FEMSA or Heineken’s last minute panic – Comment
This sale will go down in history and not just Heineken’s. It will go down in history because analysts and media pundits got it all wrong. For months they had placed all their bets on SABMiller clinching this deal, although taking over FEMSA Cerveza would have posed several problems to SABMiller.
For one, there would have been the issue of FEMSA’s beer brands being distributed in the U.S. by Heineken USA – a contract which is to run for another seven years. What would SABMiller have done about this?
For another, Heineken has been a long-time minority shareholder in Brazil’s Kaiser Brewery, the struggling brewery which was bought by FEMSA in 2006. SABMiller would have had to buy out Heineken at extra cost although Kaiser is losing money. Not exactly a tempting prospect, either.
In view of these entanglements, why should SABMiller have paid good money for so many unsolved problems if all they could have wanted was a grip on the Mexican beer market and an entry into Brazil?
Also, analysts and media pundits seem to know very little about corporate psychology. For Heineken, buying FEMSA Cerveza was the “Last Exit to Brooklyn”, or rather the last chance to become a truly global brewer like AB-InBev and SABMiller. The two, through shrewd deal-making, had sent the Dutch brewer to the sidelines as they pushed ahead and widened the gap to their number three suitor in terms of volume and turnover.
Besides, Heineken still has to convince many analysts that buying Scottish & Newcastle together with Carlsberg in 2008 was a clever move. One very polite analyst at Heineken’s conference call on 11 January 2010 said as much when he pointed out that the Heineken’s integration of S&N was still, ahem, ahem ... mumble mumble ....(there was a glitch in the system) incomplete – or something to this effect.
In sum, Heineken had to make a move and a bold one to boot. Whether it will pay off in the end remains to be seen. Heineken still has to prove to the world that it can mediate between potentially conflicting shareholder interests.
A question mark continues to hang over Heineken’s Brazilian venture. What can Heineken do now to turn around Kaiser that it could not do before? Heineken has had plenty of opportunity to buy Kaiser before, the last time in 2006 when Molson wanted out and FEMSA stepped in.
Perhaps SABMiller’s rumoured explanation why its executives decided to pull out of the FEMSA auction does not sound so duplicitous after all. Allegedly, SABMiller’s top brass did not think that Kaiser’s reliance on Coca-Cola distributors in Brazil was a good thing. It’s interesting that SABMiller should say that, since they also act as a Coke bottler in South Africa.
The Heineken-FEMSA deal will keep the brewers’ rumour mill going for weeks, not least since it will get everybody pondering whether the popular endgame fantasy of soft drinks houses merging with brewers will become more feasible in the light of recent events.
