Heineken and InBev scored strong US volume trends Jan-Jun. Heineken depletions up 5%; shipments up 9% (Heineken brand up 8%, Amstel up 7%). Shipments/STR mismatch resulted from Heineken stocking up distribs for Jul 4 before end of Jun in 04, said chairman Thony Ruys. Last yr, shipped to distribs in early Jul. While Heineken "still confident" of achieving 5% US growth for full yr, won’t be easy: 1st-half distrib loading only complicates summer, and "it's no secret Jul and Aug have not been good mos" for entire US beer industry, said Thony. Heineken US volumes for 2 mos "barely positive," according to analyst Andrew Holland. Also, while Heineken felt Corona's Jan price hike only began to stick in Jul -- Thony sez co had "very clear signals" that until then Corona was discounting back – Heineken now going for avg 2.5% price hike. This will reach about 35% of US vol by yr-end, and by Mar 05 will cover all but West Coast volume -- where co "probably will not increase prices." InBev watching Corona/Heineken pricing carefully. "If those 2 principal competitors take prices up, you can assume we would take a careful look at it...we do tend to peg our pricing off their decisions far more" than those of US brewers, sez ceo John Brock. InBev's US depletions up 7.1% Jan-Jun. Tho Labatt brands down 1.7%, European brands up 40%, including 55% Stella jump, and Beck's STRs up 8.4%. FEMSA biz up 13.5%. Bass down 11.6%, but brand "showing encouraging signs of improvement," InBev cfo Francois Jaclot said. While sale of 30% FEMSA stake brought InBev $508 mil after tax and cleared way for Beck’s integration, InBev can’t be too happy about losing growing FEMSA biz at yr-end to Heineken, not to mention the $40 mil/yr profits.  

Lotsa new action plans for renamed InBev USA (formerly LUSA and Beck’s North America) emerged quickly after approval of Interbrew AmBev deal and FEMSA split off. InBev USA will dial up spending, focus on 3 core brands (Beck’s, Bass and Stella), and revamp sales structure to increase resources against top 300 distribs that are 94% of biz. InBev plans to spend $90 mil on Stella, $140 mil on Beck’s and $80 mil on Bass over next 3 yrs. That's about $100 mil/yr on brands that sold less than 1.5 mil bbls in 03 (Beck’s and Bass down in recent yrs, tho Beck’s up in 04). Rolling Rock and Labatt (which sold 2.6 mil bbls in 03) will only get core market support, but spending will be up in those mkts. InBev’s ambition: focus on smaller (in US) high-end brands that it believes are its best shot nationally and globally. To win in US, gotta win in West, InBev USA prexy Simon Thorpe told INSIGHTS. So it will “overinvest” in people and mktg in West over next 12 mos trying to regain what it gives up when it hands back FEMSA brands. (InBev USA will keep FEMSA brands til yr-end. Recall that FEMSA over 90% of LUSA biz in Tex/Calif.) Since InBev has 750 distribs in US, 450 sell less than 2 mil cases (less than 5,000 cases per distrib). Those distribs will now get tel-sell; top 300 will get more sales focus. In largely revamped exec structure, LUSA prexy Simon Thorpe remains, but much of his team changes. New LUSA sales veep will be Tom Cardella, previously BNA prexy, and new mktg veep will be Mike Harrington, also from BNA. Lotsa new region sales veeps.

Just a couple hours before Coors CFO Tim Wolf put positive spin on proposed Molson Coors deal to investors’ conference, Toronto’s Globe & Mail reported that Molson CEO Dan O’Neill said he “didn’t know” if non-voting shareholders would approve it. “There’s still a lot of skepticism” about deal “for the principle reason that people feel there will be another offer coming," he said, tho nothin’ on table yet. Those comments, plus Dan’s acknowledgement that “Molson hasn’t done a good job of selling shareholders on the merits” of deal, set off round of press speculation that deal in doubt. Tim's comments at Prudential conference gave no indication of bumps in the road to closing by end of 04. Recall: 2/3 of Molson’s voting and non-voting shareholders have to approve. Eric Molson controls the former, but non-voting shareholders “are believed to be in the hands of funds and retail investors who aren’t thrilled” by merger, wrote G&M. Biggest single owner (about 15%) of non-voting shares keepin’ mum, according to Wall St Jnl, but owner of about 4.5% on record against deal.

Meanwhile, Tim and Dan continue to put best face on deal, focusing on synergies within 3 yrs, additional savings, oppty to build Coors Light in Canada and other brands elsewhere and increase in scale for future global opptys. Importantly, both continue to point out heavy price Molson would have to pay if rival bidder comes in. Tim very specific: “Under our contractual agreement, if there’s a change of control at Molson, we have the right...to take the brand back with no compensation to Molson. We also have the right to have Molson produce and distribute Coors Light for us in Canada for 10 years.... Under this scenario, our profit stream from Coors Light in Canada would double immediately to about $100 mil (US) annually, minus the relatively modest costs of an expanded sales force.” Yet, Coors’ “much preferred scenario” is “to complete this merger of equals.”

One thing Tim and Dan didn’t talk about: current trends in US and Canada. Coors Light down over 3% YTD, down much more than that in last mo or so. Meanwhile, Molson “experiencing significant volume declines and profit declines in Canada, which will be reflected in the next couple of quarters,” Canadian analyst Michael Palmer told Toronto Star. Those reports will convince investors Molson Coors “not such a bad deal,” in his view.

 Just a couple hours before Coors CFO Tim Wolf put positive spin on proposed Molson Coors deal to investors’ conference, Toronto’s Globe & Mail reported that Molson CEO Dan O’Neill said he “didn’t know” if non-voting shareholders would approve it. “There’s still a lot of skepticism” about deal “for the principle reason that people feel there will be another offer coming," he said, tho nothin’ on table yet. Those comments, plus Dan’s acknowledgement that “Molson hasn’t done a good job of selling shareholders on the merits” of deal, set off round of press speculation that deal in doubt. Tim's comments at Prudential conference gave no indication of bumps in the road to closing by end of 04. Recall: 2/3 of Molson’s voting and non-voting shareholders have to approve. Eric Molson controls the former, but non-voting shareholders “are believed to be in the hands of funds and retail investors who aren’t thrilled” by merger, wrote G&M. Biggest single owner (about 15%) of non-voting shares keepin’ mum, according to Wall St Jnl, but owner of about 4.5% on record against deal.

Meanwhile, Tim and Dan continue to put best face on deal, focusing on synergies within 3 yrs, additional savings, oppty to build Coors Light in Canada and other brands elsewhere and increase in scale for future global opptys. Importantly, both continue to point out heavy price Molson would have to pay if rival bidder comes in. Tim very specific: “Under our contractual agreement, if there’s a change of control at Molson, we have the right...to take the brand back with no compensation to Molson. We also have the right to have Molson produce and distribute Coors Light for us in Canada for 10 years.... Under this scenario, our profit stream from Coors Light in Canada would double immediately to about $100 mil (US) annually, minus the relatively modest costs of an expanded sales force.” Yet, Coors’ “much preferred scenario” is “to complete this merger of equals.”

One thing Tim and Dan didn’t talk about: current trends in US and Canada. Coors Light down over 3% YTD, down much more than that in last mo or so. Meanwhile, Molson “experiencing significant volume declines and profit declines in Canada, which will be reflected in the next couple of quarters,” Canadian analyst Michael Palmer told Toronto Star. Those reports will convince investors Molson Coors “not such a bad deal,” in his view.

How can 2 cos have same “exclusive” rights? Answer: they can’t. That irreconcilable conflict just heightened as Miller amended its distrib contract on distrib deals to be more like Coors. Miller now requires distribs notify it 120 days in advance (like Coors) when they decide to sell and “prior to any discussions with a potential purchaser,” Miller wrote distribs. During that rather lengthy window, “distributor shall negotiate exclusively...with Miller.” If proposed deal “would create a right” for another of distrib’s suppliers to buy all or a portion of biz, “then Miller shall have the exclusive right” on just its brands. But Coors also claims exclusive right to negotiate for 120 days; only its contract sez Coors can assign rights for whole deal. Previously, Miller only required distribs notify it 30 days after letter of intent signed. New amendment puts Miller and Coors on collision course in deals. Indeed, Coors already sent memo out to distribs. Said shared houses that “execute Miller’s Third Amendment and then allow Miller to exercise exclusive negotiation rights upon the sale of your business… will breach the promises that you have previously made to Coors.... In such event, Coors will take appropriate action necessary to protect its rights.” Distribs who sign both clauses risk being in violation of at least 1 contract if they should ever choose to sell. Consultant Mark Rodman goes even further; sez that just signing is "most likely per se violation" of Coors agreement because it "encumbers" Coors rights.

Miller positioned this amendment as a way to level playing field. Old provision “in effect put us behind every supplier,” sr veep sales Doug Brodman told INSIGHTS. Miller also asserted that by being involved earlier in process, it would speed things up. But amendment will also make it more difficult to get deals done and prevent some from happening (because signing both agreements is unresolvable conflict). That might even be Miller’s objective, said one source close to deal-making process. Also reduces value of distrib bizzes because if brewer assigns exclusive right to negotiate, that means no competition for distrib’s biz during that window, several sources say. Internally, Miller execs have talked of an “ABC” philosophy on deals, that is “Anyone But Coors.” In practice, that means exploring every other option, tho sometimes Coors distrib is only option. How far will Miller go? In at least 1 recent situation, Miller even offered to pay distrib by reducing its FOB if it didn’t buy Coors brands. That’s some precedent! Miller has even explored getting back in branch biz. Yet maybe you just can’t stop deals; 2 more (smaller) Miller/Coors deals closed in early Sep in Tenn and SD.