Bullish Carlsberg expects to face off cartel fine
It’s going to be an interesting year for Carlsberg Germany. The German Federal Cartel Office expects that its case against Carlsberg Germany will go to court in the first six months of 2015.
As BRAUWELT International reported: in August 2011 the Federal Cartel Office opened an investigation of Carlsberg Germany in connection with possible involvement in anti-competitive price fixing. In March 2014, upon completion of the investigation, Carlsberg was fined EUR 62.0 million for collusion, which it contested.
Following the Cartel Office’s investigations into the German beer cartel, Carlsberg and a host of German brewers were slapped with hefty fines, totalling EUR 340 million. However, only Carlsberg and Germany’s major brewing group Radeberger (allegedly penalised EUR 190 million) publically said they would contest their fines in court. Those who chose to pay up instead did so because they were only too aware of the hazards of a court case: the court does not have to stick to the Cartel Office’s fine. It is free to set a lower or a higher penalty.
So why would Carlsberg Germany burden itself with the risk of trial whose final outcome is far from clear? Observers think that Carlsberg needs to buy time. The fine - plus potential compensation claims by the cartel’s victims - would have negatively impacted Carlsberg’s 2014 full year figures, which are currently the topic of hot speculation anyway, following the ruble’s slump (see article “Carlsberg’s stock swoons as ruble plunges”) .
For the time being, Carlsberg Germany insists that it was not involved in any illegal price fixing and expects the court to fully relieve it of the allegations raised and the fine. It is for this reason that Carlsberg Germany has not made any provision in its 2013 financial statements. Only when the court casts its verdict will the fine become payable. That could be some time off as the Cartel Office is not sure that court proceedings will actually start in 2015.
However, a spokesperson for the Federal Cartel Office also said that to date the Office has never had any of its accusations overturned in court.
Looking at Carlsberg Germany’s 2013 financial statement it becomes clear why there are no provisions for a fine. Carlsberg Germany through its affiliates had an EBIT of about EUR 23 million on a turnover of EUR 335 million. Yet it registered a deficit of EUR 15.5 million in that year. Not an ideal year for provisions. Most likely, Carlsberg is going to make the provisions in 2015.
Where could Carlsberg Germany find the money to pay off a potential fine? One answer is: underfoot, literally. Its Hamburg Holsten brewery sits on a piece of real estate that could become very valuable should Carlsberg Germany be able to relocate the brewery elsewhere and – following some rezoning from industrial to residential – sell the land.
According to local media, Carlsberg Germany has reiterated that it plans to build an 800,000 hl brewery somewhere in Hamburg. That’s about the brewery’s current production needs, down from over 2 million hl this past decade. Insiders say that building such a large or even smaller brewery does not make any economic sense as COGS per hl would soar – from an estimated EUR 20 per hl to EUR 30 per hl.
But would Carlsberg Germany be able to sell the business without a Hamburg brewery? Far-fetched as it may seem, an ultimate exit from Germany should not be ruled out for Carlsberg. Ever since it bought the Holsten Group in 2004, Carlsberg has acted like private equity: selling off breweries to fund the acquisition and milking the remaining assets. Private Equity’s ultimate goal – an exit – never seemed more feasible than in 2011 when the German trade publication INSIDE reported a rumour that brewer Radeberger was interested in buying out Carlsberg Germany. In the end, talks came to nothing because the two parties allegedly had failed to agree on price.
Guessing wildly, one should not rule out Heineken making a pass at Carlsberg Germany either. Some observers wonder: wouldn’t being home alone in northern Germany appear more appealing to Heineken than being the minority partner in its Munich-based joint venture BrauHolding International with the Schörghuber Group (Paulaner)?
Things could indeed become interesting in 2015.
