I love it when retailers urge us to “hurry while stocks last”. It’s a business euphemism – like “a period of consolidation in adverse market conditions” – which amounts to putting a brave face on things. We know that invariably there is no need to hurry since the reason stocks will last is that their purveyor can’t get shot of them and has been forced to slash margins to do so. For the purchaser, the best move is to sit tight and wait for a better offer to turn up.
European brewery groups might do well to bear this thought in mind as Bass puts its brewing operations into the salesroom. Last week’s announcement that Heineken is interested in taking the business off Bass’ hands was greeted by another convenient set of business euphemisms. The Dutch conglomerate is said to be entering “the battle” for Bass Brewers. This battle is, of course, “intensifying” because there are so many “other bidders in the wings”.
The truth is rather more prosaic. Bass has been trying to offload its brewing interests since its bid for Carlsberg-Tetley was kicked into touch last year. The cast-list of potential purchasers is relatively short. There’s Anheuser-Busch – being big and American. There’s Heineken, stuck with marketing a pale imitation of its export brand through Whitbread, more of which in a moment. Then there’s Carlsberg – 50 per cent-owned by a private trust, with all the problems that might cause when making a generous offer. Interbrew of Belgium is entirely in private hands and would never be allowed to overpay.
South African Breweries (SAB), meanwhile, has shown little desire to do anything much since its fanfared London flotation last year.
Bass has not, one can safely say, been in a sellers’ market. Bass Brewers needs to be sold hard, rather than bought. And what do prices do when you’re stuck for a purchaser? Why, they get keener. But, in the gung-ho hype of a corporate “auction”, we must naturally talk of Bass Brewers fetching “more than &£1.8bn”.
Doubtless Bass shareholders want to see a price of &£2bn or more. But I doubt any of the contenders do. Which leaves Bass chairman Sir Ian Prosser on the horns of something of a dilemma. He wants to sell the brewing business to get on with an expansion into hotels and leisure, but he also needs to satisfy his shareholders that he is achieving a premium, which potential purchasers are unwilling, and unlikely, to pay.
That probably tells us all we need to know about Bass’ position. But what does a prospective deal for Bass Brewers tell us about Heineken? In relation to the UK market, at first sight Heineken appears to be facing a similar dilemma and paradox to Bass.
Heineken is the Coca-Cola of brewing. It buys market share by acquiring local interests and slapping its brand all over the neighbourhood. Its &£563m purchase of Diageo’s controlling share in Cruzcampo last year in order to dominate the Spanish market is a case in point.
It is fair to say that, as Europe’s largest brewer, Heineken understands scale and marketing. But in the UK the company’s position is peculiar. When it arrived from Amsterdam a generation ago and started to inflict on us something that refreshed parts other beers cannot reach, it was a watery imitation – at 3.4 per cent ABV – of the five per cent product exported from its native market. The result is that Heineken markets a premium lager everywhere in the world except the UK, where it markets a “session lager” whose brewing is licensed to Whitbread.
Now, if Heineken is to relaunch export-strength lager in the UK, I’d have thought the more modest volumes it would be looking at could be serviced far more cost-effectively out of Amsterdam, rather than by dumping Whitbread and tooling-up with Bass Brewers, which owns the mass-market Carling brand.
I concede that Heineken might do this, simply because it can. If it can enter and beat up markets in the way it has in the past, it can certainly rewrite the script in its existing markets. But there is an undoubted cost to relaunching export in the UK, buying out the licence from Whitbread and coat-tailing its own brand on the Carling distribution network. Bass Brewers would be a pricey route to market.
The company could afford it. But Heineken’s share price fell by 3.8 per cent last week in Amsterdam as it marred a perfectly solid profits statement with its expression of interest in Bass. That’s worrying for shareholders, and Heineken chairman Karel Vuursten was obliged to pledge not to overpay for Bass. It’s further evidence, if evidence was needed, that Bass’ shareholders are unlikely to see much of a premium.
Vuursten indicated that Heineken wouldn’t be entering an auction for Bass. But it’s difficult to see who would. I suppose SAB might, since it has a Holiday Inn franchise and, because Bass is Holiday Inn’s parent, there could be some sort of asset swap. Alternatively, Carlsberg, as a pure brewer, might up the ante.
But if you’re a Bass shareholder anticipating that a heated bidding war will escalate the value of your brewing interests, I wouldn’t hold your breath.
George Pitcher is a partner at issue management consultancy Luther Pendragon