Glenboden M & A Originations

Palm’s sale of Polish brewer points to its vulnerability as acquisition candidate

Priority Rating priority rating 4
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Origination Status company acquisition announced, August 2007;
Asset Browar Belgia Sp. z o.o. (Poland), minor domestic beer producer;
Buyer Kompania Piwowarska SA (Poland), subsidiary of SABMiller plc, global brewing giant;
Seller Palm Breweries NV (Belgium), producer of specialty Belgian beers;
Buyer Rationale acquiring new capacity, removal of competing brands;
Seller Rationale acceptable valuation, focus on domestic market, possibly financial problems;
NBs ‘the value of the gross assets to be acquired is approx. € 65 mln’.
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Coming after Heineken’s acquisition of Krusovice in the Czech Republic, reviewed earlier this year by Glenboden, this deal shows that smaller bolt-on acquisitions of local brands have value for the brewing majors, at least in central Europe. It also reveals Palm as another small brewer that’s withdrawing from earlier expansion plans beyond its domestic market. At the same time the Palm brand gets noticed as a specialty Belgium beer, with internationalisation potential if acquired by a global group.

Browar Belgia is the fruit of an ambitious plan by Palm, in 1999, to build a large, ultramodern brewery in Poland and take advantage of a projected growth in demand for nichey, premium beers. By its own admission, however, this demand has been slower in coming than expected. It’s instructive to note, also, that BB appears to have been the family-owned Palm’s first major investment outside Belgium.

There’s an intriguing discrepancy between the buyer’s and seller’s announcements, with respect to rationale for the deal.

BB says that its brands fill gaps in Kampania’s own portfolio, being ‘in segments where KP is not present’. Some of the brands are laudably innovative. As well as Palm’s own top-fermentation offering, you have a ginger-flavoured sweet beer, Gingers, clearly aimed at women and younger drinkers, as well as a brave attempt, Frater, to create a monastery -themed wheat beer.

In parallel however, KP’s announcement doesn’t say anything about developing BB’s brands. In a short statement, KP just says that BB’s brewery ‘will provide additional capacity necessary to keep pace with the growing demand for KP’s products ... without the need to develop a greenfield sight’.

The only financial information they provide is BB’s gross asset value, thus hinting that they paid no goodwill for the company. It could be that KP simply doesn’t see any value in BB’s brands.

We’d rather interpret ‘lack of goodwill’ as having more than one meaning, in this deal. In Wojak, BB created a masculine, strong beer brand that was clearly kicking at the heels of KP’s Debowe Mocne brand, in terms of positioning and pricing.

The same could possibly be said of Gingers, vis-a-vis KP’s own flavoured beer, Redd’s. So, maybe KP intends to ‘restore order’ in the market, by killing off these brands, which would explain the honesty in their deal announcement.

We at Glenboden are disappointed that Royal Unibrew didn’t acquire BB, instead of KP. After their acquisition of Lomza, we’d tipped them to be the company to roll up all of Poland’s orphaned mid-sized beer brands and assets.

Possibly Unibrew had too much on their hands already in Poland, with not only Lomza but also Strzelec and Brok, to take BB on board as well. At the same time SAB is better placed to take a view on Palm itself as an acquisition candidate, in due course.

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