Last Round
Just the right mix of cool and swagger, a touch of cosmopolitan class and, above all, resolutely global appeal: these are some of the attributes that Heineken shares with Britain’s most famous spy. While James Bond outwits villains around the world, Heineken profiled itself as an indispensable accessory for the stylish and worldly. At an estimated cost of €60 million to the brewer, Heineken persuaded Bond in Skyfall to stray from his vodka martini and slug Dutch beer (neither shaken nor stirred). Daniel Craig even made an appearance in a Heineken commercial.
Critics have argued that such adverts are eminently forgettable and could apply to scores of other brands – be it beer, jeans or aftershave. One of the common gripes is that the global target of beer advertising almost inevitably makes it blander. Frank Lowe, the director behind the ‘parts’ campaign, lamented that such efforts were bound to focus on ‘the lowest common denominator’.
The branding meticulously established by Freddy Heineken has been tweaked in the last couple of decades to make it more globally consistent and recognisable. The once controversial red star and the ‘Heineken green’ have become more prominent. These symbols have come to evoke cosmopolitan fun – a fashionable product coveted by middle-class consumers, all the more so in emerging markets.
Heineken’s global approach is what sets it apart from other beer brands. The most international of all brands, it reached sales of 28.1 million hectolitres in the premium market in 2013, way ahead of Budweiser, Corona, Carlsberg and the group’s own Amstel brand. Every day, the equivalent of more than 23 million standard green bottles are handed across bars or lugged into shopping trolleys, across over 170 countries.
Over the years Heineken had often considered a global marketing strategy, but until a few years ago they were invariably against it. With the advent of the internet and increasing globalisation, the arguments in favour became compelling. More stringent regulations on alcohol advertising have also encouraged the company to spend more on sponsorship and product placement to link the brand with global icons, from James Bond to the UEFA Champions League and the Heineken Cup in rugby.
Heineken continues to produce local advertising and events, but ‘global’ has become part of the strategy as well as the message in campaigns such as Open Your World. ‘You couldn’t stand aloof, you had to have some connection with the local market. But consumers didn’t want a local version of Heineken [for the product or the marketing]. They wanted to try the international and premium Heineken’, said a former global marketing manager.
While Freddy Heineken’s heirs have left the brand’s advertising in the hands of slick agencies, they still made a crucial contribution to the group’s global scope. Not unlike Freddy a few decades earlier, they found a clever way to spread the green bottles without losing their majority control of the company.
Several years into the international Beer Wars, Heineken had appeared a little sluggish. While the company had made a few acquisitions here and there, it shied away from the bold moves that completely reshaped the industry in those years. Rightly or wrongly, the impression arose that Heineken was too timid, held back by its ownership structure.
Things started to change in the years after Freddy Heineken passed away. Heineken’s management at that time was led by Anthony ‘Thony’ Ruys, a former Unilever manager who had already been sitting on Heineken’s executive board for several years. At long last he was able to take steps that Freddy Heineken wouldn’t have approved of, such as investing in Russia. Heineken managers had watched with some frustration in the previous decade as competitors, led by Carlsberg and Interbrew, had encouraged Russians to switch from vodka to beer. Freddy Heineken probably approved the acquisition of the Bravo International brewery in Saint Petersburg, which was finalised a few weeks after his passing. But shortly thereafter the company went on a Russian buying spree, acquiring six breweries in four years.
An even more significant departure from the strategy advocated by Freddy Heineken was that the company began researching for the launch of a Heineken Light beer for the United States. This contravened one of the rules most consistently upheld by Freddy Heineken, who insisted that there should be only one Heineken. Even when the light category began to take off in the United States, he had staunchly refused to take part with the Heineken brand. He was supported by the Van Munchings as well as some of the company’s global marketing managers. It was a very telling sign of the changing times that the development went ahead.
Yet, apart from the company’s bold investments in Russia, its expansion was lagging behind its bigger rivals, the share price was languishing and the owners started to worry. ‘We watched the developments in the first years with some concern’, De Carvalho told FEM Business. Ruys resigned and left Heineken in October that year, twelve months before the end of his term. He made way for the Belgian Jean-François van Boxmeer, who had spent nearly two decades at the company.
As Van Boxmeer admitted, his Belgians friends weren’t overly impressed that he had decided to head up a Dutch brewery. In fact, he had started off by peddling Stella Artois in Gabon, when he was still a student. But right after the end of his economics studies in Namur he joined Heineken, as a trainee in Cameroon. He climbed the ladder with stints in Rwanda, Congo, Poland and Italy, which helped him to learn to speak five languages fluently. Van Boxmeer made it to the executive board in 2001, and when Ruys left, the shareholders picked him, the youngest of the board’s three members, to settle into the top seat. He was meant to shake up the management and radically speed up decision-making.
While the family had kept its distance in the years after Freddy Heineken’s death, it built up a good working relationship with Van Boxmeer. The De Carvalhos were updated by the chief executive almost as regularly as Freddy Heineken had been a few years earlier. And the Belgian made a point of consulting the family in person on strategic decisions that involved their name: he even made the trip to London to make sure that Charlene Heineken tasted and approved Heineken Light.
But it wasn’t just the new management that got Heineken to move up a gear. There was also a call from Dik Hoyer. His family had supported Gerard Adriaan when he wanted to build his brewery in Rotterdam and again helped Freddy Heineken when he struggled to regain control over the company in the late ’40s. The Hoyers owed their spot on the Dutch rich list almost entirely to this loyalty. What they were now proposing was to bundle their stake of 6.81 per cent, held in the Greenfee BV holding company, with those of the Heinekens. Until then, L’Arche Holding SA, Freddy Heineken’s personal holding, owned just over 50 per cent of Heineken Holding, which itself held just over half of Heineken NV. The Heinekens separately had another 1.97 per cent lodged in a holding called Lac BV. The Heinekens and Hoyers agreed to place their shares into a new joint holding, L’Arche Green NV, so that it had a larger majority of about 58.78 per cent in Heineken Holding.
The arrangement, which bore the hallmarks of the clever legal and financial engineering favoured by the Heineken family, was finalised in 2007. Without taking anything away from their ultimate control, the agreement with Hoyer gave the Heinekens more leeway for decisive acquisitions. Just a few months later Heineken was ready to strike.
Sir Brian Stewart, the chairman of Scottish & Newcastle, found out when he arrived in Helsinki for several days of meetings in October 2007. He was met in the Finnish capital by Erik Hartwall, who had joined the S&N board four years earlier, after the sale of his family’s company to the British brewing group. But they had barely started talking when Hartwall’s phone rang. Stewart’s assistant was at the other end. The Finn hurriedly handed over the phone. ‘When he hung up he just turned to me and said “Erik, there is a bid on us.” He was shocked. We were all shocked’, said Hartwall.
What Stewart heard that day, after several months of rumours, was that Carlsberg and Heineken had teamed up to buy S&N. The stakes were particularly high since S&N was the only large British brewer left after the shake-up triggered by the Beer Orders (although they were revoked in 2003). While others had sold out to foreign interests or, in the case of Whitbread, reinvented themselves as retailers, S&N wanted to pre-empt a takeover by expanding abroad itself. It had bought Kronenbourg in 2000 and the Hartwall group three years later. It had even invested in a major Chinese brewery in Chongqing and in an Indian drinks group. The UK made up less than half of the company’s sales, which reached £4,155 millon in 2006, with an operating profit of £535 million.
While Carlsberg and Heineken did not formally issue a bid for S&N in October, they did indicate a potential price of £6.8 billion. Amounting to £7.20 per share, it was rejected as ‘unsolicited and derisory’. At the heart of the ensuing dispute was one of the assets of the former Hartwall group: the acquisition had given the Brits half-ownership of Baltic Beverages Holdings (BBH), a lucrative joint venture that owned the Baltika brand in Russia and had spread to eighteen breweries around Eastern Europe. As the Russian beer market started to take off, it was estimated that S&N reaped nearly 30 per cent of its profits from its half ownership of BBH. The other half was in the hands of Carlsberg.
The deal proposed by Carlsberg and Heineken, which the Dutch internally called the ‘Rainbow project’, would break up the Scottish company. As well as the other 50 per cent stake in BBH, the Danes would get S&N’s activities in France and Greece, and its investments in China and Vietnam. Meanwhile, Heineken would take control of the group’s business in the UK, with brands such as Newcastle Brown Ale, John Smith’s, Strongbow, Bulmers cider and Foster’s (European rights). This would make Heineken the British market leader ahead of Carlsberg, Inbev (the former Interbrew) and Coors (which gulped Carling). The Dutch would bag further interests in Ireland, Portugal, Finland, Belgium, the USA and India.
Owing to their shared ownership of BBH, the managers of Carlsberg and S&N had been working together for several years. This made it all the more shocking, in Sir Brian Stewart’s view, that the call he received in Helsinki came from Heineken – not his friends at Carlsberg. There’s little doubt that this undiplomatic move contributed to the feisty spirit of the battle that ensued. The avuncular Scotsman, who had been building S&N for independence, regarded the offer as hostile. He argued, among other things, that the deal was in breach of the joint venture agreement the two companies had for BHH, which included a ‘shotgun clause’ designed to prevent either party from selling or seizing the other’s half of the venture.
John Dunsmore, the chief executive of S&N, was equally unsettled by Carlsberg and Heineken’s approach. He heard about it while on a mid-term break in Paris with his family, when he received a call from his counterpart at Carlsberg, Jørgen Buhl Rasmussen. ‘I said that I thought he was taking the shareholders for fools’, Dunsmore recalled. In his eyes, Carlsberg chiefly wanted to circumvent the shotgun clause and to get its hands on the other half of BBH at an unfairly cheap price. Again as part of the joint venture agreement, neither of the parties was allowed to publicise the results of BBH, unless the other party agreed. Dunsmore was certain that the acquisition price cited by Carlsberg and Heineken did not reflect the value of BBH at that time. But he wasn’t allowed to explain this in detail to the market – and Carlsberg was very well aware of that. S&N filed an arbitration case. ‘We were very aggressive in getting home to the public the fact that Carlsberg’s approach wasn’t legitimate. It was a completely flawed and assymetrical approach’, said Dunsmore. Carlsberg denounced the claims as ‘spurious, without merit and a distraction’.
Over the next three months Carlsberg and Heineken had to increase their price three times. As Dunsmore explained, it was ‘quite a hostile process’, because for several weeks Carlsberg and Heineken refrained from making a formal bid – instead talking of a ‘proposal’ and turning indirectly to the shareholders in what is known as a ‘bear hug’. Only in December did the Takeover Panel issue a deadline, set on 21 January, for Carlsberg and Heineken to issue a formal bid or walk away. But the former chief executive acknowledged that S&N also had at least one major advantage: ‘You’re dealing with a consortium bid. They always have to confer’, he said. ‘So if you move fast, by the time they have agreed, you are already one step ahead.’ He mostly spoke with Rasmussen at Carlsberg and Van Boxmeer at Heineken, while Michel de Carvalho sometimes appeared on the sidelines to try and smooth things over.
Carlsberg and Heineken’s second approach came on 15 November, at a suggested price of £7.3 billion (£7.50 per share). ‘The tone was a little less aggressive than last time, but still strongly dismissive’, Van Boxmeer admitted. The response was much the same when Heineken and Carlsberg tried again, on 9 January 2008, this time raising the proposed price to £7.6 billion (£7.80 per share). ‘It’s starting to become incomprehensible’, the Heineken chief executive sulked. ‘We will have to wait and see if the Scots repent and hope that their shareholders force them to open talks with us.’
The pressure on S&N’s management was further heightened by shaky share prices. The British company’s own shares had risen amply in the four previous years, as Stewart pushed ahead with his international drive. But towards the end of 2007 tensions in the financial markets began to transpire on stock exchanges. If the financial situation worsened any more markedly, Carlsberg and Heineken could well walk away and leave S&N shares to languish, some of the shareholders probably reasoned. Carlsberg and Heineken were offering to pay in cash, so that seemed a safer alternative. Still, the management did not cave in. ‘Our intelligence was that they were absolutely determined’, said Dunsmore.
It was only after Carlsberg and Heineken raised their price for the third time, on 17 January, that the board agreed to sit down. The consortium was to issue a bid of £8 per share, amounting to an offer of £7.8 billion. As the Dutch pointed out, it constituted a handsome earnings multiple compared with previous European beer acquisitions – far too generous, some critics thought. S&N had effectively set the price by making it clear that they would not consider talking for less. Some investors had hoped for a counter-offer; the management did hold talks with an alternative bidder, but nothing came of it.
The three months of acrimony during the takeover bid mostly pitted the Scots against the Danes. Carlsberg agreed to pay for most of the second price increase, and all of the third. More quietly, Heineken acquired a mix of operations, including brewing capacity in the United Kingdom as well as several brands that could help to diversify its business. The move into cider was most judicious, as a growing thirst for the sweeter drink was helping to make up for shrinking beer sales. Foster’s was the country’s second-largest lager brand after Carling.
The alliance between Heineken and Carlsberg apparently unravelled immediately after the agreement was finalised, early in the morning of 25 January after a whole night of talks. Hartwall remarked that the two parties refused to spread the news together, organising six press and analyst conferences between them on the same day. They said that Carlsberg had even flown in Danish journalists to boast about the largest ever foreign acquisition by a Danish company. Rasmussen and Van Boxmeer ‘were now in a position to declare their marriage of convenience over, and the companies returned to being each other’s worst competitors’.
The sell-out to the Dutch and Danes was lamented in Britain. It marked the end of two and a half centuries of brewing history, started by William Younger in Edinburgh in 1749 and the acquisition of the Tyne Brewery in Newcastle by John Barras in 1884. Commentators deplored the sale of the last sizeable independent British brewing company, describing it as ‘an indictment of short-sighted regulation and government ineptitude over two decades’.
A year after the deal, Heineken closed the Gateshead brewery making Newcastle Brown Ale and moved production to another of the three plants it had bought, in Tadcaster. On the other hand, the Dutch acquired full control of the Caledonian Brewery in Edinburgh, whose tall chimney has become a part of the city’s landscape. Van Boxmeer described the distinctive Deuchars IPA made in the open copper Edinburgh plant as his favourite. And again the Heinekens reassured staff by turning up at ‘the Caley’.
The S&N takeover put an end to Heineken’s ambiguous approach to the British beer market. All activities were integrated into Heineken UK. The Dutch company’s relationship with Whitbread came to an end in 2003, three years after the British group’s brewing activities had been snapped up by Interbrew. Heineken had then decided to just discontinue the English beer with an alcoholic strength of 3.4 per cent, known as Heineken Cold Filtered, and to sell only standard Heineken at 5 per cent. ‘It was tough because there was a lot of money left on the table, but Heineken could afford it at the time’, said one of the people who supported the move. ‘It was just disastrous that we had this weaker beer in such a prominent market.’ The move caused a collapse in volumes, from about 2 million hectolitres down to 125,000. It had been one of the motives behind Heineken’s eagerness to buy market leadership in the UK, as Van Boxmeer acknowledged that it would have taken years to rebuild Heineken’s business in the country with imported Heineken.
The ‘parts’ were not forgotten, but global advertising was used in Britain as well. The country had turned into just another part of Europe for the Dutch group, selling standard Heineken (albeit imported so far) and a slew of other brands. The price was regarded as steep for assets in a sluggish market, and it weighed on the company for several years. However, it was widely understood that Heineken could not have afforded to let slip this opportunity to buy leadership in Europe’s second-largest beer market. Over the next few years the last gaps in Heineken’s global landscape were filled with two other ‘must-do’ deals, which safeguarded Heineken’s independence in the global market.
A sprawling city in Nuevo León, an arid province in north Mexico, Monterrey is famed for its hard-working ways. And among the most powerful clans in this industrious city are the Garza Sadas, who have built their fortune on oiling Mexican throats: they turned the village of Monterrey into an industrial powerhouse, as glass and steel manufacturers were stamped out of the ground to supply their thriving beer business.
Cervecería Cuauhtémoc Moctezuma, the family’s brewing business, was just a little younger than Heineken. Started in 1890, it consisted of several mighty Mexican brands, led by Sol, Tecate and Dos Equis. Grupo Modelo, the company behind the Corona brand, snatched the market leadership from their Monterrey rivals in the 1980s, but the brands sold by the Garza Sadas were arguably more upmarket in Mexico, where Corona was still regarded as a blue-collar beer.
It may have seemed a little alarming that the man in charge was known as ‘El Diablo’ (‘The Devil’), but the nickname referred only to his spirited personality. José Antonio Fernández Carbajal joined the fray in 1985 after his marriage to Eva Garza Lagüera Gonda, and he took the helm ten years later. He transformed the family beer business into a regional drinks and retail powerhouse, named Femsa. Harvard Business Review hailed him as the best chief executive in Mexico.
Femsa’s beer sales alone reached 41 million hectolitres and the equivalent of nearly €2.6 billion in 2008, about 75 per cent of that in the Mexican market (amounting to a share of 42 per cent, against an estimated 52 per cent for Grupo Modelo). An important asset was a majority stake in the Kaiser brewery in Brazil, which gave Femsa 9 per cent of the world’s third-largest beer market. But Femsa had much broader activities: its Coca-Cola bottling business covered nine countries (accounting for an estimated 10 per cent of global Coke sales), and Oxxo was described as the biggest convenience store chain in Latin America.
The Heinekens got to know their way around Monterrey from 2006, when it was agreed that the Dutch group would take care of the distribution of Dos Equis in the United States. Among the many things they had in common was a disastrous encounter with kidnappers. Eugenio Garza Sada, the grandfather of Fernández’s wife, was the victim of a kidnapping attempt by a left-wing group in the streets of Monterrey in 1973. But unlike Freddy Heineken, Garza was gunned down as he attempted to fight back, reaching for his own pistol.
The family ties eased discussions when it became clear that Femsa was considering a sale of its beer interests. The Mexicans were suddenly wary of remaining isolated in Latin America, without sufficient bulk to compete with their larger rivals. It may also have been a turning point in the board’s deliberations that Eugenio Garza Lagüera, the chief executive’s father-in-law, passed away in 2008. The auction started around the middle of the following year, and the structure of the deal offered by Heineken played strongly in its favour.
The deal unveiled in January 2010 revealed the understanding between the two families as well as the importance of the Latin American market for the Heineken group: the Dutch had agreed to pay entirely in shares. All of a sudden, the Mexicans became the second-largest shareholders in Heineken. They got a share of around 12.5 per cent in the operating company, Heineken N.V., and nearly 15 per cent in Heineken Holding. The two stakes indirectly amounted to a share of 20 per cent in Heineken, not much less than the Heinekens themselves. The all-share deal amounted to about €5.3 billion (the equity value as well as debt and other obligations), and it required a sizeable share issue by Heineken – the first time it had done so for an acquisition since it swallowed up Amstel.
Back in Monterrey, Fernández faced criticism from some Mexicans who portrayed the deal as a surrender to foreign capitalists. Others were disappointed by the price, since it had been estimated that Femsa’s beer business could fetch up to $10 billion. Fernández countered that the deal was not a sale: ‘We exchanged our brewery for Heineken shares’, he explained. He said he took the ‘toughest decision in the history of the family’ after talks with the De Carvalhos. ‘Would you consider us as your cousins?’ Fernández had asked them. They were happy to agree, especially as Freddy’s grandchildren did not have any cousins. El Diablo himself was to join Heineken’s supervisory board, along with another Mexican representative.
Heineken was quick to outline the deal’s virtues. It would help the company to tap Latin American markets, effervescent not only for their size but also for their profitable structure. This particularly applied to the Mexican market, which was the fifth largest in volume and lay almost entirely in the hands of just two companies. Secondly, the Heineken group could use its distribution to push the Dos Equis, Sol and Tecate brands around the world. With that, Heineken had America covered. There was only one more continent where the Dutch had never quite managed to shape their destiny.
Since their partnership with Fraser & Neave had started nearly eight decades earlier, the tensions between Heineken and its Singapore allies had hardly ever gone away. Heineken’s desire to tighten its grip on its Asian business led to recurrent clashes, diplomatic disasters and face-saving efforts. Insistent offers by Heineken to buy out their partners were angrily swept off the table. They may well have been grateful in Amsterdam when an outsider broke the deadlock.
The partnership started by Pieter Feith as Malayan Breweries had turned into the most wide-ranging brewing group in Asia. The venture, renamed Asia Pacific Breweries (APB) in 1990, boasted twenty-four breweries in fourteen countries, from Mongolia to New Zealand. Its sales in 2011 amounted to S$2.97 billion for an estimated 16 million hectolitres, with forty brands, led by Tiger, Anchor and Heineken. Vietnam turned into the second-largest market for the Dutch company.
However, many thought that Heineken would be able to move much faster in Asia without F&N. The management led in Singapore by Koh Poh Tiong was regarded by some at Heineken as overly cautious. There were several countries where the partnership clearly lagged behind its rivals, most notably China, which had become the world’s biggest beer market in 2002. While APB opened a brewery in Guangzhou, the two partners were frequently at loggerheads – Heineken even turned to the High Court of Singapore regarding a Chinese management appointment.
Just as frustratingly, sales of the Heineken brand itself made up just 30 per cent of the turnover chalked up by APB as the Singaporeans continued to push Tiger. The surge of the Asian middle class made it all the more compelling for Heineken to pull the blanket over to their side: many of the people who could suddenly afford a few extras were more likely to opt for a bottle of Heineken, with the label casually exposed.
Yet more tensions arose after the acquisition of Scottish & Newcastle in 2008. It included a promising asset in India: a 37.5 per cent stake in United Breweries, the company behind Kingfisher. India was a market with giddy prospects, meant to be part of the APB joint venture, but Vijay Mallya and his United Breweries apparently refused to work with Heineken as long as APB had competing assets in India. Heineken had to buy them out, in exchange for its Indonesian subsidiary and other assets.
Whenever they tried to buy more influence at APB, the Dutch were rebuffed. Han Cheng Fong, a former director at F&N, later explained that the Singaporeans’ stiff attitude was partly a matter of pride. ‘Few know that I and my colleagues in F&N made cold calls to large shareholders to buy their Asia Pacific Breweries shares to shore up F&N’s stake in it and help keep Tiger Beer Singaporean’, he wrote in the Straits Times. ‘Also, not many know that after we built F&N’s holdings in APB up to an almost unassailable position, Heineken offered to buy our APB stake at twice the then market price. We turned Heineken down because we felt APB and Tiger Beer belonged to Singapore.’
As Han Cheng Fong recalled, the board was alerted in 2006 to the fact that Heineken intended to ‘mount a takeover of F&N in order to extract APB’. His colleagues apparently felt ‘threatened enough’ to bring in a state-controlled investment fund ‘as a white knight to help in this fight against Heineken’. The supposed ‘white knight’ went on to sell its stake of 14.6 per cent in 2010 to Kirin, the Japanese brewing group. That made the situation all the more awkward for Heineken, which had to work the Asian market with a proud partner as well as a competitor (although, characteristically for the brewing business, Kirin was also Heineken’s partner in Japan).
The battle for APB was finally unleashed in July 2012 by Charoen Sirivadhanabhakdi, the man behind the largest beer brand in Thailand. Anybody who has spent more than a few hours in Bangkok will have come across Chang and its elephant logo. Thai Bev ran three breweries in Thailand and another in China, along with more than a dozen distilleries and a largescale soft drinks business.
The son of southern Chinese street hawkers, Charoen became the second-richest man in Thailand, with a fortune estimated by Forbes at about $5.5 billion. He was said to have left school at the age of nine and to have started in business with a small distillery making cheap, throat-burning liquor. Charoen switched to beer in the 1990s, when he teamed up with Carlsberg: from them he learned to brew lager, and his Chang brand rapidly snatched market leadership from Singha. He later moved on to soft drinks, agricultural projects and property. His plan to list Thai Bev on the stock exchange was thwarted by Buddhist monks, who staged anti-liquor protests. It was listed in Singapore instead.
When Charoen barged onto the Singaporean scene, 64.8 per cent of APB was owned by an equal joint venture between Heineken and F&N. Separately, Heineken held another stake of more than 9 per cent in APB, so its entire shareholding reached more than 41 per cent in APB. Almost the same could be said for F&N, which held a direct stake of just over 7 per cent in APB. But Thai Bev went for the shareholdings of another party, Oversea-Chinese Banking Corp (OCBC), which held not only an 8.5 per cent share in APB but also 22 per cent in F&N. Both were interesting for Thai Bev.
Thai Bev started stirring things up on 18 July 2012, when it issued a bid worth nearly S$2.8 billion for the 22 per cent stake held by OCBC in F&N. Another vehicle owned by one of Charoen’s relatives snapped up the bank’s 8.5 per cent in APB, with a stated ambition to mop up more on the Singapore stock exchange. The fully unexpected buys were regarded as the opening move in a high-stakes battle for the Asian beer market. ‘The tanks are in the street’, as one observer put it.
This time Heineken had no choice but to take the initiative publicly. Two days after Thai Bev’s attack, on 20 July, the Dutch issued an offer of S$50 per share in APB held by F&N, either through their joint venture or directly. Along with the shares Heineken already owned, it would then have more than 80 per cent in APB. The offer amounted to 45 per cent more than the average price of the shares the previous month.
While F&N was weighing its options, the battle started heating up with rumours of other parties sniffing at the Singaporean company. The most likely contender was Kirin. However, few believed that F&N could back an offer from any party other than Heineken. After all, much of the venture’s value resided in the Heineken brand itself, which the Dutch would be able to pull out of APB if the new owner was not to their liking.
On Friday 3 August F&N’s board finally agreed to support Heineken’s offer. Not to be undone, Thai Bev retaliated with another bid of S$55 per share – more than Heineken’s, except that the Thai offer only covered the 7.3 per cent of APB held directly by F&N. It triggered an increased offer by Heineken on 18 August, at S$53 per share for all the APB shares held by F&N.
The Singapore company’s board again supported Heineken’s offer, but Thai Bev still wouldn’t walk away. At the end of August it announced that it had built up a stake of 29 per cent in F&N, by buying up shares on the market, and two weeks later an investment group owned by the Thais offered $7.2 billion for all of the remaining shares in F&N. Given the fact that the Thais had already bought 8.5 per cent in APB, gulping F&N (and its 40 per cent share in APB) would make them the largest shareholder in this crucial joint brewing business.
Coffee machines overheated at banks and law offices around Singapore in the next week as Heineken and Thai Bev started talking. Just as they had done with Carlsberg in the United Kingdom four years earlier, the Dutch agreed to strike a compromise with Charoen: the Thais supported Heineken’s bid for APB while Heineken refrained from bidding for F&N, allowing for Charoen’s takeover of the Singapore company in 2013.
The full takeover of F&N raised the share of Asia to about 15 per cent of Heineken’s turnover. While the price of beer in China still makes it hard to turn a profit there, the Dutch rapidly increased their sales of the Heineken brand around Asia, and Singapore’s Tiger started roaring more convincingly in other parts of the world.
When the dust settled after these latest instalments of the Beer Wars, the global market was dominated by just four companies. They currently fill about half of all beer tanks in a market estimated by Beverage Marketing Corporation at 1,941 million hectolitres for 2012. The frenetic deals of the last decade have seen the market leaders tear down every geographic barrier. And the ensuing consolidation helped to slash costs, making up for pressure on margins as ever more drinkers opt for the couch instead of the bar.
While such concentration had been anticipated, it was eventually spurred on again by an unexpected bunch: Jorge Paulo Lemann, Marcel Telles and Alberto Sicupira, three Brazilian investors whose business credo was based on meritocracy and ‘zero costs’. The partnership was driven by Lemann, a former Swiss tennis champion who made a fortune at the Garantia bank in São Paulo.
Employees at Brahma, the second-largest Brazilian brewer, with the Brahma and Skol brands, did not know what had hit them in 1989, when their company was acquired by Lemann and his acolytes. The new jeans- and sneaker-clad managers fired hundreds of people and relentlessly went through expenses. They liked to say that ‘costs are like nails; they always need to be cut’. A few years later they had moved ahead of Antarctica, the market leader, and were ready to swallow it up. In 1999 Lemann and his advisers managed to convince Brazilian regulators that a combined market share of 70 per cent for Ambev, the name of the tie-up, would be judicious for the country.
The next act was even more astonishing. In 2003 Lemann began intensive talks with Alexander van Damme, described as the most active of all the family shareholders behind Interbrew in Belgium. Van Damme had an ear for the merger proposal, because he had started to map out a global strategy for Interbrew: he split the market into regional entities and targeted market leadership in each of them, potentially with a major acquisition. Ambev fitted the bill for Latin America.
Under the deal, which stunned the market in March 2004, the three Brazilians held only 24.7 per cent in the new entity, Inbev, but it quickly became apparent that they would have the upper hand in management. Carlos Brito, an uncompromising executive hand-picked by Lemann, became Inbev’s chief executive in 2005, and several other Brazilians settled down in Leuven to cut costs furiously in the small fiefdoms built by Interbrew.
Backed by Lemann and Van Damme, it was Brito who made the call to St Louis in June 2008. This time the investors had set their sights on Anheuser-Busch, the makers of Budweiser. The St Louis company had almost entirely failed to spread its operations beyond the United States, but it was still a formidable player in the second-largest beer market. The Brazilians marvelled at the opportunities if they could get their hands on Budweiser – ‘America in a bottle’, as Brito put it.
By then the management of Anheuser-Busch was in the hands of August Busch IV, the eldest son of ‘The Third’. The young man had made an arduous climb to the top. He struggled for many years to be taken seriously at the company, even though he did well in marketing with Budweiser’s unconventional Frogs and Whassup campaigns. His father was astonishingly sparing in his support. It didn’t help that ‘The Fourth’ had attracted the wrong kind of media attention in the ’80s, most disturbingly when his Corvette crashed in Arizona, killing a twenty-two-year-old waitress. The police found Busch in his townhouse, apparently in a disoriented state. The urine sample taken from him that day reportedly vanished, and his blood sample couldn’t be used as it had been put in a centrifuge. No charges were filed against him, and he denied that alcohol had played a part in the crash.
‘The Fourth’ finally made it to the hot seat in 2006, a much more amenable boss than his father. Even though the Busch family only held a small minority stake in Anheuser-Busch at that stage, he vowed that it would never be bought ‘on [his] watch’. He was so confident that, much to his father’s annoyance, he sealed a deal with Inbev to distribute their beers in the United States – giving the Brazilians valuable insights into Anheuser-Busch’s ways. A fleet of twenty planes and two helicopters, sumptuous entertainment bills and side activities such as Sea World gave them plenty of ideas.
When Brito called, ‘The Fourth’ hurriedly attempted to put together a cost-cutting plan of his own. He then worked on an alliance with Modelo, the Mexican owner of Corona, in which Anheuser-Busch had held a stake since 1993. The sale of the iconic American company, which unfolded amid mounting tensions in the financial markets, was ardently opposed by some staff and politicians. However, August Busch IV apparently failed to convince the board (including his own father). An improved offer of $54.8 billion was approved in July – the largest-ever all-cash acquisition of a consumer goods company.
The ensuing scenario had become familiar. Even though Anheuser-Busch was one of the most efficient brewers in the world, the Brazilians still found plenty of room to cut jobs and slash costs. Brito became the chief executive of AB Inbev, which moved its executive committee to New York. August Busch IV resigned from Anheuser-Busch’s board less than three years after the deal. It was alleged in Bitter Brew, a book about the Busch dynasty and the fate of Anheuser-Busch, that the bright brewing heir had spiralled into drug addiction and paranoia. Friends were said to have found a stash of about 900 weapons in his house, as well as drawers and buckets full of ammunition. Busch himself acknowledged publicly that he had suffered from depression and other issues.
The AB Inbev combine wasn’t just by far the world’s largest brewer and the most profitable of the top players; it was also one of the ten biggest consumer goods companies after groups such as Coca-Cola and Procter & Gamble. Once it had also acquired Modelo, in 2012, AB Inbev boasted sales of 425 million hectolitres – about one of every five beers imbibed anywhere around the world.
Meanwhile, South African Breweries walked away with Miller Brewing, in a deal sealed in 2002 for $3.6 billion. The resources pumped by the former Philip Morris into the Milwaukee brewer never sufficed to undo Anheuser-Busch and its Budweiser brand. That group’s sales reached some 245 million hectolitres for the year until the end of March 2014, with strongholds in Africa and the United States. SAB Miller also has 49 per cent in the joint venture China Resources Snow, which has become one of the world’s largest brewing groups after the acquisition of a gaggle of Chinese breweries (including former Heineken assets in Shanghai and Jiangsu province).
After its own major acquisitions, the Heineken group has brewing plants on all continents, employing more than 85,000 people. In 2013 it sold 178.3 million hectolitres of beer (195.2 million with its share of joint ventures) and reached a group turnover of more than €21.5 billion, making it the third largest in the world. But it is less profitable than the market leader, which some attribute to family legacy – or the company’s unwillingness to dismantle some of the structures put in place by the late patriarch.
The countries where Freddy Heineken built up the brand are no longer the most attractive for Heineken. The group continued to reinforce its presence in Western Europe with sizeable buys. Spain became one of Heineken’s largest European markets after it snapped up a majority stake in Cruzcampo, a leading Spanish brewer based in Seville. Another gap was filled when it swallowed the Austrian Brau Union for €1.9 billion in 2003. And expansion continued unabated in Eastern Europe with acquisitions like Krušovice in the Czech Republic, as well as investments in local brands such as Żywiec in Poland. However, cost-cutting has been the order of the day for Heineken in Europe for several years as regional beer consumption has steadily declined, under pressure from smoking bans in public places and changing alcohol consumption. Another strategy to make up for the dwindling thirst for beer in Western Europe is to roll out scores of lowalcohol and even non-alcoholic drinks. Several decades earlier Heineken had already acquired a soft drinks business as well as several distilleries, which enabled it to capitalise on its distribution. The company has been investing much more in innovation in the last years, for new products as well as packaging and by-products to stimulate beer sales, such as home draught kegs.
The European beer business’s promiscuity has also triggered costly anti-competition investigations – which led to a whopping fine of over €219 million for the Dutch brewer in 2007, for alleged collusion with Grolsch and Bavaria to fix prices in the Dutch market – denied by all three brewers. The EU’s file described meetings that took place in hotels and bars around the country to discuss pricing in the late ’90s. Interbrew was part of the talks but not fined because it acted as the whistle-blower. The EU General Court later reduced Heineken and Bavaria’s fines by about 10 per cent and annulled Grolsch’s fine.
Heineken remains a major employer in the Netherlands owing to its gargantuan brewery in Zoeterwoude, which is described as the largest in Europe, with an annual capacity of 12.5 million hectolitres. But the Dutch market has become almost an afterthought for the company, estimated to make up just 3 per cent of its sales in 2013, even though it markets the country’s two best-selling brands. Even Heineken’s branding in the Netherlands has been adjusted to other countries, with the brown bottles and yellow crates being replaced with green versions. The switch occurred in 2012 in the huge Operation Leo, named after the American importer.
The company’s business in the United States is not satisfactory in every respect, and former employees at VMCO are particularly upset that Corona snatched the label of top imported beer from Heineken. ‘Heineken USA chose to ignore the decades of experience it had within its employ, and to chase growth through ill-advised, ill-thought-out, and just plain dopey product extensions’, said Philip van Munching. ‘The Heineken brand, with a much larger (and costlier) staff behind it, along with considerably more spending, has seen nothing but a decrease in market share since my father stepped down from VMCO.’
The fate of Heineken Light seems to support the stance taken by the Van Munchings, who fully supported Freddy Heineken’s decision to oppose such a beer. Heineken Premium Light was received with enthusiasm in 2006, as a low-calorie import beer that still contained 3.2 per cent alcohol. It was supported by an advertising budget estimated at no less than $50 million, but America’s thirst for it was rapidly quenched. As sales started to sag, the name was changed to Heineken Light, and the company hopped from one advertising agency to another, trying five of them and as many campaigns over less than a decade. None of them had a significant impact on sales: in 2014 Heineken Light was described as one of the the fastest-declining beers in the USA. While Bud Light and Coors Light turned into the two bestselling brands in the US (ahead of Budweiser), Heineken Light was still tiny, languishing at less than 0.2 per cent of the market.
The company’s US managers acknowledged that the market had been changing beyond recognition. While beers such as Yuengling and Samuel Adams have become widespread, hundreds of much smaller outfits have sprung up to quench growing thirst for distinctive craft beers. Dolf van den Brink, the youthful chief executive at Heineken USA, pointed to ‘dramatic change’ in the industry as the number of US breweries had soared from just fifty three decades ago to over 4,000 in 2014, and the number was still rising. Heineken is capitalising on the trend towards diversity with its multiple offering, describing Dos Equis as one of the fastest-growing beers in the country, and the same for Tecate Light in the light category.
Along with its new-found expansion in Asia and Latin America, Heineken also distinguished itself with its largescale presence in Africa. Building on the assets it inherited from its holding company Cobra and its long-dissolved partnership with Unilever, the company has brewing plants right across Africa. The business is mostly built around the Star and Primus brands, the latter to be developed as a leading brand in and around Africa, along the same lines as Tiger in Asia. Africa (and the Middle East) makes up about 14.5 per cent of the company’s turnover, with Nigeria estimated to be the group’s second-largest market after Mexico and before Vietnam. Heineken has pledged some of its most intensive social investments in Africa.
The Heineken group’s size, diversity and prospects continued to whet the appetites of mighty predators in the last years. Further large-scale acquisitions in the global beer market appeared impractical, because the buyers were almost certain to be confronted with competition issues in at least some countries. But this apparently hasn’t deterred AB Inbev from studying what has been described as the ultimate mega-merger in the beer industry: a tie-up between the world’s two largest brewers, in which the Belgian group would gobble up SAB Miller. Rumours of such a takeover attempt have been doing the rounds for several years but they resurfaced more insistently in 2014, as AB Inbev finished digesting its acquisition of Anheuser-Busch. It would form a beer behemoth making up about 30 per cent of the global beer market – before likely disposals. Among SAB Miller’s most interesting assets is its business in Africa, where AB Inbev has yet to make significant inroads. The company is listed on the London stock exchange.
It was Heineken that added fuel to the speculation in September 2014 by revealing that it had been approached by SAB Miller for a potential acquisition. Many were quick to interpret SAB Miller’s move as a way to protect itself from a takeover attempt by AB Inbev. The Wall Street Journal went on to report that AB Inbev was raising funds for a potential, mammoth acquisition bid, perhaps reaching £75 billion.
Heineken promptly added that the tie-up proposed by SAB Miller was ‘non-actionable’ because the Heineken family wanted to ‘preserve the heritage and identity of Heineken as an independent company’. L’Arche Green, the holding company of the Heineken and Hoyer families, had seen its stake in the Heineken Holding reduced from 58.78 per cent in 2007 to 50.57 per cent at the end of 2010, due to the Femsa deal, but since then L’Arche Green again slightly reinforced its shareholding to 51.48 per cent at the end of 2013. Charlene de Carvalho announced that year that she intended to spend about €100 million on Heineken Holding shares, and went on to acquire several packages in the next months.
Jean-François van Boxmeer likes to say that he and the other Heineken employees around the globe are united by the ‘green blood’ flowing in their veins. Yet this allegiance remains most deeply anchored in the Heineken family, which has clearly reaffirmed its grip on the company and may well continue to drive it in the years to come.