What is the future of Anheuser-Busch’s packaging division?
What does the future hold for Anheuser-Busch’s far-flung packaging operations? For years, A-B quietly regarded the division as a valuable asset, worth being kept in-house. But under the company’s new management, several analysts suspect Anheuser-Busch InBev’s main interest in the packaging division may be getting a good price by selling it.
Lager Heads chatted with Morningstar analyst Parrish Glover about what lies ahead. Glover believes a sale is inevitable. But there are plenty of unknowns, including when the sale might happen and who might be most interested. Big competitors include Ball Corp., Rexam Corp. and Crown Holdings.
“I don’t think they have to be sold,” Glover said of A-B’s packaging plants. “But I don’t think InBev has any interest in keeping them. InBev is known for running a pretty lean shop. Their interest in Anheuser-Busch was in brand names and brewery operations. Anything that’s not completely ‘core,’ they strip out.”
So far, other packaging companies that might be sizing the plants up as possible acquisitions are playing things close to the vest, although Lager Heads has reported on their rumored visits to various A-B plants in recent days. Meanwhile, Anheuser-Busch InBev does not seem to be in a rush, since its packaging wing can continue to produce cash while the company holds out for the right price. (The company declined to comment on its plans for the division, and whether they include a sale.)
Glover says he believes competitors are “definitely interested” in A-B’s packaging wing, which includes a big aluminum and plastic recycling operation as well as can plants and other offices.
Glover’s take: Of the potential buyers, Ball is in a very strong position, with low debt and potentially the ability to get the assets cheaply with low interest payments. Crown is in a tougher spot because it carries more debt. Rexam, which reports its results in British pounds, would be a stronger bidder if the dollar stays weak.
A big acquisition would allow the buyer to put some space between itself and rivals in an industry in which market share does not usually move. Buying A-B’s packaging assets would allow one of these companies to pick up a “permanent advantage” over the others, Glover said. Packaging, he said, is a good business: profitable, cash-flow generative and stable.
But would Anheuser-Busch reap benefits from keeping the packaging division in-house? Glover said one rationale would be the ability to have much closer communication with the company’s packaging division in crafting marketing/packaging campaigns.
But Coors has shown that a brewer can cooperate with an outside company to create smart marketing based on beer packaging. Remember the wide-mouth cans? How about the temperature-sensitive ink on cans (blue mountains = cold)? Those things were done in coordination with Ball, which has a big plant at the Coors brewery in Golden, Colo.
Those were “very small things, but they’re able to get a big marketing push out of them,” Glover said. Coors and Ball have “a close working relationship.”
Reporter’s note: Excerpts from our previous post on A-B’s packaging division are below:
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We picked up rumors that visitors from competing companies have visited Anheuser-Busch’s packaging operations recently. Recall that those packaging operations - which make one of four aluminum beverage cans in the U.S. - were widely thought to be potential divestitures when InBev bought Anheuser-Busch six months ago.
We have heard that folks from one competing packaging company visited Anheuser-Busch’s packaging operations recently, carrying folders emblazoned with their logo and not making much of an effort to hide their affiliation. We are also told that visits have been pre-announced on an internal website at A-B’s Metal Container Corp., which manufactures beverage cans at eight plants and beverage can lids at three plants.
Are the visitors potential buyers? And if so, how serious are they? That is harder to ascertain. Some key competitors of A-B’s packaging group include Ball Corp., Rexam Corp. and Crown Holdings. Anheuser-Busch InBev declined to comment.
Anheuser-Busch’s packaging division attracts little fanfare compared to the company’s beer making operations and theme parks (Busch Gardens, SeaWorld, etc.). But owning its own packaging operations has been a key part of the brewer’s strategy for some time.
According to A-B’s 2007 annual report, “packaging operations provide significant efficiencies, cost savings and quality assurance for U.S. beer operations.” Furthermore, the packaging segment contributed strong earnings growth in 2007. Packaging contributed 10 percent of A-B’s sales and 4 percent of its profits in 2007.
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Jeremiah McWilliams is a native Virginian who came to the Post-Dispatch in early 2007 to cover beer and other consumer products. He previously covered manufacturing for the Virginian-Pilot newspaper in Norfolk, Va. He is a graduate of Washington and Lee University. 
This is all Brito’s fault, waaahaaahaaa, booohooohooo!
I’m guessing that AB-Inbev would assume the buyer would be a supplier? What if SAB-Miller, Coca-Cola or Pepsi bought it?
It’s not a question of if but when, they have huge debt to repay and the bankers want their money back.
Another option would be put the packaging assets in a separate corporation and spin it out in an IPO ala Earth Grains. That way AB can get its hands on cash now while still retaining control of the operation.
Waiting for the day when the close down the oldest and most inefficient brewery. At the same time I am laughing, these MEGA corporate mergers NEVER return shareholder value. The only share holders whom won in this case were the guys whom got the 70$ / share.
Any chance InBev could spin the packaging business off?
crk, I couldn’t agree with you more on your statement about “these mega mergers never return shareholder value”.
crk - look at the recent stock price trends…if you bought at around 15 (like I did), I’ve already doubled my money. It is projected that debt will be paid down ahead of schedule and that means more cash flow…higher stock value.
This is what the previous management of AB did not do and is why InBev is running the show. People can blame InBev but the Busch’s and all their cronies were the ones that caused all of this. If the stock price was kept up, InBev would have never been able to buy the company.
Unfortunately, the clowns that used to run the place had no disincentives to do anything but line their own pockets…which they did before and during the sale.
The simple fact that they keep beer coming out of the plants at the same rate, with half the employees they once had sums this all up.
That’s right, keep putting people out work, terrific stradegy. We’ll see who’s drinking AB brands in 5 yrs.
Derek - Well see about your comments in 3-5 years. I’ll be willing to wager a large bet that InBev won’t have near the 49% market share they enjoy because of Anheuser-Busch. Cutting personnel, marketing, and eliminating perks doesn’t motivate employees to go above and beyond like they used to do with the previous management. In my opinion, AB-InBev will have less than 35% of the US market by the year 2012.
You can’t cut, cut, cut, cut and expect to maintain market share and employee morale. Look at InBev’s past acquisitions…they purchase Labatts and made huge cuts in personnel and marketing - within 3 years both the stock and employee morale are in the toilet. It’s a pattern that InBev has used for all it’s purchases and AB is no different.
2012 - AB InBev will be a shell of what it is today.
The word we employees received from the LaBatt’s folks was that it is round after round of cuts that never ends. This is consistent with the Nazi Gestapo style management book that InBev requires all of us to read, and treats it as the bible. These crossbreeds are truly a bunch of foreign simpletons. No clue what American culture is about. “P”-Wad is a Flunky Yes-Man that has yet to defend any of the American business ideals to this motley crew of back-door foreigners, led by Super-Knob Brito.
What is the future of the Glass facility in Houston???
Rumor has it Ball and Crown hav lost intrest,Rexam was never rumored to be in the running. That leaves the other player Silgan. As for Longhorn glass who knows?
Hey Brian S., sorry to be slow to respond. Parrish Glover told me a straight sale of the assets was more likely than a spin-off, but at this point it’s hard to nail down what AB InBev wants to do (or will be able to do). Of course, the packaging division could be sold in pieces rather than all at once to a single buyer. But again, this is kind of theorizing.
All quiet for now, maybe too quiet?