As time has gone on, the so-called “MegaBrew” deal between Anheuser Busch InBev and SABMiller has come to seem less likely, tho that certainly hasn’t quelled speculation. “Unlikely but not impossible,” headlined Bernstein’s Trevor Stirling yesterday in 25-page report, reiterating his stance from a yr ago and updating with some new looks. He underscores points you have likely heard before regarding “executional risks,” “value leakage” because it would be a “forced seller” of assets (58% stake in MillerCoors, 49% of China Resources, etc) and “have to take a haircut,” “mega clash of cultures much more likely” etc. Then too depending on structure of transaction (i.e would SABMiller’s core shareholders take equity in combined entity?), “it would be difficult to square the circle of accommodating Brazilian, Belgian & Columbian shareholders plus Altria inside an agreed governance structure,” adds Trevor. SABMiller shareholders Altria (28%), Santo Domingo family (12%) have gotta be happy with deal they’ve had being part of SABMiller, and may not look favorably on complexities of potential takeover by ABI. SABMiller shares doubled in last yr, Business Day paper in South Africa noted today, adding that “analysts attribute SABMiller’s strong share price to speculation that the second largest brewer may be a takeover target of the largest,” but also because of SABMiller’s track record.

Stella more than doubled in last four yrs in Nielsen grocery store data, even as its ACV distribution started to level out between 70-80% since 2008, a Nielsen analysis recently showed. Ad spending on Stella basically tripled in last 3 yrs, according to Nielsen AdViews data. Jumped from $11.5 mil in 2008 to $33.5 mil in 2011. What’s more, none of its 2008 expenditures were network tv, but 40%+ were last yr, so it’s “more visible” sez Nielsen. Recall Stella up 24% in 2011. And it’s on a similar growth trajectory in 2012, up around 25% INSIGHTS understands. At current growth rates, Stella could approach 1.5 mil bbls in 2012.

Mich not only has strong 3-tier system, but lengthy history of attacks on it. Recall, that’s where Granholm case started and subsequent fed ct case there was won by retailers who wanted to ship direct, and won right to do so. At same time, libertarian think tank Mackinac Center has been hammering wholesalers as “monopolists” with steady drumbeat of white papers and op-eds. In its latest salvo, published in MLive yesterday, Mac attacks exclusive territories for raising prices. Calls again for state reform that would mean “killing these wholesale regulations” which are “fundamentally unfair to Michigan consumers” and “benefit a relative handful of wholesalers.”

Elsewhere, current issue of Mich Law Review includes lengthy article that calls for courts to “discard the North Dakota dictum” and declare 3-tier system unconstitutional. That “dictum” is the oft-cited (by distrib advocates) sentence from Justice Scalia that called 3-tier system “unquestionably legitimate.” In lengthy and detailed analysis, author argues that Granholm citation of that line was “ill considered” and that US Appeals Cts also erred in citing it to uphold state laws in NY and Tex. Those laws barred out-of-state retailers from shipping direct to consumers in those states. Relying incorrectly on Scalia dictum has led these and other courts to “treat the 3-tier system as sacrosanct,” the author argues. Why discard the dictum? It originated in North Dakota case that “has little relevance to the dormant Commerce Clause challenge that the Court heard in Granholm.” ND case involved Supremacy Clause, not Commerce. Then too, ND decision cited earlier Sup Ct cases that are not “good law” after Granholm.

A correct reading of Granholm and other Supreme Court cases, author concludes, would entail “strict scrutiny” of 3-tier system. Under that scrutiny, courts would force states to prove discriminatory state laws meet “heavy burden” of: 1) promoting legit state interest (i.e. temperance, tax collection, orderly mkts, etc) and 2) explaining why same goals can’t be achieved with non-discriminatory laws. Under such scrutiny, “the 3-tier distribution system would be found unconstitutional,” the author insists. “Though it may seem a drastic course to dismantle a system that has been in place for 75 years,” she observes, “the Constitution mandates such a result.” Looks like rebuttal time.

Craft Brew Alliance – combo of Widmer, Redhook and Kona – lagged craft growth in 2011, but solidly improved financials. Volume up 39,000 bbls, 6.6% to 623,000 bbls, excluding contract biz which more than doubled. (Depletions also up 6.5%.) That was a bit less than we estimated for CBA brands back in Jan. Widmer brands slipped 2% to 271,000 bbls; Redhook trend reversed to +3%, 179,000 bbls; Kona up 30% to 173,000 bbls. Revs up 13% (including contract biz) while costs of goods sold up just 6%. So gross profits up over 1/3 to $45 mil and gross margin expanded from 25.6% to 30.3%. Even while CBA jumped selling, gen and admin expenses $10 mil, 33%, operating income up $2.3 mil, 72% to $5.4 mil. Tack on over $6 mil after tax from sale of Goose Island and CBA’s net income soared from $1.7 mil in 2010 to $9.7 mil last yr. CBA also benefitted from reduced fees paid to AB. Lookin’ forward, CBA expects depletions growth in high single digits to low doubles this yr, revs up 10-12% and higher gross margins again, tho not the kind of margin growth it got in 2011. Also plans far more modest SG&A boost. CBA stock down 3% so far this morn to 6.33; its mkt cap at $120 mil.

Grupo Modelo has terminated contract of several of its largest importers in last 5 or so yrs: Gambrinus in US, Mark Anthony in Canada and now Foster’s in Australia. Modelo exercised change of control clause following SABMiller purchase of Foster’s last yr. It will reportedly move its brands to archrival Lion Nathan’s, making Lion Nathan a new #1 in Australia. Foster’s sold about 7 mil cases of Modelo products in 2011, which accounted for 7-10% of Foster profits, according to various estimates. Foster’s said it exceeded “all contractual requirements” and SABMiller said its earnings from Foster’s would remain “broadly unchanged” despite the loss of Modelo portfolio. Foster’s has also lost Stella and Asahi since takeover.

As ABI exceeded debt reduction target of 2.5x net debt to EBITDA, up to 40 execs became eligible for “bonus pot” presently worth $1.6 bil, wrote Financial Times. Half of options become vested in 2014 and the rest in 2019. ABI ceo Brito’s stake is worth $182 mil at present prices. Not bad. His salary and bonus were a little over $3 mil in 2011, which is low for ceo of co with $40 bil in revs. Financial research group Obermatt told FT that ceos at cos of similar sizes could expect total package worth $8 mil in Europe and $13 mil in US. But big options package “raised eyebrows,” wrote FT. Obermatt exec sez they are “far too costly and arbitrary for a sound remuneration policy of a large company.” Former AB prexy Dave Peacock was originally one of the 40 execs, along with Evan Athanas, Keith Levy and others now gone. Dave’s options would have been worth $40.5 mil, but he “stepped down…before the 2014 trigger date,” wrote St Lou Post Dispatch, noting it’s “unclear if Peacock received other compensation when he left.” (Reportedly, he did.) Sales veep David Almeida (one of architects of deal) also has options presently worth $40.5 mil, wrote Post Dispatch.

New more aggressive Corona Light ad campaign from former AB agency Goodby Silverstein featured in Ad Age. Goodby also has account for Crown’s key growth engine, Modelo Especial, and it’s “finalizing Modelo Especial’s first English language campaign set to premiere in select markets this year,” wrote Ad Age. “The goal is to expand the brand beyond its Hispanic base, which accounts for about 80% of volume.” Crown will need to do that to come anywhere close to ambitious long range 100-mil case goal. Crown expects Modelo Especial to pass 40 mil cases in 2012. Goodby also has Tsingtao brand on a project basis.

Legal battle between Yuengling and All Star didn’t start out as termination bid. But it is now. In response to All Star’s lawsuit in Reading, Yuengling brought up “New Matter.” Now seeks court declaration that it “has the right to terminate All Star.” Why? As reported in latest Beer Marketer’s INSIGHTS, All Star and proposed buyer Origlio “are two of the worst performing wholesalers in the entire [Yuengling] network… for the sale and distribution” of its brands, Yuengling charges. Their volume losses, short- and long-term, among biggest in Yuengling’s 150-distrib system, Yuengling numbers show. Also, All Star failed to: 1) “devote reasonable effort and resources” to Yuengling brands; 2) “promote the products effectively”; 3) “meet joint marketing sales plans”; 4) “maintain reasonable sales level.”

All Star atty Joe Wolfson responded: “My client believes the allegations are completely without merit and looks forward to responding to them both in its formal response later this month as well as in court at a hearing, to demonstrate the lack of merit of Yuengling’s allegations.” All Star also filed brief that clarified its position. Critically, All Star contends it “never signed or accepted” Yuengling’s Distrib Agreement, but rather their relationship based solely on earlier appointment letters. Those letters included Yuengling’s “Distribution Rights Transfer Policy” (that Yuengling relies on for approval/ disapproval of deals) only as “proposed” policy and that policy also “never agreed to or acquiesced to by All Star.” All Star also repeats that Pennsy law requires “good cause” for termination or preventing sale. Yuengling does not have cause since Origlio “qualified” as Yuengling distrib. (This is abridged version of article in current Beer Marketer’s INSIGHTS that broke as BMI went to press.)

Digging further into all those strong analyst recommendations of ABI last week, turns out even some of most bullish reports are estimating volume declines for AB in US in 2012 and continued tho moderating share loss. Both Redburn’s Chris Pitcher and UBS’s Melissa Earlam forecast AB down 1% in 2012, while emphasizing improved US mix/margins etc. Morgan Stanley’s David Belaunde credits “AmBev-type execution starting to bear fruit in the US” for recently improved top-line in US, more so than weather or Bud Light Platinum. “We believe the crucial factor is the implementation of ABI’s sales model, since the arrival of new management in the sales organization” (i.e. David Almeida and others). Morgan Stanley doesn’t provide 2012 US volume estimate. If with all the innovation AB is bringing to party in 2012, its volume still down 1%, then next yr will face big hurdles. Meanwhile, tho almost all analyst reports INSIGHTS got were “buy” or “outperform,” one analyst sez about 40% of analysts out there have “hold” or “sell” on ABI. ABI stock up more than 50% since Aug lows last yr.

Beer biz up 0.5% yr-to-date thru Feb 25 in Nielsen c-store data. That’s much improved from 52-week trend, which is down 1.6%. But nowhere near where Symphony IRI Group has ’em so far in 2012; up 5% thru Feb 19 and up 1.2% for 52 weeks. Beer Institute’s c-store data, which tracks over 90% of volume, reportedly down 1% in calendar 2011 but up in recent months. All these data sets have strengths and weaknesses, but Nielsen and Beer Institute more in sync.

AB volume nearly flat in Nielsen c-stores, down 0.4% YTD, while MillerCoors down 1.8%. MC lost 0.6 share of cases, AB lost 0.5 so far in 2012. Top importers faring much better so far. Heineken USA up 3.4%. But Crown up 10% (about what Crown’s overall trend in c-stores was both last yr and this yr). Total above premium biz up 10% in c-stores and gained 1.3 share to 15, led by superpremiums up nearly 20%. That’s obviously the Platinum effect, tho we don’t have breakout of Bud Light Platinum in Nielsen c-stores. Meanwhile, so far in 2012, top brands faring better in largest channel than they are in supers. Coors Light up 1%, while Bud Light and Miller Lite basically flat. Brand Bud down 4% YTD in Nielsen c-stores.