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Global hop market

A local alternative to mass beer suggested by independent brewers has been successful and is now altering the global market. Beer is becoming more diversified, so transnational companies have to accept the new game rules and to switch focus to young and fast growing markets. All these processes increased the demand for aroma and bitter hop as well as their acreage expansion on two continents. However now there appeared a downward trend of alcohol consumption in the world, so even special sorts can soon turn to be sufficient. In this connection the dynamic American hop market is already facing some problems. EU hop producers have become more cautious, they are not racing to exceed the demand and look forward with more confidence, judging by the contract terms. 

Hop Market in Russia

Germany still dominates the Russian market, yet over the recent two years one has been able observe a continuous success of Czech hop suppliers. Their expansion and growing popularity of hops from the United States became the drivers of supplies growth in 2016 despite the preceding modest harvest crop in the EU, as well as the factor of relative stability in 2017. In this connection, in 2017, the ratio of the varieties continued to shift towards the aroma ones, and the supplies of Magnum hop and other alpha varieties were reduced. However, the import of bitter hop pellets is partially replaced by extracts, especially from the major beer manufacturers. Total volumes of alpha acid supplies, according to our estimation, decreased by approximately 5% and returned to the level of 2015. Barth Haas Group continues dominating the hop products market; HVG also increased its weight. At the same time, Morris Hanbury significantly reduced the supplies in 2017.

Weak Foster’s results give SABMiller’s offer a chance

A sustained appreciation in the value of the Australian dollar or the arrival of an aggressive private equity player are regarded as the only factors that might impede SABMiller’s success in acquiring control of Australian brewer Foster’s.

An appreciation of the Australian dollar against sterling would mean that SABMiller was not only unlikely to enhance its A$4.90 (R36.76) a share offer but would use the A$500 million “cash return”, proposed by Foster’s chief executive John Pollaers, as an excuse to walk away from the deal.

Following last week’s release by Foster’s of a pedestrian set of results for the year to June, analysts and commentators appear to believe that SABMiller, the second-largest beer group in the world, is likely to succeed in its bid for control of the high-margin and cash-rich Australian beer group.

A number of analysts remarked that not only were the results on the weaker side of expectations but that Pollaers’ proposals for turning around the group were unconvincing. So unpersuasive were Pollaers’ revival plans that one analyst presumed he was already setting the scene for a compromise arrangement with SABMiller.

“Pollaers is an extremely ambitious individual and very competent, given what he did for Diageo in south Asia; if he could be convinced that there is a role for him at the second largest beer group in the world he might be persuaded to talk the board and shareholders into supporting the SABMiller offer”, remarked an individual who has worked with Pollaers.

However, analysts pointed out that such persuasion would have to include some sort of sweetener on the A$4.90 a share offer price.

The long list of conditions that SABMiller attached to the conditional offer it announced 10 days ago included that the offer would be reduced by the amount of any dividend paid and that any dividend payment would be limited to 15 Australian cents a share. Last week when Foster’s released its results, it announced a dividend of 13.25c a share.

Analysts believe SABMiller could lift its offer to just over A$5 a share, and allow the dividend, for a revived offer of an effective A$5.15 a share. This would represent a more appropriate premium for control of what Barclays Capital described as one of the few remaining sizeable and independent beer businesses in the world.

Significantly, after some volatility in the wake of the results announcement, the Foster’s share price appears to have settled at just over A$5.

Foster’s disappointing results, its pedestrian revival programme and the uncertainty surrounding global markets works to SABMiller’s advantage. In addition, the absence of any competing offer from one of the other major beer groups enhances the attractiveness of the SABMiller bid.

However, as the UK’s Financial Times noted last week in response to the results, while there has been no sign of another beer company making a bid, Foster’s is an extremely attractive cash-generating operation, which makes it an attractive private equity proposal. But the drivers of a private equity deal would have to be confident that they have access to the sort of management skills that can generate the improved performance that SABMiller is confident it can achieve.

In the absence of any competing offer in the coming weeks it seems likely that SABMiller will secure one of the last few remaining independents in this rapidly consolidating industry.

29 Авг. 2011



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