Anheuser Weighs Consolidating Distributors

Analyst Reports Brewer Is Considering Wider Ownership of U.S. Distributors, but Firm Plays Down Potential Shift

Anheuser-Busch InBev NV is studying the idea of consolidating its network of independent U.S. beer distributors, perhaps by owning many more distributors itself, according to an analyst report that represents a potential blow for the beer titan's roughly 600 distributors.

Management at the maker of Budweiser and Stella Artois is exploring the concept of someday selling as much as 50% of its U.S. beer volume directly to retailers through its own distributors, up from 7% today, according to the report Wednesday by Melissa Earlam, a UBS AG analyst who recently met with company leaders, including Chief Executive Carlos Brito.

But Anheuser, the world's largest brewer by sales, Wednesday appeared to play down the potential strategic shift. "There is no change in our current U.S. strategy," a spokeswoman said in an emailed statement. "Anheuser-Busch InBev has no plans to force consolidation. Consolidation has been occurring for many years, and we believe it will and should continue."

Anheuser is considering more direct beer sales, UBS says. Above, an Anheuser brewery in Columbus, Ohio, last year.

The company believes consolidation "should happen voluntarily over time," she added. She also said the company has no plans to "significantly expand" company-owned distributorships "at this time."

If Anheuser moved to more direct sales of beer, it would allow the company to lower its costs and grab gross margins currently flowing to distributors. Even if the brewer doesn't pursue that path, the threat of such a shift could compel more of its independent distributors to merge, which would help lower the brewer's costs, Ms. Earlam wrote. "At the least, we believe this is a powerful negotiating tool with distributors," she said.

The report is the first serious indication that the brewer based in Leuven, Belgium, intends to put the squeeze on its distribution network to improve its own profitability. Potentially billions of dollars currently flowing to distributors could be at stake.

InBev has reduced costs at Anheuser since acquiring the company for $52 billion last fall. But its distributors so far mostly have been spared the knife.

Mitch Watkins, an Anheuser distributor in Twin Falls, Idaho, said he doubts that major changes are in store for distributors. "I think consolidation is going to occur, but it's mostly still going to be because of competitive pressures [among distributors], and not because A-B InBev is going to swoop in and try to change the system," said Mr. Watkins, who is vice chairman of the National Beer Wholesalers Association, an Alexandria, Va., trade group. He said it would cost billions of dollars for the brewer to buy distributors, in addition to potential legal and regulatory obstacles it could face.

In the U.S., the vast majority of alcohol products are sold through distributors under a complex regulatory system erected after the repeal of Prohibition in 1933. State laws generally require that makers of alcoholic beverages sell them to distributors, which mark up the prices and ship the products to bars and stores, which then sell them to consumers.

Anheuser has 13 distributors of its own in cities such as New York, Denver and San Diego, and could seek to acquire more of them. Such ownership is permitted in 20 to 25 states, said to John Hinman, an alcohol-industry lawyer in San Francisco.

Pursuing acquisitions of distributors could be complicated, because they enjoy certain legal and contractual protections that can make it difficult for producers to replace them, Mr. Hinman said.

Some retailers and producers have gone to court to challenge the so-called three-tier system in recent years, seeking to cut out distributors. Some efforts, most notably in the wine industry, have been successful, but in many cases courts have upheld state laws that require sales to go through distributors.

Anheuser's chief U.S. rival, MillerCoors LLC, has pushed for consolidation among its distributors since SABMiller PLC and Molson Coors Brewing Co. combined their U.S. units to form the joint venture last year. However, it hasn't tried to buy distributors itself.

A MillerCoors spokesman declined to comment on Anheuser's potential plans. He said MillerCoors doesn't support "any significant changes" to the traditional beer-distribution system in the U.S

Kraft said Vernon, 53, worked most recently as a healthcare industry partner at private equity firm Ripplewood Holdings. Previously, he worked at Johnson & Johnson, where he led many of that company's largest consumer brands, including Tylenol and Pepcid AC.

"Tony has an impressive history of building and sustaining iconic consumer brands. His strong track record of growth through consumer-driven innovation, world-class marketing and strong retail relationships will help to further accelerate our business performance," Kraft Chairman and CEO Irene Rosenfeld said in a statement.

Kraft said Searer will retire at the end of September after working at the food company for nearly 30 years.

Sara Lee Acquisitive to Drive Food Growth

 

Sara Lee Corp., the maker of Ball Park hot dogs and Senseo brew pods, may consider acquisitions to fuel growth in its food and coffee divisions, Chairman and Chief Executive Officer Brenda Barnes said.

Sara Lee, which plans to cut at least $250 million in costs over two years, is in a position to handle a large purchase, Barnes, 55, said yesterday in an interview in New York. The company has simplified its technology systems, gotten out of underperforming businesses, and introduced better products based on consumer research during the past four years, she said.

“We now have the capability to do this,” said Barnes, without specifying the amount Sara Lee would be willing to spend. “Early on, we didn’t earn the right to buy.”

Sara Lee is looking to expand its main food business to make its bread unit more profitable and increase the amount of higher-margin coffee it sells. The company, based in Downers Grove, Illinois, also will consider expanding by geographic region, Barnes said.

The company is in talks to sell its international household and body-care unit. Barnes declined to say how many bidders are being considered and said she hopes there will be a resolution soon “because we’ve been at it for a while.”

“The price has to be right, like in any negotiation,” Barnes said, adding that keeping the unit is also an option.

The Utrecht, Netherlands-based division, which makes Kiwi shoe polish, may fetch $3 billion to $4 billion, Tim Ramey, an analyst for D.A. Davidson & Co. in Lake Oswego, Oregon, said in March. The $2.3 billion-a-year business has about 8,000 employees and accounted for 17 percent of sales in the most recent fiscal year.

‘Source of Frustration’

Sara Lee’s share performance, which lags behind Kraft Foods Inc. and Kellogg Co., is “a very big source of frustration,” Barnes said. She said the company still needs to win credibility with investors now that it has proven it can deliver on its turnaround plans.

The stock had fallen 8 percent this year before today, giving the company a market value of $6.3 billion. That compares with a 7.3 percent decline for Northfield, Illinois-based Kraft and a less than 1 percent increase for Battle Creek, Michigan- based Kellogg. The Standard & Poor’s 500 Consumer Staples Index fell 4.9 percent in the period.

“Our multiple is way under the peer group,” Barnes said.

Sara Lee advanced 8 cents to $9.09 at 4:15 p.m. in New York Stock Exchange composite trading today.

U.S. Growth

Barnes said profit growth in the U.S. food business shows Sara Lee’s strategy is working.

Operating income in the North American retail meats division, which includes Hillshire Farm sandwich slices and Jimmy Dean breakfast sausages, surged 86 percent to $175 million in the most recent fiscal year. The North American Retail Bakery unit saw operating income climb last year for the first time in Barnes’s tenure.

Sara Lee, which also makes store-brand bread for Wal-Mart Stores Inc., recently signed a deal to supply “a couple hundred” more of the discount retailer’s locations, Barnes said. She declined to say how many Sara Lee already supplies. The company has worked to get more bread on its delivery trucks to improve margins.

In addition to Senseo single-cup coffee pods, Sara Lee also supplies coffee to Dunkin’ Donuts Inc. and Burger King Holdings Inc.

Centralizing the buying of ingredients and packaging, moving information technology operations to the Philippines and selling low-margin meat and dressing lines in the food-service unit have allowed Sara Lee to focus on more profitable brands, Barnes said.

“What we’ve changed most, very simply, is we’ve said we’re a consumer-goods company and we have to focus on the consumer,” she said. “So innovation is our key driver of growth.”

Foster Farms buys 2 ConAgra Foods brands

Privately held Foster Farms said late Monday that it has purchased ConAgra Foods Inc.'s Fernando's and El Extremo brands.

ConAgra is also known as the maker of Chef Boyardee, Hunt's tomato sauce and ACT II popcorn.

Terms of the deal were not disclosed.

The deal includes a Compton, Calif. plant that makes handheld Mexican products under the two brands.

Foster Farms and ConAgra have also signed a transition service pact that covers order entry management, warehousing, product delivery and sales support.

The acquisition closed Monday.

Foster Farms specializes in fresh, all natural chicken and turkey products.

Shares of ConAgra Foods added a penny to $18.65 in Tuesday afternoon trading.

P&G Acquires Male-Grooming Brand Zirh

In a move that signals to competitors that beauty is indeed the new area of focus for incoming Procter & Gamble CEO Bob McDonald, the world's largest advertiser today announced it has acquired another prestige male-grooming brand: Zirh.
 
Zirh, "which rhymes with 'sir,'" as its Web site says, is an upscale line of men's facial, shaving and anti-aging products. Like The Art of Shaving -- another high-end male-grooming brand that P&G acquired earlier this month -- Zirh products are sold in specialty stores like Sephora and Bloomingdale's.

P&G rep Kelly Vanasse did not disclose terms of the deal, but said Zirh had approximately $20 million in 2008 sales. According to a Women's Wear Daily report, P&G bought The Art of Shaving brand for $60 million, twice its 2008 sales figures.
 
Zirh president Brian Robinson and his team will remain "through a transition period," Vanasse said. The brand has a strong presence online, which P&G will leverage, along with public relations, to drive sales.
 
"P&G male grooming is a perfect home for Zirh," Robinson said in a statement. "Zirh is a quintessentially male brand designed specifically to meet men's unique skin care needs. With brands like Gillette and Old Spice, the P&G male-grooming portfolio will be a natural fit for the brand. This was a great move for both companies."
 
Robinson founded Zirh in 1995, but later sold the company to Japanese skin-care brand Shiseido in 2004. In 2008, he bought it back.
 
With Zirh, P&G is looking to trade some consumers up while it tries to fix pricing on shelves to prevent consumers from trading down. During an investor conference last month, outgoing CEO A.G. Lafley said P&G would adopt a "surgical" approach to adjusting prices that were seen as out of line or significantly priced above the competitors.
 
The addition of Zirh to P&G's portfolio will enable it to tap into a premium yet still maturing, upscale men's market. It further broadens P&G's offerings beyond mass-market men's grooming brands like Old Spice and Gillette.
 
While some analysts have questioned P&G's ability to convince consumers to trade up in tough times, Vanasse said that premium segment still exists, although it remains for P&G and competitors to tap into it. "We want to be where these shoppers are," she said.
 
Mintel data, however, shows that the majority of men still prefer the soap and water regime. According to November 2008 field data, 64 percent of women say they use moisturizer, compared with 21 percent of men. With facial cleansers, the numbers were 54 percent (female) and 17 percent (male).
 
"There is still some clear indication that the behavioral norm [among men] is clearly back to basics," said Mintel beauty analyst Krista Faron. "As you look at [P&G's] acquisitions, there is an opportunity there, but in terms of the mainstream male shopper, I'm not sure that those types of products are going to be altogether appealing."
 
Though rivals are clearly taking notice and perhaps experimenting with their own offerings, P&G's aggressive stance might signal that it wants to "own" the category. Competitors like Unilever and L'Oreal might be inclined to sit it out and see what happens, Faron said. They are waiting for P&G "to make the first step and maybe the first misstep and learning from those actions," she said.
 
"It's not a market-capture story. It's a market-building story. P&G has their work cut out for them," she added.

Robert McDonald appointed CEO & P&G

Procter & Gamble Co. is replacing longtime Chief Executive A.G. Lafley with a former Army Ranger and 29-year company veteran, just as the tough economy and new rivals are forcing it to revamp the way it has done business for decades.

On Tuesday, the board of the consumer-products giant is expected to approve the appointment of 55-year-old Robert McDonald, now chief operating officer, as its CEO, according to people familiar with the matter. Mr. Lafley will remain chairman. A P&G spokeswoman declined to comment.

Procter & Gamble Chief Executive A.G. Lafley, who is expected to step down July 1, took the company up-market and doubled its sales.

The transition, expected on July 1, comes at a crucial juncture for the 172-year-old company, which has made brands like Crest, Pampers and Tide into household names, helped invent modern consumer-product marketing and schooled a universe of managers who went on to become top executives at companies including Microsoft Corp. and General Electric Co.

During nine years as CEO, Mr. Lafley revitalized P&G's business, orchestrating a $57 billion acquisition of Gillette Co. and more than doubling sales to $83.5 billion in the fiscal year ended June 2008. Central to his strategy was moving toward beauty and premium household products with higher profit margins.

The recession has dented his otherwise-sterling tenure. Mr. Lafley hands over the reins just as consumers are turning away from some of those products, and investors are questioning whether the company has become too big to grow at a high rate. Mr. McDonald will have to convince investors that P&G's brand-name products can continue to attract increasingly cost-conscious shoppers, and that expansion into developing markets will reap profits big enough to offset slowing results in North America and Western Europe. In May, P&G issued a sharply lower-than-expected earnings forecast for the fiscal year starting July 1.

P&G Operating Chief Robert A. McDonald is expected to take over as investors question whether the company is too big to grow at a high rate.

Transition Timing

Though Mr. Lafley, who is about to turn 62, is leaving earlier than many observers expected, someone close to P&G said this transition timing has been in the works for at least two to three years and isn't related to any dissatisfaction with his performance. According to another person close to the company, Mr. Lafley has been pushing to leave his CEO post for a couple of years but the board wasn't keen for him to leave.

As chairman, Mr. Lafley, long a mentor to his successor, expects to play a hands-on role in managing the company, said a person familiar with the matter.

Mr. McDonald will have to guide a recent strategy at odds with the time-tested secret of P&G's success: continually adding "new and improved" features to staples and persuading consumers to pay more for them. The recession is testing that approach, as private-label and other less-expensive brands compete with P&G products.

Each business at P&G is working to reach more consumers by widening the price range of its products. In recent quarters, cheaper products such as Luvs diapers and Gain detergent have outpaced sales increases of their premium-priced sister brands, Pampers and Tide.

Mr. McDonald assumes the top post of one of America's biggest corporate success stories. P&G says its products are used by people world-wide three billion times a day. Its 138,000-plus employees are spread over 80 countries. Some 23 P&G brands post more than $1 billion each in annual sales.

As a leader, Procter & Gamble CEO A.G. Lafley broke down decision-making into steps and showed good judgment with moves like the purchase of Gillette, says author and professor Noel Tichy. Originally published in October 2008.

Mr. McDonald, a West Point graduate, served as a U.S. Army captain, mostly in the 82nd Airborne Division. Jumping out of airplanes appealed to him because it added $110 to his $300 monthly salary, he recalled in an interview last month: "That was a lot of money to me then."

After five years in the Army, Mr. McDonald says, he missed the strict meritocracy of West Point and realized the military career path he was on would keep him away from his family too much. The decision to pursue a marketing career at P&G was an easy one, he says. He rose quickly, managing brands including Solo detergent, Dawn dish soap and Tide.

As P&G sought to expand its reach beyond North America, he was one of the first managers sent to prove his abilities in a foreign market. He spent the 1990s in Asia, overlapping with Mr. Lafley's leadership there.

In 2004, Mr. McDonald was named a vice chairman. As chief operating officer, his post for the past two years, he has tried to make P&G's sprawling manufacturing facilities and transportation system more efficient.

As P&G looks to emerging markets for a bigger portion of its profits, Mr. McDonald has led the effort to shift more production there. In December, he announced what he called "the most ambitious expansion program in our company's history," which includes plans to build about 20 new manufacturing facilities over the next four years, mostly in developing markets.

His efforts to overhaul P&G's transportation system, which is among the biggest in North America, include installing technology somewhat like an air-traffic-control system that precisely tracks the movement of trucks and reduces empty-truck miles.

West Point Ambitions

Mr. McDonald grew up near Chicago, where his ambition was evident early on. As an 11-year-old, he wrote to his congressman to request admission into the U.S. Military Academy at West Point. In his teen years, he persuaded school administrators to let him take typing and speech classes to develop two skills he hoped would help him succeed if he got into the academy. He did, and graduated 13th in a class of 875 with a degree in engineering in 1975, Mr. McDonald says.

Today, he speaks in reverential tones of his West Point years, and current colleagues say he still mentions the Cadet Honor Code, which says that "a cadet will not lie, cheat, steal or tolerate those who do."

The day of his P&G job interview, Mr. McDonald dined with Mr. Lafley, who was to be Mr. McDonald's company mentor because they shared military careers prior to P&G. As their company careers crisscrossed over the years, the two would rib each other about their military days. Mr. Lafley's stories of his Navy experience included how he honed his merchandising and marketing skills while working at a Navy Exchange in Japan.

The appointment of Mr. McDonald, who turns 56 next week, caps a years-long succession race. Since at least 2006, Susan Arnold, a 55-year-old executive, and Mr. McDonald had been in a contest to be the next CEO, people close to the matter said.

The competition seemed to be winding down in March when Ms. Arnold said she would leave the company later this year. That left Mr. McDonald as the second-most-powerful executive at P&G after Mr. Lafley.

As P&G formed its succession plans, worries grew that executives passed over would leave while still young enough to get a CEO position elsewhere. That scenario could now unfold, executive recruiters said.

In recent months, Mr. Lafley tried to quell speculation about his retirement. He scoffed at the idea when asked at an analyst conference in December, saying, "We're going to stay together, and we have a lot left to do."

Mr. Lafley's legacy will be a turnaround that included selling Crisco shortening, Folgers coffee and other sluggish food brands. He poured money into the beauty business, brands like CoverGirl cosmetics and Pantene shampoo, that became the biggest contributor to sales and profit gains during Mr. Lafley's tenure, the company says.

His giant Gillette deal gave P&G a solid footing in men's grooming and a bigger stake in developing markets. But lately some investors have questioned whether it has made P&G too big to keep posting large gains.

Mr. McDonald will have to decide whether to retain certain Gillette businesses that are tangential to P&G's core strategy, including its Braun appliance unit and Duracell batteries.

As reported in the Wall Street Journal

Former Wrigley CEO Perez joins Campbell board

William Perez, who was CEO of Wrigley Jr. Co., has joined the Campbell Soup Co. board of directors. Perez, 61, replaces Kent Foster, who retired in 2008

CuraGen Is Being Sold

Celldex Therapeutics To Pay $95 Million For 18-Year-Old Company In Branford

 

CuraGen Corp. a pioneering but unprofitable biotech company, has agreed to sell itself for $95 million, possibly ending the presence in Connecticut for the 18-year-old Branford firm that was once a leading light on the state's technology scene.

Celldex Therapeutics Inc. of Needham, Mass., said Friday that it would acquire CuraGen in a stock transaction that is expected to close in the third quarter and eliminate the CuraGen name.

The deal would strengthen the financial position of the combined company at a time when capital is hard to come by for biotechs.

Formerly known as AVANT Immunotherapeutics, Celldex is developing drugs for cancer, infectious and inflammatory diseases. It will get CuraGen's most advanced drug, CR011, for cancer, other intellectual property, and cash assets of almost $55 million, the companies said.

Initially focused on decoding the human genome and servicing other companies, CuraGen — founded in 1991 — later refashioned itself as a drug developer, but never brought a drug to market.

CuraGen closed Friday at $1.34 a share, up 9 cents, leaving its total market value at $76.6 million. Investors pushed Celldex up 11 percent, to 9.02.

CuraGen was once the biggest biotech firm in Connecticut by employees — more than 250 at the end of 2006 — but had shrunk to about 15.

Even if nothing of CuraGen itself ultimately remains in Connecticut, companies that emerged from it still operate here, a testament to its contribution to the state's bioscience industry, said Paul Pescatello, president of CURE, the state's major bioscience advocacy group.

"A lot of things have come out of it over the years," he said, including 454 Life Sciences, also of Branford and now owned by Roche.

In Friday's statement, CuraGen Chief Executive Dr. Timothy Shannon said his company's board "concluded that this transaction represents the best opportunity for our shareholders" and said the deal "also offers CuraGen investors reduced risk via ownership of a broader portfolio, while still retaining upside potential of CR011 in the combined company."

Shannon will join Celldex's board of directors, but is not expected to hold an operational job, said CuraGen's chief financial officer, Sean Cassidy.

Celldex employed 78 full-time workers as of Feb. 20, according to federal securities filings. For the first quarter of 2009, it reported an operating loss of $7.78 million on total revenues of $3.7 million.

 Elan in talks to sell stake to Bristol

 

Irish biotechnology firm Elan Corp is in advanced discussions to sell a minority stake to Bristol-Myers Squibb Co a source familiar with the situation said on Sunday.

An agreement on the sale of the minority stake could come as early as this week, said the source, who declined to be identified by name because they did not have authorization to speak to the media.

Elan is also in talks with a second suitor, but the status of those discussions was unclear.

Selling a minority stake could be the first move in a multistep transaction to sell Elan outright, the source said.

Elan and Bristol-Myers both declined to comment.

In January, Elan hired Citigroup to conduct a strategic review of its business, which it said at the time could lead to a sale or merger of the company.

Elan was under pressure at the time from investors critical of Chief Executive Kelly Martin's leadership and the state of the biotech company, which was burning through cash at a rapid rate. In its most recent quarterly earnings report it posted a net loss of almost $103 million.

Martin told reporters in April that a partnership, rather than a merger, may be Elan's best option.

"The best option for Elan would be to have a partnership with a large pharmaceutical company," Martin said at the time.

Biotechnology company Biogen Idec Inc and Elan jointly market the multiple sclerosis drug Tysabri. Drugmaker Wyeth, currently being acquired by Pfizer, and Elan are jointly developing the experimental Alzheimer's drug bapineuzumab. These are currently Elan's two most important products.

Bristol-Myers or a company unrelated to Elan may have difficulty making a full acquisition for the Irish biotech company because of those drug partnership agreements.

Biogen and Wyeth have change of ownership clauses that allow them to buy out the two drugs, which together make up the bulk of Elan's value.

Earlier this month, Danish pharmaceutical group Lundbeck, which had been rumored to be eyeing Elan, ruled itself out as a possible buyer of Elan.

Lundbeck said tight credit-market conditions made it impossible to buy a company the size of Elan. Elan has a market value of about $3.6 billion, while Lundbeck's market capitalization is roughly $4.4 billion.

J&J to acquire Cougar Biotech for about $970 million

 

Drugmaker Johnson & Johnson on Thursday said it has agreed to acquire cancer drug developer Cougar Biotechnology Inc for about $970 million in cash in order to strengthen its oncology business.

J&J said it will tender to purchase all outstanding shares of Cougar at $43 per share, which is about a 16 percent premium to their Nasdaq close of $36.98. The shares were trading at $42 after hours.

Cougar is currently conducting two pivotal-stage trials for abiraterone acetate, an experimental treatment for prostate cancer.

"The acquisition of Cougar Biotechnology with its talented team will strengthen our growing capabilities toward a leadership position in the global oncology market," William Hait, head of oncology at J&J's Ortho Biotech unit, said in a statement.

The deal marks the latest in a string of purchases by big pharmaceutical companies of smaller companies with promising products, including GlaxoSmithKline PLC's agreement last month to acquire Stiefel Laboratories Inc, a privately held maker of drugs for acne and other skin treatments.

The global financial meltdown and consequent withering of financing options has forced many development-stage biotechnology companies to look for mergers or partnerships as a way to weather the downturn.

Much larger recent deals in the space include Pfizer Inc's $68 billion purchase of Wyeth,  Merck & Co's $41 billion acquisition of Schering-Plough Corp and Roche Holding AG's $47 billion payment for the part of Genentech Inc that it didn't already own.

In addition to its prostate cancer compound, for which key data will be presented at next week's meeting of the American Society of Clinical Oncology, Cougar is developing treatments for breast cancer and multiple myeloma.

J&J said the transaction, expected to close in the third quarter, will reduce its earnings per share by 2 cents to 3 cents.

The closing is conditioned on clearance under the Hart-Scott-Rodino Antitrust Improvements Act and other customary closing conditions.

(Reporting by Deena Beasley; Editing by Gary Hill) Reuters