AB stock price up 35% and Coors up 47 thru 11/29. Why? They are "delivering on numbers" with "consistent double-digit earnings growth," Salomon Smith Barney’s Jennifer Solomon said in panel discussion at Beer INSIGHTS Seminar. That’s not generally true "among consumer non-durable names." Lehman Bros’ Mike Branca credited "a very sane business architecture," including "good volume, good pricing, good profitability." "None of the players have incentive to disrupt," noted Sanford Bernstein’s Bill Pecoriello. In fact, they have "strong incentive to continue this pricing environment." Another key: AB chairman August Busch III "definitely had an epiphany," said Jennifer, that "it doesn’t have to all be about market share gains." When AB takes prices up more, grows volume less, that’s "better for AB" and "better for the overall condition of the industry," said Mike.

AB has a "sophisticated" business model with a lot of "leverage," said Jennifer and "domestic situation looks great" for AB, said Bill. But these panelists pointed to some issues for AB too. Import share will "continue to grow," Jennifer said. "This is an important long-term issue for Bud," especially if "Miller stabilizes" since "right now, AB can source market share gains from Miller’s continued declines." Then too AB "has not played a major role" in globalization so far, said Bill. But "what is the endgame?" At Miller, "they’re taking the right steps," said Mike, and parent co PM has "been unbelievably patient." "Miller Lite is beginning to get traction," he added, especially when you consider how much its pricing up. Jennifer concurred: "I do think Bowlin is making the correct steps." "They’re on the right track but they’re not there yet," said Bill. It "really has been a very arduous process" fixing Miller’s sales and marketing, said Jennifer, understating that Miller doesn’t yet have "momentum." While PM "committed to turning Miller around," as indicated by "stepped-up" marketing next year, said Bill "I don’t believe PM will hold onto Miller ultimately." (Bill covers tobacco, too.) Expects sale within 3 years. Jennifer said: "I would expect Miller to be a separate company." (Editor’s note: top PM execs have often said Miller not for sale.)

"The key to the success of Coors is that they have an outstanding management team," said Mike. "They’ve been making a lot of the right decisions.... And it’s a darned good thing," given their size disadvantage. But Bill said: "Coors is always going to be on the edge. They can never blink" with 75% of biz in 1 brand, 50% of biz in 5 states, scale disadvantage. Risks, according to Bill: mktg hikes affect Coors earnings more, high cost of building extra capacity, and in key 21-27 demographic, Coors Light "slipping a little bit." Jennifer also "cautious" about Coors, because it’s not as predictable as AB. Even tho "these guys have done a great job" what Coors "basically said is ‘we don’t know what our numbers are going to be.'" (Coors doesn’t give guidance on future trends). All 3 thought Coors/Miller combo would make sense financially, but doubt it would happen.

Since more distrib consolidation down to 2 distribs in many mkts is a given to all 3 panelists, Bill asked: "To what extent does the consolidation strengthen Miller's and Coors' ability to compete against Bud? I think it does." Mike too: "Oh yeah. There’s no question about it." But Jennifer added "Bud’s doing a pretty good job of recognizing that the day will come of... a stronger distributor competitor." With impact selling and other systems, AB is "doing all the things they need to do to be... ahead of the game." At same time, all 3 were skeptical of a market for public beer distributors, even if they were allowed. "I don’t think there would be a huge public appetite for the distributors," said Bill. With soft drink bottlers trading at 6-8x forward EBITDA and most beer guys probably worth less in "heavily regulated" biz, lower valuation "does not inspire a lot of love in the financial community," said Mike. And none saw 3-tier system at risk in near future.

Beck?s on the block, with Interbrew reported ready to offer up to $1.4 bil. Beck?s and Interbrew not commenting, but Interbrew has snagged "exclusive" rights in bidding, say several reports. Beck?s deal would catapult Interbrew?s Labatt USA to over 5 mil bbls. But it ain?t a done deal, so stay tuned. .........In big win for states? rights to control alc bevs, fed ct judge upheld Fla ban of direct shipments. Wrote: "Although Florida?s statutory scheme violates the dormant commerce clause, it represents a permissible regulation under the 21st Amendment..... Recent case law has recognized that there are various ?core concerns? of the 21st Amendment, including temperance, raising revenue and ?ensuring orderly marketing conditions." Motives behind Fla?s direct shipments ban "fall well within" those "core concerns." Fla?s law, judge noted, "enacted...to address a perceived ?threat to the public health, safety, and welfare, to state revenue collections and to the economy of the state.?" Those interests "outweigh the minimal burden placed on interstate commerce." This is 3d recent fed court win for states? rights to stop direct shipments. US Appeals Ct upheld Ind law, and US Dist Ct judge in Tex withdrew her original opinion which had tossed a Tex law. ..........Miller and NY metro area distrib Oak settled after brief US Dist Court hearing. As of Jul 31, neighboring Phoenix Bevs will sell Miller in Oak?s territory; it?s sold Heineken there since Jan. Miller "reiterated that Boening Brothers" (Oak?s sister co) will "remain" Miller distrib on Long Island. But Heineken has notified Boening Brothers of 90-day termination. If NY gov signs amended franchise bill into law, Heineken?s termination will be invalid. Oak?s separate lawsuit continues against Heineken.

Beer biz still lookin' pretty healthy. Domestic brewers' taxpaid shipments up 500,000 bbls, 3.1% in May, sez Beer Inst's Matt Hein. Some expected better gain with 2 extra selling days, but that’s not bad. YTD domestic shipments up 600,000 bbls, 0.8%. Meanwhile, imports up 515,000 bbls, 9% thru Apr, including 96,000-bbl, 6% gain in Apr. Add ‘em up and US beer biz up over 1 mil bbls, 1.3%. Retail trends even stronger, especially in several off-premise channels. ACNielsen reports convenience store beer biz up 4.3% thru Jun 10 (tho that’s slowdown from +6.5% thru mid-Mar). IRI reports supermkt volume up 4.8% thru May 28. Thru mid-May, drug store beer volume up 10.6% and volume in mass merchandising outlets (wholesale clubs) zoomed 30%. Those 4 channels about half of all retail beer sales. Note too: AB sales-to-retailers up 3%+ YTD; Coors STRs still running +7-8%; Canandaigua CEO recently said Barton Beer’s STRs up in "mid-teens" in 1st qtr (thru Apr 30); ditto for Gambrinus' Modelo biz YTD.

AB region veep Jerry Mullane described ongoing "concerns" about Maris Dist in 93 when Jerry in southeast. Concerns included: warehouse, trucks, training, turnover, little reinvestment, etc. Rudy?s response to concerns "fell way short." Jerry recommended MET survey in Sep 95, but St Loo didn?t approve. Ron Heinrich, AB wholesale development mgr in 94, testified Maris operation in "extremely poor condition," and no improvement when he went back in 95. Maris? warehouse supervisor, shown video of Ocala warehouse made in 2000, said it portrayed poor shape in 96-97: holes in floor and ceiling, dirty, "dangerous" air curtains, etc. Also testified that right after termination Rudy told him: "I kind of screwed up." Maris attys punched back in cross-exams. Claimed a Mullane letter to Rudy after walk-thru didn?t mention concerns. Heinrich, Maris atty insisted, provided info for AB to terminate, then was "rewarded" with job offer from Little. (Heinrich said Little offered job but he declined.) Warehouse video partly rigged, Maris atty charged.

Tom Caddick, AB mkt mgr in Maris mkts from 3/95 to 6/97, testified he got no action by Marises when he brought up lack of supervisor call frequency, retailer complaints, lack of relief drivers, heavy turnover, other problems. When he and his supervisor Charlie Cindric met with Rudy and Roger Jr to visit top-20 volume Ocala accounts "nobody knew who their top 20 accounts were," Tom testified. Tom found old beer in "just about every account" on another mkt visit with Rudy, and 3 were top-volume accounts Rudy had picked to visit. Said he told Rudy that Maris? old beer policy (drivers fined $100 if they brought any back) was "ineffective... contrary to having fresh product in the market," but Rudy wouldn?t change policy. On cross-exam, Maris atty attempted to push point that Caddick was mkt mgr in Jacksonville when Reed terminated, but judge limited atty to pointing out some issues in Maris and Reed the same. Maris atty also brought up infamous "Adkins" consolidation plan dated around same time as early Caddick letters to Rudy pointing out problems. Plan shows it?s responsibility of "market manager" to "gather info and begin documentation" after AB identifies a problem distrib. Caddick said he never saw plan. Maris atty suggested Tom never made constructive suggestions, just negative criticisms. MET team leader Tom Gorczyca detailed deficiencies found in Jul 96: lots of old beer in mkt, poor warehouse and truck condition, lack of call frequency records, lack of training, no biz plan and more. By 2d MET in Jan 97 "virtually nothing had been done" to fix problems. Also testified about call from Maris employee before 2d MET saying overage keg beer had been removed from Maris accounts and hidden in warehouse, where he later found it. Marises unresponsive to 2d MET report too, said Tom. On cross-exam Maris atty tried to suggest phone call was AB set-up, pointed out Tom hadn?t written anything about fraudulent activity in 1st MET report. MET summary, Maris atty stressed repeatedly, listed "corrective action required" to fix problems, but such requirements nowhere in equity agreement.

Over a dozen ex-Maris employees, route salesmen and sales supervisors, covering lots of Maris routes, also testified. Told similar story: they never saw Rudy in accounts, they or others repacked and put out-of-code beer into mkt, close-to-code beer was often repacked at warehouse and "force-loaded" on trucks to be moved in mkt, warehouse and trucks in poor condition. If sales supervisor found old beer, route salesman paid retail price. No one testified Marises repacked out-of-code beer or told ?em to do it, tho one said Roger Jr helped repack close-to-code beer in cartons with no code date, that hi-ups had to know some of that beer would go out of code. Note too: AB?s position is if any Maris employees repacked out-of-code beer, Maris Dist responsible. Maris sales supervisors said either they or others filled out other salesmen?s KPA books (which track sales call frequency) to show sales calls that were not really made. One guy was told reason: "to cover Rudy?s ass." Maris attys pointed out most of these guys who testified they repacked old beer, dummied up KPA books, etc, now employees at Little or Burkhardt distribs that got Maris biz (some have gotten promotions). Maris had strict written policy to keep old beer out of mkt, and salesmen who repacked were cheating Maris, attys argued. Made constant references to mtgs of these witnesses with AB attys, implying testimony coached and/or coordinated. But each of these guys insisted AB attys only told ?em to "tell the truth." Nothing wrong with repacking close-coded beer, Maris side also sez. No big deal to move close-to-code beer to hi-volume accounts to get it sold before it goes out of code. If route salesmen do their jobs?-rotate stock, monitor beer-?no reason to have out-of-code beer in mkt. Handwriting expert and "forensic accountant" testified for AB: 1) lotsa pages in KPA books and hundreds of Pay for Performance reports were filled out by people different from name signed on reports; 2) "approximately 34%" of sales calls recorded in 5 KPA books were "falsified," another 25% may not have been made. A bunch of retailers testified Maris service was lousy. Maris response: 1) route guys knew supervisors would fill out reports as matter of course, doesn?t make data in reports inaccurate. KPA books reflected display activity, not sales calls, Maris attys insisted, adding that Roger Maris Jr required more frequent sales calls than AB did.

After Maris side took 9 weeks to tell its story, judge called Rudy Maris to stand (Maris side never called him). Now Rudy claimed his biz worth $300 mil. Said he based new figure on info he didn?t have before: supposed "sale" of Houston Dist in early 90s for $75 mil tho Houston?s profits, said Rudy, just 1/4 of Maris?. Since judge had thrown out Maris claims for punitive damages, this $300 mil becomes key number for jury to consider. Originally, Maris attys were askin? for $1.5 bil, including damages. AB tried to get Rudy?s $300 mil figure tossed as hearsay and "mischaracterization" of Houston deal. AB atty said Maris expert had acknowledged Houston?s pre-tax profits were $9 mil, not $1.5 mil Rudy said, but judge so far refused to strike Rudy?s number. Recall Rudy?s asking price in 96-97: $60 mil. Now sez that was low because AB "had a gun to my head." His experts at fed trial said co worth $73 mil. AB atty also said Rudy never had valuation by pro, wondered why if biz worth $300 mil he never got offer close to $60 mil.

Tho judge wouldn?t strike Rudy?s $300 mil valuation, AB able to attack figure. Its first witness, Calif region veep Jerry Mullane, said highest number in any AB deal he knew of since 93 was $50 mil for "our recent San Diego transition," and that was 6-6.5 mil cases. (Maris sold 4.5 mil cases.) A later witness, AB director of AB Biz and Wholesaler Development Tony Short, detailed Fla deals in 90s, all under $40 mil: Orlando (6.5 mil cases) for $33 mil in 97, 4.7X EBITDA; Daytona (2.3 mil cases) for $12.3 mil in 95, 6.5X EBITDA; Sarasota (3.8 mil cases) for $38 mil in 96, 8X EBITDA; Jacksonville (6.7 mil cases) for $38 mil in 95, 7X EBITDA; Tallahassee (2.8 mil cases) for $11.5 mil in 96, 5.8X EBITDA. Didn?t say what assets included in these deals. Tony said too that Houston deal in 91 (Silver Eagle) actually came to about $58 mil; Silver Eagle nearly 3X Maris volume. Three Maris suitors, including 2 AB distribs, testified that Maris not worth $60 mil.