Anheuser could acquire distiller, Busch IV says

Modern Brewery Age,  March 14, 2005  

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If you can't beat 'em, join 'em, says August Busch IV. Faced with a young demographic that is embracing spirits, Busch IV told analysts at the Beer Business Daily Summit in Chicago Feb. 28 that the brewer might look at buying its way into the spirits business.

Busch IV said that A-B would continue to focus on beer, but said consolidation between beer and spirits wholesalers would mean that both product types could be sold through some houses.

During the last five years, sales of spirits and wine have grown more rapidly than sales of beer, and A-B has developed a closer relationship to spirits through its production of Bacardi malternatives.

But Busch's comments were startling to some in the beer industry, given that beer and spirits lobbying groups have been at loggerheads for years.

And, while analysts agreed that A-B must address resurgent spirits, the general opinion is that A-B should hunker down in the beer category.

In a March 1st report, Citigroup/Smith Barney analysts Bonnie Herzog and Kate McShane wrote that purchasing an international beer brand, such as Diageo's Guinness franchise, might be a better bet.

"Import beer is one of the growing categories in the beer industry, and import brands are in the highest-price category," the report said.

Guinness distributes Anheuser-Busch brands in Ireland. Guinness also has strong distribution in Africa and parts of Southeast Asia, where A-B does not have strong presence. In addition, Diageo might be a willing seller in the near-term. Guinness Stout now plays a diminished role within the Diageo Group, as the company has built a spirits-heavy portfolio.

"If a merger with a spirits company were to occur, we think it will be quite some time before A-B pursues this kind of acquisition, whether it is Bacardi or another player," the Citigroup report said. "We believe that A-B is committed to the beer business and will focus its acquisitions on the international market, particularly in China."

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