Heineken on the prowl?
Heineken’s investment in Germany has been far from running smoothly. Board room disputes regularly get leaked to the media. Small wonder that Germany’s largest privately owned brewery Krombacher was quick to deny rumours that it was in talks with Heineken over a possible sale.
When Heineken and Stefan Schörghuber, the German hotelier to brewing tycoon, clinched their joint venture deal in 2001, the future seemed bright. But seven years and not quite as many sacked CEOs later, little love seems to be lost between the two partners. Their joint venture, Brau Holding International (BHI), in which Heineken has a 49.9 percent stake, has never really been a challenger to Germany’s leading brewing groups: Radeberger (privately owned by the food giant Dr Oetker) and InBev. BHI still trails them by a wide margin, realising only EUR 700 million in annual sales, it was reported.
BHI is a hodgepodge collection of breweries and brands, most of which are regional and confined to southern Germany. Its most important brands are Paulaner and Kulmbacher. Apart from the general malaise which is the German beer market, the group is bogged down by overcapacities, a decline in sales, low margins, unprofitable subsidiaries, and rather fierce infighting.
For example, in May this year, Mr Schörghuber sacked two of Kulmbacher’s board members just days before Kulmbacher’s Annual General Meeting. The reason? Apparently, Kulmbacher’s board lacked vision and direction.
BHI probably thinks the same of Dr Weber, the majority owner of the Karlsberg brewery, in which BHI bought a 45 percent stake in 2003 for an estimated EUR 120 million. Karlsberg brewery, which sells the beer mixes Desperados and Mixery and for years has been Germany’s most innovative brewery, is struggling hard. To date, BHI has had to write down EUR 100 million on its purchase. This year Karlsberg’s financial situation is going to get even worse: debts are believed to run into two-digit figures. So it’s hardly surprising that BHI does not want to pay EUR 48 million for a 15 percent stake in Karlsberg by 2010 as agreed upon originally.
Dr Weber’s longstanding PR man has already left the sinking ship, while Dr Weber himself seems to spend an inordinate amount of time in court as BHI has been showering him with writs. Relations between BHI and Dr Weber are frosty, if anything, not least since BHI has tried to sack Dr Weber as Managing Director of Karlsberg with the help of the courts. However, what makes the whole matter rather embarrassing for everybody involved is that Dr Weber until recently was President of the German Brewers’ Association.
To what extend Heineken is involved in BHI’s turbulences is hard to fathom. One thing is certain: the Dutch cannot be happy. That is why people close to the action have been wondering for a while if there may not be a grain of truth to the other rumour that Heineken is bullying Mr Schörghuber so hard that the Bavarian entrepreneur will eventually throw in the towel and sell his majority stake to Heineken – for a song. But what good would it do Heineken to have a messed-up business drop into their lap eventually?
Nevertheless, according to recent speculation in the German media, Heineken through its joint venture BHI is sizing up Krombacher, Germany’s major beer brand, which sold almost 6 million hl in 2007. Apart from adding size and scale to BHI, Krombacher has the advantage of being a national brand. Thus it could provide BHI with a distribution network in the western and northern part of Germany. Whether there have been talks or not – Krombacher was quick to deny the allegation that it was for sale.
