deadline for closing the deal was set to year end of 2015, but that had to be extended to mid-2016.  A lot can still happen until then.

sika-logoUltimately, what might block the deal is the threat to the reputation of Saint-Gobain’s, whose share capital is largely in the hands of institutional investors who will not be impressed by Saint-Gobain’s contempt for shareholders.  If the deal goes ahead, Sika’s shareholders will forego the opportunity to benefit from the 78% premium being offered to the Burkard family, and face the prospect of future decline of their shares’ value. If the Bill and Belinda Foundation, whose backing of worthwhile causes is acclaimed the world over, is hit financially by the Sika Saint-Gobain transaction, Saint-Gobain may be faced with a well deserve torrent of negative PR.

Can a company hide behind legal court decisions to act unethically?  In theory the answer appears sadly to be yes, but if they do they will have to accept the consequences.

Food for thought …

Second time lucky?

 

But the world has changed in the meantime, and in 2013 the same US antitrust regulator allowed Office Depot to acquire Officemax without divesting a single of the acquired business’s outlets.  It did not take much time for Starboard Value, one of Staples very vocal shareholders, to notice the change of mood on the market and urge Staples to approach Office Depot again.

All seemed to be progressing as planned since the acquisition was announced on 2nd April of this year; the proposed deal was give a green light by the regulators in New Zealand on 5th June, followed by China one week later, and more recently Australia on 13th August.  However, the US and European Union regulators have now decided to put that deal through close scrutiny.  Almost six months after the initial announcement, Staples and Office Depot’s dream is suddenly at risk. So what is so different in North America and Europe compared to the eastern hemisphere?

Same situation seen from two perspectives

The regulators in the United States and Canada are understandably concerned that from three major office supply chains in 2013, the market effectively would only have one such chain form 2016 onwards.  Whilst Staples and Office Depot have each broadened their product ranges well beyond traditional stationery items, equipment and office furniture, to include also a range of associated services, the coming together of Staples and Office Depot gives a new meaning to “one stop shop” if there is no other shop to go to!

Staples share price
Staples share price

“We expect to recognize at least $1 billion of synergies as we aggressively reduce global expenses and optimize our retail footprint. These savings will dramatically accelerate our strategic reinvention which is focused on driving growth in our delivery businesses and in categories beyond office supplies.” says Staples’ Chairman and CEO Ron Sargeant.  That broadening into new categories will result in Staples and Office Depot being confronted with new competitors as they enter these new categories, some of them with regional strongholds or a specific focus that can allow them to co-exist profitably side-by-side with the newly created monolith.  Compared to the situation that prevailed in 1997 when Staples and Office Depot’s first attempt to merge was aborted, the key difference is the emergence and explosive growth of on-line retail, which has allowed many new entrants to carve out their slice of the market.

Office Depot share price
Office Depot share price

Language and geographical barriers in Europe have not allowed on-line retail to grow at the same pace as in North America, which is why the European Union regulator is of the opinion, until further proof that might emerge from the current investigation, that the proposed Staples and Office Depot merger will have a more detrimental impact on competition in mainland Europe that it might have in North America.

So the jury is out.  The European Union will announce its decision by 10th February 2016.  This is somewhat of a blow to Staples and Office Depot who had planned on completing their deal before the end of the current year (and are still pushing hard to do so).  Evidently, after the jubilation of February, the uncertainty around the final outcome of this very bold bid is having its toll on the share price of both companies.

One may still hope that the European regulator will deliver a verdict before the full 90 days to which they are entitled to carry out their detailed investigation, but civil servants do not receive a bonus for productivity, so things may well drag on until 10th February 2016.  I have indeed worked on some acquisitions that were given the green light at the close of business on the very last day of the regulator’s deadline, putting everyone through a nail-biting suspense…

The benefit of Office Depot’s expertise

The deal, which is all too often referred to as a merger between Staples and Office Depot, is clearly an acquisition, and although both parties have alluded to integrating in the spirit of a merger, Staples have already unequivocally stated that the headquarters of the combined company will remain in Framingham MA.  So there could well be some office space for rent in Boca Raton FL, if the deal goes ahead.  Nonetheless, Office Depot’s Chairman and CEO Roland Smith sees the proposed deal as “an endorsement … of the success [Office Depot] has had integrating OfficeMax over the past year”.

That experience may definitely come well in hand if Staples and Office Depot are allowed to proceed with their dream, because in spite of the high percentage of post M&A integrations that fail, companies that have repeated or at least recent experience of post-M&A integration become better at it as they repeat that experience, avoiding the multiple traps and pitfalls into which the majority of the first-timers tend to fall.

Integrating Staples and Office Depot will be a programme of far greater magnitude than Office Depot’s recent integration of OfficeMax, however that experience will provide a reality check in terms of resource requirements, time-lines, benefits realisation and integration methodology.  For that to happen, the two companies will indeed need to integrate “in the spirit of a merger”, because the acquirer will need to learn from the acquired company.

So unless the regulators ruin the whole show, this one has the potential to be a very successful integration indeed.  Let’s wish Staples and Office Depot good luck!

The CMA gives its provisional approval, after an initial cold welcome

poundland-front
Phase II of the regulatory review conducted by the Competition and Markets Authority (CMA) has reversed that body’s initial conclusions, which predicted that a number of stores would have to be sold to allow the deal to go ahead.  Now suddenly, the conclusions of this in-depth review which was started in May states that the proposed acquisition will not have any adverse impact on competition and will not be detrimental to the consumers’ best interest.

Within hours of the publication of the CMA’s conclusions on 25th August, the Poundland take-over of 99p Stores was presented in the media almost as a done deal, although the final deadline for all parties’ responses/submissions can extend until 16th September.  Having conducted a series of individual hearings since mid-July with Wilko, Savers UK, Iceland, B&M Stores, Poundworld, Morrisons, TJ Morris, Pepkor and Poundstretcher, the CMA now appears fairly confident that no new facts are likely to fundamentally contradict the evidence they have gathered thus far.

So why such a U-turn within 3 months?

Defining the “market”

inside-poundlandThe whole notion of market dominance is entirely dependent on how the market is defined.  The commission’s panel has concluded that “customers would not face a reduction in choice, value or lower-quality service as a result of the merger“.  A reduction in choice between what and what?  After the merger, Britain will be left with only one major single-priced retailer, hence the CMA’s initial apprehension, but is that the environment within which consumers make their choice?

99p-stores-shop-front

The CMA’s phase II review redefined the market from a consumer’s perspective, understanding how shoppers make their choices within the broader universe of “value retail”, and extending beyond the narrow definition of Single Price Point (SPP) retailers such as Poundland and 99p Stores to also include “LADs” (Limited Assortment Discounters, such as Aldi, Lidl or Iceland) and “VGMs” (Value General Merchandise retailers like Home Bargains, Poundstretcher etc.).  In doing so, Poundland together with 99p Stores move from being “the market” to only being a fraction of that larger competitive set.  Adding into that mix massive retailers such as Tesco and Asda, who also run fixed price point promotions, and suddenly Poundland’s £ 55 million acquisition of 99p Stores almost pales into insignificance.  Q.E.D. : let the deal go ahead!

Is it really that simple?

Defining the competitive set within which the users of a product or service make their purchasing decisions is not an easy task, and will always remain somewhat arbitrary.  When Guinness Plc and Grand Metropolitan Plc merged, a long debate took place in 1998 with the regulators in Europe and North America as to whether Gordon’s, Tanqueray, Booths and Bombay Sapphire should be viewed as operating within the narrow definition of the gin market, or whether consumers see them as alternatives to other brands in the vast “white spirits” market which includes categories such as vodka and white rum.  In this instance, the narrow view was upheld, and this resulted in requirement to dispose of Bombay Sapphire.

Likewise, within the whisky market, which includes Scotch, Bourbon, Canadian as well as whiskies produced in vast quantities in Asia and elsewhere, the regulators singled-out premium Scotch whisky as a market in its own right, as a result of which they deemed it unacceptable for Johnnie Walker, J&B and Dewar’s to be owned by one single company, following which Dewar’s was divested.

So is it about choice or price?

Possibly the best way to understand the regulators’ thinking is to view “choice” as a moderator of pricing.  If consumers view Scotch whisky as a more prestigious category than, say, Thai or Indian whisky, then owning a significant share of total Scotch whisky premium products can offer the potential to influence pricing upwards to fully capitalize on that favourable image, and even lead the way for lesser competitors within the segment to follow suit, in the absence of the pressure that would otherwise occur in a more fragmented market.

In the specific case of Poundland and 99p Stores, the very concept of single point pricing precludes the possibility of increasing prices, hence another reason not to fear that the merger of these two retailers will pose any threat in the short or medium term to the consumers’ interest.

It is a good thing for Poundland and 99p Stores that we are currently living a period of very low inflation.  I wonder what will be on offer for £ 1 or 99 pence in ten or fifteen years from now …

Similar origins – different trajectories

Ferrero’s bid for Thornton’s marks the end of just over one century of history, as yet another British chocolate household name will be swept up by a foreign group, following in the footsteps of Cadbury in 2009 and Rowntree in 1988.  This will leave the relative newcomer Hotel Chocolat as the only significant specialised independent British owned chocolate manufacturer and retailer.

Thornton shop windowBoth Thornton and Ferrero began as little corner shops; their history is closely associated with their founding families.  But that is probably where the comparison stops.  Whereas Ferrero developed over the years into a formidable marketing machine, a game changer in the chocolate industry, Thornton remained anchored in tradition.  Oddly, it is that traditional image that appears to have attracted Ferrero; the remaining question being whether Ferrero will manage to brush away the “dusty” and “passé” aspects of that tradition, and fully exploit the concept of “authenticity” that underlies tradition.  Given their strong track-record as powerful communicators, transforming the image of Thornton’s is probably not beyond Ferrero’s reach, but it will be quite a task…

Once an up-market purveyor of luxurious chocolates, Thornton’s appears to have dispersed itself over the years, opening its own retail boutiques and diversifying into other categories of indulgent foods, notably ice cream.  In doing so, at no point did Thornton lead or even anticipate consumer trends, thereby missing the shift in taste preferences towards darker and more bitter chocolate compared to what consumers demanded in the 1980s and 1990s, and leaving the door open for the likes of Lindt to occupy that space.

Retail chains – Thornton’s last (and failed) attempt

With sales volumes declining below the critical mass that would be required to profitably run its large Derbyshire plant, and with insufficient cash-flow to justify its large network of retail boutiques, Thornton decided to aim for a step change in sales volumes by entering large retailers, without fully thinking through how their presence in hypermarkets and discount outlets might impact the brand’s already eroded premium image.  Transacting with giants such as Tesco requires a skill set, supply chain efficiencies and ways of working which Thornton appear not to have grasped, and therefore the mass retailer strategy that was supposed to revive Thornton after many years of continued declined turned out to be a failure.

There are only so many successive profit warnings a company can issue before it loses all credibility with its shareholders.  Thornton was getting to that point, and the arrival of Ferrero in that troubled environment can be considered as the deus ex machina  that will hopefully prevent Thornton’s from going into terminal decline.  By the own admission of Thornton’s former Chairman Peter Thornton, grandson of the chocolate maker’s founder, without Ferrero’s offer “The decline in performance would have continued and I think the decline would have been fatal.”

Radical change for Ferrero too

Yes, this stuff really tastes of hazelnuts
Yes, this stuff really tastes of hazelnuts!

The decision to make a significant acquisition to fuel growth marks a radical change in strategy by Giovanni Ferrero, months only after the passing away of his father who founded the company back in the 1940’s and became Italy’s richest citizen.  Until now, the Ferrero empire had grown organically and its acquisitions were focused on increasing production capacity and securing the supply of ingredients: today Ferrero is the world’s biggest consumer of hazelnuts, with 25% of the world’s annual supply used in its production plants. So why depart from such a brilliantly successful strategy?

Ferrero see value in Thornton's where the latter's shareholders had lost confidence (graph source Google finance)
An offer too good to refuse

Giovanni Ferrero argues that the acquisition of Thornton’s will pave the way for Ferrero to rapidly get a strong foothold in Britain, a market where the per capita consumption of chocolate and confectionery in general is high.  However, it did not take any acquisitions for Ferrero to become extremely successful in Germany where the retail scene is harsh and competitive, so why acquire a struggling company to develop in the UK?  Maybe there is an intention to gradually reduce the group’s reliance on Hazelnuts, the price of which has risen steadily in recent years.  That, combined with fluctuating costs of cocoa caused by failed crops and the risk of a global shortage within a decade, means that some diversification may pay dividends over time, branching out in sweets and other types of confectionery.

Seeking the common ground

In the meantime, it will be interesting to observe how the quintessentially British Thornton company will fold into the Ferrero Group which bears the hallmark of its founding family and of Giovanni Ferrero, heir of the Ferrero dynasty, who appears keen to affirm his strong leadership.  Ferrero have stated that the Derbyshire factory will be maintained, but have not commented on how much may change within its walls. However, as the world continues to gobble up ever increasing quantities of Nutella®, Kinder® chocolates and TicTac® sweets, the underused capacity in Derbyshire may be put to good use.

Importantly, no comment has been issued as to where the British company’s management will be located, nor what its remit will be within the Ferrero group.  That was probably wise as it may take a while to determine how much of a shake-up is required to rectify Thornton’s past errors, put the brand back onto a path for success, and use that platform as a Trojan Horse to accelerate the growth of Ferrero’s product portfolio in the UK.

Meanwhile, an imaginative competitor is succeeding where Thornton failed

Hotel Chocolat: a touch of class
Hotel Chocolat: a touch of class

An interesting example that brilliantly illustrates the value and potential of differentiation is the emergence and rapid growth in the UK of Hotel Chocolat since 2003.  Previously named Choc Express (see how some names can project a sense of premium exclusivity and others convey mere convenience), Hotel Chocolat opened its first retail boutique in Watford (not in London’s Bond Street which is more suited to super-premium brand Godiva), and has focused on the premium end of the chocolate market, with strong visual appeal and a packaging that is miles away from the traditional (boring) box of chocolates that can be found on any supermarket shelf.

Thornton's: traditional or "passé"?
Thornton’s: traditional or “passé”?

To further distance itself from mass market chocolate manufacturers, Hotel Chocolat acquired it’s own cocoa plantation on the West Indies island of St Lucia in 2006, on which it opened the Boucan Hotel four years ago.  So yes, there really is a “Hotel” Chocolat and, more importantly, there is a space on the seemingly mature and crowded chocolate and confectionery market in the UK for a new-comer that arrives with fresh, fun ideas and can satisfy the consumers’ desire for self-indulgence.  Hotel Chocolat received the Emerging Retailer of the Year award from Retail Week, and was also nominated as one of Britain’s CoolBrands®, voted for by marketing experts, business professionals and thousands of British consumers whose input was collected by the Superbrands UK panel.

A quick glance above at the illustrations of this year’s Thornton’s and Hotel Chocolat’s summer collections as published on their respective websites leaves no doubt as to which of those two brands has knocked the other off the pedestal of premium chocolate brands.

So what’s next?

As a privately owned company, Ferrero does not need to disclose its strategy to the world, and nobody at this stage can be certain of what is going through Giovanni Ferrero’s mind.  Does he really intend to revive the Thornton brand?  Can the Thornton retail outlets be used as a channel for a premium Ferrero/Thornton range whilst Nutella, Ferrero Rocher and Kinder® products continue to flow through high-street shops and retail chains?  How important are the Derbyshire factory and the know-how of some of its staff to Ferrero’s global manufacturing foot-print?

My many years spent at Diageo, and in United Distillers before that, have given me a number of opportunities to see how difficult, painstaking and costly it can be to attempt the revival of a tired brand.  Tired brands often enjoy a high level of notoriety, and many marketers will see this as a fantastic short-cut compared to the time and investment it usually takes to build any awareness of a new brand. But what if a brand is renowned for all the wrong reasons?  Changing well anchored perceptions can be more difficult that building a brand image from scratch.  If Ferrero manage that feat with Thornton’s, they will again have proved their marketing genius.

Meanwhile, let us hope that Thornton’s decline will not be accelerated by the upheaval caused by their integration into the Ferrero group, and that the latter will not get distracted by this integration to the detriment of its sharp marketing and sales focus.  That will depend on how well the post acquisition integration will be planned and orchestrated.

Once divorced, twice engaged

verizon-aolThe news that AOL is about to be acquired by telecommunications giant Verizon reminds me of the box-office hit of the 1990’s “Muriel’s Wedding”, that charming tale of an unattractive Australian desperate would-be bride who relentlessly pursues her dream, turns out to be a beautiful sensitive person but gets faced with the harsh realities of life.  AOL’s name will always be associated with one of the biggest M&A fiascos, resulting in the split-up from Time Warner after just under 9 years of a very troubled union.

Then, for years, AOL kept looking around, and towards the end of last year, AOL’s repeated flirting with Yahoo! gave the impression that something was about to happen.  That was only until last month when AOL’s chairman and CEO Tim Armstrong declare a merger of his company with Yahoo! to be a “dead notion”.  Why?  Simply because he was about to announce two weeks later that AOL was getting engaged to Verizon.  A succession of twists in the plot that makes the story almost fit for a TV soap opera…

So what’s in it for whom?

Tim Armstrong’s strategy for AOL focuses on achieving growth through supply (network), customer data, and video / automated ads.  The video business alone grew by 90 percent in 2014 and that of course provides an increasingly attractive platform for advertisers.  Everything would be perfect if it were not for the fact that an ever growing share of on-line media content is being consumed “on the move”: mobile is the magic word.  Verizon’s dominant position on the USA’s East coast makes that company the unavoidable partner to pair up content, customer data and mobile access.

This is good news for advertisers, who will have a means of broadcasting their messages to finely targeted audiences; and evidently good news also for both Verizon and AOL who can charge more for the efficient communication channel they are providing to the advertisers.

Some consumer groups, however, are vocal about their fear that gathering data on individual’s preferences, habits, life-style and whereabouts, as monitored by their on-line activity and mobile location, is an unacceptable intrusion into anyone’s privacy.  Some lobbyists are using this argument to try to block Verizon’s acquisition of AOL from going ahead.  This is unlikely to have much impact, however, as the regulatory authorities are more concerned about any detrimental effects on competitiveness than about the private sphere of individuals: Verizon and AOL’s revenue will increase as a result of charging more for advertising, not from jacking up the users’ subscription fees.

Does it matter anyway?

privacyIf we must be subjected to advertisements whilst watching a movie, following a sporting event or viewing news up-dates, I personally prefer such ads to be relevant; so I would not be too fussed if an ad for a physical activity tracker appeared on my screen, because I have been comparing such devices on-line lately and intend to acquire one to better monitor the calories I burn.  But to some people, this may seem freaky, as if someone is permanently looking over their shoulder.

To those who feel uncomfortable with the amount of customer data that is being used commercially, I suggest focusing strongly on Google and Facebook who currently dominate on-line advertising with revenues of USD 58.7 billion and USD 12.4 billion in 2014 respectively.  Both of those companies go one step further in commercialising their customer profile data, as many other websites now offer viewers to log-on using their Google or Facebook ID and password.  What better way to instantly communicate to a seller all that needs to be known about the person who has just started browsing his website.  Could we ever imagine anything similar when a potential customer walks through the door into a shop?

Prepare the wedding bells

Given the dominance of Google and Facebook in the on-line advertising world, throwing a few credible new competitors into that market should not cause much harm, quite to the contrary.  So let’s assume that the Verizon – AOL deal will go ahead.

Meanwhile, where and how the customer data collected by such companies gets used is a matter for parliaments to debate and legislate rather than for the competition regulatory authorities.  Clearly this is not an easy task since as the whole debate is torn between two opposing objectives: on the one hand there is a desire to protect the citizens’ privacy, but on the other hand governments are increasingly trying to snoop into our daily activities to detect the one in a million citizen who turns out to be a dangerous terrorist.  So far, the snoopers appear to have the upper hand, convinced as they are that the risk of being caught in dramatic events can be reduced to zero, and they will continue to do so until citizens accept the sad fact that some very unlucky people can end up being in the wrong place at the wrong time.  It is called fate.

Broad smiles or an anxious rictus?

(Photo by Chesnot/Getty Images)

On 15th April, Nokia announced its intention to acquire Alcatel-Lucent in an all-share deal.  Nokia’s Risto Siilasmaa and CEO Rajeev Suri were seen exchanging a warm hand shake with Alcatel-Lucent’s Philippe Camus and CEO Michel Combes, all four gentlemen displaying beaming smiles as the news of their forthcoming merger hit the news wires and sent shock-waves across what is already an extremely consolidated industry.

That news was not completely unexpected: Nokia, and more particularly Alcatel-Lucent, have gone through some very painful and convoluted restructuring exercises these past few years, and are only now feeling the first early signs of some recovery.  Still, each has areas of weakness which the combination of both groups could potentially resolve.  Furthermore, wireless communication is an area that requires astronomical R&D budgets. As consumers begin to embrace 4G communication, the world’s leading providers are already putting the finishing touches to the future 5G, announced for the early 2020’s, and teaming up to finance those developments and rolling them out across the globe makes eminent sense. The business case for this merger is plain to see on paper, but whether the expected benefits will materialise during the implementation remains to be seen: several formidable challenges lie ahead.  None of them impossible, but each one of them pretty tough!

Nokia’s “open Sesame” to the USA may open doors for other players

Whereas Alcatel-Lucent has for years enjoyed strong market presence and excellent relationships with major telecommunications operators, Nokia has struggled to get anywhere in that area, allowing another Nordic company, Ericsson, to share that large and lucrative market with Alcatel-Lucent.  It is fair to say that Alcatel-Lucent’s saving grace in the USA is the fact that the world’s largest provider of wireless systems happens to be China’s Huawei, which is de facto barred from penetrating the United States’ market amid fears of industrial and political spying from a company that has close ties with the Chinese government.

By tying up with Alcatel-Lucent, Nokia will clearly be able to shoehorn itself into the lucrative American market, but whereas there were three non-Chinese suppliers of telecom equipment on that market, Nokia, Alcatel-Lucent and Ericsson, the merger will bring this down to two.  Who will the third provider be that is required for any fair tendering process?  As Huawei is likely to continue being denied access, the Nokia-ALU merger might create unforeseen potential for Samsung, thus far confined to the Asian market, to leap onto the American stage.

Once bitten, twice shy?  Not for Alcatel-Lucent!

Alcatel-Lucent, like most of the major telecommunication equipment providers, is today the result of a number of acquisitions and business integrations.  Alcatel and Lucent’s merger in 2006 triggered the merger of Nokia Networks with Germany’s Siemens.  As an after-shock five years later, Ericsson acquired Nortel’s wireless networking business, prompting Nokia to buy out Motorola’s infrastructure division…

Any M&A integration brings its own share of difficulties and struggles, but Alcatel-Lucent have suffered more than most; by comparison to the vision which was depicted back in 2006, the Alcatel-Lucent merger will be remembered in history as a failure.  Being viewed as a strategic asset by French Governments will have been both a blessing (too big and strategically important to be allowed to fail) and a curse (government intervention which would rather apply a dressing onto the wounds to hide them rather than approve a remedy that would cure the causes).  Almost ten years later, the cultural split between the former French iconic company and its American “spouse” is still prevalent.  Bringing in some “new blood” and an external perspective under the Nokia umbrella may provide a fantastic opportunity to lay a new base for the company’s culture and ways of working, away from the polarised Franco-American divide;  this would enable the combined group’s global ambition and cement the alliance to become a true powerhouse with unrivalled R&D capability.

Alternatively, the French government may continue to block any attempts to shape the Nokia-Alcatel-Lucent alliance as a world leader, by resisting any changes that might have the slightest detrimental impact on French jobs, pursuing the more self-centred goals of their re-election agenda. The weight of bureaucracy combined with restrictive labour-law practices might slow down the transformation of the business, and the new group could altogether miss the opportunity it is striving to capture in such a rapidly evolving market.

Finding ways to win in a particularly challenging sector

For over a decade, the internet and mobile communication sectors have been subjected to a pressure that is uncommon in other services: end users, be they consumers or corporations, expect the performance of their telecommunications and internet services to double in performance every 2-3 years, but without accepting to pay a single cent for that improvement.  Indeed, billions of consumers seem to consider access to the internet to be a natural right, in the same way as we can enjoy sunlight and air to breathe.

“Free” internet is a reality for numerous users, and we see huge resistance against attempts to introduce differentiated tariffs for heavy users compared to average users in the light of data streaming sites that require a very broad and steady flow of data to the end-users.

The frantic race to provide ever faster data transmission speeds without any price increases to users has evidently put tremendous pressure on the providers of the equipment required to provide those exponential service improvements.  This, coupled with the fact that revenues from data transmission did not follow the projections the telecom providers had forecasted a decade ago, means that the key source for potential margin improvement is to reduce the cost of the underlying infrastructure.

This is guaranteed to make life difficult for many years to come for the few telecom infrastructure providers left in this world, but combining that sharp commercial and cost cutting focus with the demands of a global M&A integration and transformation of business culture will indeed be a mammoth task.  Not impossible, but quite daunting nonetheless.

We must just hope that the authorities in Finland, and more particularly in France, do not prove to be the final straw on the camel’s back.  If Nokia-Alcatel-Lucent fail, we won’t be left with much of a choice on this planet.

 

 

 

On course for becoming the world’s number one

Last April when Holcim and Lafarge announced their intention to merge, I was not the only one to predict that this mega-merger project would be a feast for the anti-trust regulators across the world, and indeed it has been.  However, given the complexity and magnitude of the deal, we must acknowledge one year down the road the accuracy with which the outcome of the regulatory process has matched the two giants’ advisors prediction as far as Europe is concerned.

HOLCIM Y LAFARGE ASEGURAN QUE SU FUSIÓN NO IMPLICA EL CIERRE DE FÁBRICASJust over a decade ago, uniting Holcim and Lafarge would have been unthinkable.  Regulators used to spend their time and energy scrutinizing the cement industry to detect any signs of collusion between the key operators of what had already been an oligopoly for many years.  But in today’s global scale economy, European regulators have become less shy about allowing the formation of giant companies capable of capturing sizable shares of the market in major European countries; after all, Europe needs a few such global heavy-weights to avoid being completely dwarfed by Asia and the Americas.

Lafarge’s spokesperson mentioned last April that they and Holcim were expecting to have to divest up to 15% of the new group’s assets to secure the anti-trust authorities approval of the deal and this is where they now stand, having received the approval of the EU anti-trust authorities on the condition that a sale of that magnitude is made before the two giants proceed with their merger.

Biggest hurdle removed

It was always clear that the bulk of divestments required by the regulators would be within Europe, and many external observers (including myself) feared that obtaining an acceptable price for the sale of cement business in Europe’s saturated market might prove difficult or impossible.  Divesting European assets piecemeal would have been lengthy and risky, delaying and possibly jeopardising the whole deal as the sale of all those assets was a pre-condition set by the EU antitrust regulators.

Holcim and Lafarge’s decision to auction the assets as a bundle was risky but has now paid dividends.  The presence on the market of a single acquirer interested in taking on those assets as a bundle has secured the value and clarified the time-line of the merger.  The Deus ex machina who has offered EUR 6.5 billion for the bundle is Cement Roadstone Holdings, better known as CRH, whose insatiable appetite for acquisitions has made the whole Holcim – Lafarge deal possible.

Just when everything is looking fine, someone spoils the game

india_cementWhereas the course of events in Europe has followed a well predicted roadmap, the unpleasant surprise on the path to Holcim and Lafarge’s union has now come from India where the regulators fear that the Holcim – Lafarge deal would cause a serious imbalance on their very vast and growing market.  In an interesting and quite unusual move, India’s CCI (Competition Commission of India) required Holcim and Lafarge to publish the details of their proposed deal on their respective websites as well as in a selection of national newspapers, so that every interested party in the Indian subcontinent could have access to the relevant information and be given sufficient time to formulate comments and possible objections.  This is only the second time that a merger proposal is submitted to general public scrutiny under Section 29(3) of India’s Competition Act, 2002.

The CCI delivered its decision earlier this month, allowing Holcim and Lafarge to proceed with their merger provided assets including large limestone reserves situated in eastern India are divested.  There is a welcome proviso, however, in that these assets do not necessarily have to be sold to a competitor, consequently these forced divestments might still fetch a price which will not cause Holcim and Lafarge to cringe.  They now have 30 days to respond to the CCI’s decision.  India was not on the regulatory radar screen of Holcim Lafarge; this will have been a nasty surprise but is unlikely to be a show stopper at this advanced stage of the game.

Some players have won before the lottery is drawn …

Far from the challenges and uncertainty that lay ahead for Holcim, Lafarge and CRH, some of the players involved in this giant M&A scheme can already shout : “BINGO”.  The number of transactions involved in the pulling together of Holcim and Lafarge, and the added opportunity of overseeing the divestments that will be required to allow the merger project to complete, are an absolute bonanza for all the banks and investment houses involved in advising the two players.  Can you spot anyone missing in the impressive list of those who have advised Holcim, Lafarge and CRH:  UBS, Bank of America Merrill Lynch, JPMorgan Chase, Davy Group of Ireland, BNP Paribas, Morgan Stanley, Zaoui & Co, Rothschild, HSBC, Credit Suisse and Goldman Sachs.

… for others, the work has only just begun

crh-dispute-2012
Hopefully better times ahead for CRH after their staff demonstration in 2012

CRH’s EUR 6.5 billion acquisition provides them with a series of businesses in Europe, as well as in Brazil, the Philippines and Canada; a golden opportunity to leap ahead on their very ambitious growth curve. CRH are serial acquirers, well accustomed to integrating the companies; the Irish company of the 1970’s has become a global player, with some previous experience of acquiring businesses from Lafarge in recent years.

According to the Financial Times, CRH has spent some USD 24 billion on approximately 650 acquisitions since 2000. However, the acquisition of the Holcim – Lafarge bundle will be of a magnitude they have never experience before.  Growing one’s business by 33% in one single step is no easy task.

As for Holcim and Lafarge, their merger remains incredibly ambitious, with this future world leader set on transforming the whole industry with products and concepts that may revolutionise modern construction. A lot of interesting developments to be observed over the coming two or three years.

 

Corn flakes, or honey and pistachio puff pastries?

After years of turmoil and instability in North Africa and the Middle East since the “Arab Spring”, the region is beginning to be seen my major western investors as again offering good long term potential, or at least worth taking a risk.  The fact that Coca-Cola is building a major bottling facility in Gaza is quite symptomatic of this new perception.

One Bowl of Corn Flakes on a White BackgroundIn late August, the world’s largest breakfast cereal producer Kellogg Co expressed its interest in acquiring all or at least a controlling stake in Egypt’s Bisco Misr, the country’s reputed manufacturer of confectionary, cakes and biscuits.

Within the vast geography that runs along north Africa to the Middle East, Egypt is evidently the focus of attention because its population of close to 90 million offers a huge market potential to providers of inexpensive everyday consumer goods.  Just the right thing for the likes of Kellogg’s breakfast cereals, and taking control of an Egyptian household name such as Bisco Misr therefore makes eminent sense.

However, being the world’s Nr 1 in an important consumer product segment and enjoying over 100 years of company history does not guarantee victory when it comes to seeking further expansion.  Abraaj Asset Management, the middle eastern private equity company founded in 2002 in Dubai now growing towards global presence with hubs in Istanbul, Mexico City, Mumbai, Nairobi and Singapore, is ideally placed to understand the needs and potential of their nearby rapidly developing economies. No sooner had Kellogg revealed their intentions regarding Bisco Misr, that Abraaj jumped into the game and has since kept beating each of Kellogg’s bids.

Bids for Egyptian Bisco Misr reach pharaonic heights

The regulators have set a deadline of 11th January 2015 for the bidding process to reach a conclusion; until then, the world will watch the Middle East’s largest private equity firm fight the world’s leading cereal manufacturer to see who will control what Egyptian consumers enjoy on their table for breakfast.

At the time of writing this article, the two bidders have already made four offers and there will be more as the deadline approaches.  So far, the price both bidders are prepared to pay for BIsco Misr has risen by over 20% since their first bid.

Source: Marketwatch.com
Source: Marketwatch.com

East is east – will the outcome confirm Rudyard Kipling’s vision?

This struggle between one of the western world’s giant household names and a middle eastern powerhouse is interesting in that it may reveal a lot about the region’s sentiment.  Commentators believe that a victory by Kellogg would improve western companies’ confidence and attract further western investment in the region.  On the other hand, Abraaj are committing to maintaining Bisco Misr’s Egyptian identity and its Egyptian management.  Much is written in the numerous articles recently published on this bidding battle about the west’s growing confidence towards the middle east, but not much is said about the other perspective, namely how populations in the Arab world might view the west after the uprising of the Arab spring some years ago.

For many, the west will be remembered for poking the fire and giving the population of many Arab nations the confidence of turning discontent into the outright uprising that spread like wild fire, which the west dubbed “The Arab Spring”.  Spring is the season of new life, a season of clement weather after harsh winters, the flourishing of Nature with the promise of rich crops and prosperity. Instead, having praised the courage and determination expressed in the uprising that toppled governments across the region, many people will feel that the west did not have much to offer as a substitute nor much support to evolve towards renewed stability and governance, propelling many of those countries towards a wide vacuum which has left the door open to the sprouting of every form of extremism.

The relevance of this historic background is that BIsco Misr might actually have a higher value if acquired by Abraaj Asset Management rather than by Kellogg, because there is a risk that some consumers may resent the sale of one of their much loved national brands to an American giant.  Food brands have this in particular that they can achieve the status of a national icon and consumers will then react very emotionally when such brands risk losing that national identity.  British consumers reacted strongly when their treasured Rowntree confectionary company was gobbled up by Swiss multinational Nestlé in 1988. Further highlighting the link between food brands and national identity, the Swiss didn’t react much in 1970 when Tobler, makers of the world famous Toblerone triangular chocolate bars, merged with Suchard, another Swiss company renowned for its chocolates as well as its iconic Sugus fruit candy; however those same Swiss consumers went ballistic twelve years later when Suchard-Tobler was acquired by Germany coffee giant Jacobs and the production of the treasured Sugus candy relocated abroad.

If a similar phenomenon can be expected in Egypt, Abraaj may be able to raise its bid for Bisco Misr beyond the level at which this acquisition could offer the Kellogg company any prospect of a profitable investment.  Clearly, an acquisition by Kellogg would provide Bisco Misr with access to considerable know-how and technology that would contribute to the company’s future development, but the next two weeks will tell us whether this can outweigh feelings of national pride and identity.

Whatever the outcome of the Kellogg Abraaj match, this take-over will set a precedent, either as an open invitation to other western companies to invest in Egypt, or to the contrary as a deterrent:  a polite sign that there is still much to do to rebuild trust towards the west in that part of the world.

A lasting rumour may be turning true

AB InBev, the giant that towers over the global brewing industry and is more of an M&A machine than a beer producer, is believed to be preparing to bid for rival SAB Miller in what could be a deal exceeding $120 billion.

The group, which developed at an exponential rate over the last decade, began with a fairly modest acquisition 25 years ago of a local Brazilian brewery for $60 million, and has been snapping up its competitors regularly ever since.  The first quantum leap occurred in 2004 when Ambev was combined with the Belgian based group Interbrew.  The result was a formidable M&A engine that won a hostile bid to take-over Anheuser-Busch for the handsome sum of $ 52 billion in 2008, propelling the group to the world’s Nr 1 position.

Conventional wisdom would say that this is where the game ends.  Not so for AB InBev who have had their sights on market’s Nr 2 SAB Miller for some time.

Could so much beer give the regulators a hang-over?

ab_inbev_brandsAB InBev’s power is very much centred in the Americas, where the growth prospects of a mature beer market are slowing down, whereas SAB Miller enjoys a very strong position in those markets that still have the potential to fuel substantial growth, notably in Africa.  Consequently, although the combined group would be capturing around 30% of the overall world market for beer, the only area in which the combined market share is likely to be considered excessive is North America where SAB Miller could be asked to divest brands that currently enjoy a strong market position, such as Miller Coors, without causing a significant dent in its presence in other geographies.

An unwilling bride

The key factor preventing AB InBev from snapping up SAB Miller is the latter’s resistance.  To protect itself, SAB Miller tried earlier this year to repel the prospect of being taken over by AB InBev by bidding for the other giant of the beer industry: Heineken.  However, that bid underestimated the fact that Heineken has a controlling shareholder who takes pride in the global brand’s independence and firmly intends to keep it that way.  Consequently, SAB Miller will not reach the big fat size it was hoping for to avoid being swallowed up by AB InBev, and as recent history has shown us, AB InBev is not one to be discouraged by the reluctance of its acquisition targets: their successful hostile take-over of Anheuser Busch in 2008 showed the world that the unthinkable can indeed happen.

Sending out confusing signals

All the noise surrounding SAB Miller has boosted that group’s share price by 40% since the beginning of the year, and shares in AB InBev rose to a record level on 19th September, fuelled by the market’s expectation that a bid to grap SAB Miller, if launched officially, could well succeed.  In that context, the news that the group’s Chief Strategy Officer and several other high-ranking directors of AB InBev sold significant stakes in their company earlier this month sent out a rather confusing message to the market.  For some, this could be a sign that AB InBev has thrown in the towel, at least temporarily, and will not press on to acquire SAB Miller.  On the other hand, this could also be a ploy by AB InBev to relieve market pressure and let the SAB Miller’s share price slip back to a more sustainable level before pouncing again on its target.

After all, the directors who sold some of their AB InBev shares have earned a handsome profit in doing so, and if they renew their attack on SAB Miller in a few months again, they will profit a second time on the remainder of their shareholding.  So this is a little game which can hardly go wrong.

A big Goliath, many healthy vigorous small Davids, and nothing in between

ab_inbev_logoAB InBev have built and demonstrated a remarkable ability in the area of cost cutting; there is no doubt that an acquisition of SAB Miller could generate further significant savings that would make the $120 billion deal worthwhile – after all, the guys at the helm of AB InBev have become absolute masters in the art of M&A and have not so far ever got it wrong.  It is quite appropriate that AB InBev’s logo should include a hawk…

The fact that Anheuser-Busch, Bass, Beck’s, Corona, Presidente, Grolsch, Bavaria, SAB, Miller and Foster’s could all belong to one same group does not seem to worry consumers who still have their personal preferences for one of several brands of this vast portfolio.  Indeed, the scale achieved by AB InBev alone allows the group to invest in developing new brands, new tastes and fashions, that will continue to enjoy a strong brand equity that sets them apart from the mainsteam products of that industry which are almost a commodity.  And next to the mammoth giants of the industry, there is still plenty of space for more and more local specialised “craft” breweries to sprout up everywhere, appealing to consumers that see themselves as more discerning, and providing a sense of authenticity in contrast to mass produced global brands.

Those who will feel the pinch, and either get engulfed in the AB InBev maelstrom in coming years or go bust, are those local or national brewers that are “neither here nor there”, who cannot claim grassroots authenticity in their local community and do not have the scale of the giants.

But in the meanwhile, let’s go to the local pub and make bets on the outcome of AB InBev’s next move, around a few beers…