Several articles appeared in recent days regarding 1% or so stakes taken in SABMiller by a couple of powerful activist investors, Elliott Capital Advisers and TCI, with headlines like “currency flaws” (Telegraph) and “trouble brewing” (Sunday Times).  “Influential shareholder advisory firm” ISS warned there is a “material difference” between what SAB’s 2 largest investors, Altria and Santo Domingo family, would get compared to other shareholders, said UK’s Telegraph.  One top 10 investor questioned whether ABI offer “is still a good deal for all shareholders,” Telegraph added. 

Speculation increasing that either or both of these activist investors will agitate for higher share price.  Basic problem is devaluation of the UK pound.  Recall, takeover offer in 2 parts, the all cash part worth 44 pounds per share and the “Partial Share Alternative” almost entirely for Altria and Santo Domingos, which was worth 39 pounds when takeover announced, but now worth over 50 pounds.  The PSAs have gone from a 4% discount to a 16% premium to the cash offer, noted St Lou Post Dispatch this morn.  But Redburn’s Chris Pitcher noted that Partial Share Alternative “restricted” and “will be unlisted and subject to a 5-year lockup,” meaning “they will have zero liquidity for 5 years, thereby further limiting their appeal.”  Deal requires approval by 75% of shareholders and “vote is expected to take place only once outstanding antitrust approvals have been granted,” wrote Post Dispatch.  “Another source close to the deal suggested the activists might struggle to garner enough support among SAB shareholders to call for a rewrite of terms at this late stage,” noted Post Dispatch.  “It’s a dangerous game and there’s no certainty that ABI is willing to raise its offer,” source told paper.  “The pound is going back up and this plays in favor of the existing arrangement…. Shareholders want to get this deal done.”   

Consumer price index for beer increased 1.9% in Jun vs yr ago, continuing to outpace general inflation which grew 1%, per latest gov’t stats.  Beer price increase in Jun a bit lower than gains of 2%+ in Apr and May.  CPI for spirits increased 0.5% in Jun vs yr ago while wine prices edged up 0.3%.  YTD thru Jun, CPI for beer up avg 2%, nearly double general inflation (+1.1%) and way ahead of spirits (+0.3%) and wine (+0.1%) prices in 2016.  

Just about a half yr after it bought AB distribs in NC and Ala, Adams Bev has struck again with deal to purchase 3.4-mil-case Rex Dist in Biloxi, MS, pending supplier approval. Deal expected to close at end of August.  Rex is near Adams’ Alabama operations, which are run by AB panel chairman Philip Mullen (tho there are some dry counties in between). Recall, Adams also purchased Charlotte in 2012. So once this deal closes, Adams Bev will have gone from under 3 mil cases to almost 15 mil cases in less than 5 yrs.  That’s ramping up in a hurry.  Meanwhile, also interesting to note that Rex Dist took on Yuengling earlier this yr and it’s reportedly getting about a 4 share in much of state so far.  AB at near 67 share in MS in 2015, its highest in US.  

Lotsa attention these days on beer labels, from Budweiser’s “America” to craft brewers strugglin’ to avoid trademark disputes to serving facts.   Most recent move deserves more comment: Beer Inst’s 6 largest members agreed to adopt several serving facts guidelines originally cleared in mid-2013 by TTB.  Recall, language on labels strictly regulated by feds.  Distillers lobbied for decade to get Serving Facts cleared in part as an effort to advance message of equivalence/“drink is a drink.”  When TTB ok’d voluntary Serving Facts, it allowed labeling of “serving size,” ABV (alcohol by volume) and oz of alcohol in that serving, as well as some nutrients. So ostensibly, distillers could label a serving size of spirits of 1.5 oz of booze at 40% having 0.6 oz of alcohol, their version of “standard” drink.  Same labels would include servings per bottle, as well as calories, carbs, fat and protein per serving.   Three years later, here come 6 BI members (AB, MC, Constellation, Heineken USA, NAB and CBA) committing to provide: 1) calorie, carb, protein, fat and ABV info on labels via a serving facts statement; 2) ingredient info on labels, secondary pkng, website reference or QR code; 3) freshness date or date of production on labels/primary containers.   While these brewers, who represent about 81% of US volume, agreed to the voluntary disclosure initiative and will disclose data by 2020, BI also encourages all members to do so, as well as non-members.  Reactions have been varied. 

• Most of the media coverage, and there was tons of it, has been positive, following the line of thought that brewers are providing more information to consumers who seek it.
• That said, WSJ focused early in its coverage on “criticism from consumer advocates,” like CSPI (mostly silent on alc bevs for yrs).  CSPI said that if brewers “take pride” in their ingredients they should put them on the package, not websites.  Also pointed out that brewers use artificial colors, flavors, etc.
• Brewers Assn said it supports transparency but acknowledged compliance with BI’s Initiative would be a challenge for some craft brewers given cost issues and number of brands members produce.  Some suggest BI adopted initiative in part to pose that very challenge to small brewers and possibly create competitive advantage.  Are higher calories and ABV an incentive or disincentive for craft drinkers?  In any case, craft drinkers have tons of choice within the category. 
• MC pointed out it has provided this data on labels for a coupla years; AB pointed out that this info has been on its tapintoyourbeer.com website, also for a coupla years.
• Beer Inst stressed that this was first “industry wide” labeling move, as neither Distilled Spirits Council nor Wine Inst has acted.  BI believes such “first mover” status improves its position and future strategy within the beltway.  Indeed, initiative very much about DC politics. 
• Distilled Spirits Council took oppy to call the brewers’ decision a “positive development,” with this clever kicker, “given the significant growth of high alcohol beers in the marketplace.”  The distillers’ assn also took oppy to note US Dietary Guidelines define standard drink, claim that the brewers’ decision will “help inform” consumers that many beers contain more than a standard drink and that “there is no beverage of moderation, only the practice of moderation.”
• Diageo reminded that it already labels Captain Morgan rum and Smirnoff Ice Electric malt bevs with serving facts and has committed to expanding them across its portfolio as it “refreshes” packaging.

The initiative raises other questions:

• Just how clear is ABV info to consumers?  The sample label provided by BI initiative does not include alcohol per serving, but rather relies on the consumer to do the calculation of ABV % X the serving size. Easy enough, perhaps, especially since most beer is still consumed in 12-oz packages and is between 4-5% ABV.  But lotsa beers are sold in 24 oz containers.  Is that a single serve?  Others are sold in 8 oz containers at 8%+ ABV.  Some still in 40-oz containers.  On-premise pours vary considerably, with tons of pints going across the bar.  Do those consumers deserve full disclosure?  Brewers will need to take care that their disclosures are in no way misleading consumers about the alcohol in their “serving.” 
• Will states have any issues with any of this and re-enter the labeling field, adopting their own new, creative restrictions and required disclosures?
• BI claims this initiative will help restaurants comply with FDA’s menu requirements, slated to go into effect next year.  Will the initiative invite FDA to seek broader, more and/or different nutritional or health statements on alc bev labels?
• Why is this a big deal and even a subject of debate, association politics and more?  Shouldn’t any producer of any product to be consumed by the public disclose what’s in it, as clearly and transparently as possible? 

We heard all the plans and programs at the supplier sales mtgs earlier this yr.  We saw the new entries.  We felt the excitement, the anticipation, the train leaving the station.  And yet brewer/importer share shifts have barely altered in Nielsen off-premise scans, if you compare calendar 2015 to yr-to-date thru Jul 2, 2016.  Indeed, only 2 share change differences in table below more than 0.2 for any individual supplier: AB $$ share change improved by 0.4, tho it still lost 1.1 share and volume share improved by 0.3, tho still down 0.7.  Those AB improvements flipped in Boston’s share reversal from +0.1 to -0.1 and notably less share gain by All Others, suppliers below top 10, mostly craft.  Otherwise share change remarkably stable across the board.  Gotta note that Constellation has not boosted share gain much.  But it can’t be too upset by continuing to gain full share.  And Pabst still gaining incremental share from NYFRB, tho lapping has begun.  What’s this all mean?  Moving the needle just ain’t easy, even with innovation and especially with thousands of competitors on supplier level and tens of thousands on brand level.  And that’s just within beer.  Throw in all other bevs seeking mouth space and prospects daunting indeed.

Amendment to wipe out Mass franchise law put aside yesterday.  Instead, legislature passed different amendment that creates task force of brewers, distribs and official appointees that will “have until Dec. 31 to draft rules spelling out when and how a brewer is permitted to fire a distributor and switch to a new one,” as Boston Globe reported.  Senate staffer confirmed to paper that if task force can’t agree, state senators will reintroduce their own bill: “if they can’t figure it out, we’ll figure it out for them,” staffer said.  Rob Martin, prexy of Mass brewers Guild said “if it takes a piece of legislation to actually have [distributors] come and negotiate, I’m all for it.”  

As we reported earlier this week, Baltimore County judge dismissed distrib FP Winner’s suit vs Pabst over 2015 termination.  Recall, judge ruled Pabst could terminate Winner under Maryland successor beer manufacturer law.  Also ruled that since Winner did not follow process of negotiation with distribs that got brands to determine their fair mkt value, Winner’s attempt to recover FMV was “time barred.”  So judge also rejected that attempt.  In papers we saw, number of Pabst cases that went to new distribs not disclosed.  But Winner did say it was 27% of its volume, 14% of total revs, 17% of GP and that “average gross monthly sales” of its Pabst products were “in excess of $1,000,000 per month.”  At $12 mil/yr, that implies about $3 mil GP and at going multiples suggests at least $9-10 mil fair mkt value Winner may have lost, our sources say.  Winner may appeal of course, but right now it’s out the brands and the value.

Busy times for Pabst legal.  In addition to winning Winner dismissal in MD and battlin’ MC in Milwaukee over future contract production, Pabst also trying to get case filed by several Ohio distribs dismissed.  Predictably, Pabst wasted no time in providing US Dist Ct in Oh with fresh copy of US Appeals Ct’s recent decision supporting terminations by different supplier (NAB owner) of some of same distribs that Pabst terminated in 2015 under same Oh law.  (See Jul 11 Express.)  Indeed, US Dist Ct had put Pabst case on hold pending 6^th Circuit’s decision “because the statutory and constitutional issues in [NAB] case were so similar in this case,” Pabst pointed out.  As we noted earlier this week, distribs terminated by Pabst argued that like NAB purchaser, Pabst not true successor brewer under Oh law that can terminate without cause after purchase, given that purchase happened via several levels of holding companies.  But Appeals Ct focused on “control” of brands and found control clearly passed in NAB situation.  And that sure seems same in Pabst situation.  In any case, Pabst noted that Appeals Ct dismissed “constitutional challenges raised by” some of same distribs in NAB case and that “the rationale of the Sixth Circuit applies equally to the issues in this case, and supports the entry of summary judgment in favor of Pabst.” 

Franchise law has not been hot issue this legislative session.  But long-simmering tensions between Mass brewers and distribs erupted yesterday when state Senator filed proposal that “would effectively repeal the state’s decades-old beer-franchise law,” reports Boston Globe.  Instead, amendment provides that relationships between brewers and distribs “shall be governed by the parties’ agreement, the law of contracts, and/or other generally applicable provisions and principles of commercial law.”  Recall, for yrs Mass brewers complained it’s too hard to move brands; distribs counter brands move all the time and consumers have vast choice.  All attempts to reform bill in legislature previously failed.  This late-session move unlikely to succeed either; House Speaker told Globe lawmakers likely to postpone action until next year.  Even the sponsor said: “It’s my hope that moving the amendment will potentially get the two sides to work it out.  If not, the next step is to change it by pushing the issue.”  House Speaker added: “They better get serious about coming to the table.”  (Amendment scheduled to be debated/decided today, we’re told, as legislative session winds down.)   Important context: both Mass governor and state treasurer voiced need to reform “antiquated” alc bev laws and “reform bureaucratic hurdles” to increase choice/convenience.

Rhetoric of course heated up with proposal.  Beer Distribs of Mass prexy Bill Kelley blasted proposal as “last-minute, back-door attempt to force a more extreme version of a long-rejected bill into law.”  Amendment would hurt family bizzes and working families, Bill added, and “uses an approach completely lacking in transparency, openness and public deliberation.”   Small brewers defended need for reform, natch, to prevent distribs from “squatting” on brands.  Night Shift co-founder Rob Burns told Globe current law “like marriage without the option to divorce.”  (Globe mistakenly reports Mass has 50K-bbl cap for self distribution.  It actually has 50K-gallon cap, but brewers can also apply for distribution licenses there, so there’s effectively no cap for self-distribution.)  Boston’s Jim Koch chimed in: “The current [alc bev] laws are an impediment to craft brewers being able to grow their businesses.”  Unfortunately Mass data flow stopped in Sep 2014 at key time as Yuengling was entering the biz.  But even back then, craft had over 18 share in Mass already (yr-to-date), over 22 if you include Yuengling.  Half of top 20 suppliers were craft and state report listed 370 different suppliers who shipped beer in state in 2014.

You may not recall, but back in mid-2013 TTB okayed a “Serving Facts” statement that alc producers could voluntarily place on their labels with info about serving size, alc bev by volume (ABV), calories, carbs, protein and fats.  MC got out front and provided such info for its Miller 64 brand and subsequently added serving facts for Coors Light/Banquet, Miller Lite, Mil’s Best brands, Blue Moon, Foster’s and more.  Other brewers big and small label ABV, nutritional facts and/or ingredients.  Now, Beer Inst announced a voluntary initiative by 6 of its biggest members ‒ AB, MC, Constellation, HUSA, NAB and Craft Brew Alliance ‒ about 81% of US beer.  Each of their brands will make this information available by the end of 2020. 

BI Prexy Jim McGreevy points out “this is solely a Beer Institute initiative.”  Neither Distilled Spirits Council nor Wine Inst has done anything similar, tho Diageo has announced Serving Facts labels for a few of its brands.  ABV data not based on “standard serving,” or “typical drink,” Jim notes, so there’s no move toward equivalence here, but based on “what’s inside the container.”  While the BI initiative gives the brewers 4 years to fully comply – the data can be on the label, secondary packaging, websites and/or via QR code – “I think you will see these labels in the marketplace very soon.”  Data will also help restaurants comply with FDA’s menu labeling requirements next yr.  “Consumer friendly freshness” info, via date of production or “best by” info also part of the initiative.  BI has also discussed initiative with Brewers Assn and hopes smaller brewers will follow suit, Jim said.  An issue for many small brewers, with Serving Facts and FDA guidelines, is expense, capability and practicality of testing across so many brands.