July 14, 2008 / 4:08 PM / 9 years ago

Anheuser deal shows family firms fair game

LONDON/PHILADELPHIA (Reuters) - A $52 billion takeover of U.S. brewer Anheuser-Busch Cos Inc by Brazilian-Belgian rival InBev NV demonstrates how tough 21st century business is for many family-run companies.

Despite Anheuser Chief Executive August Busch IV recently saying he wouldn't sell the company his family had run for five generations, a lackluster share performance in recent years and a combined family stake of only four percent meant he had little defense against the famously efficient InBev.

"Family enterprises, even those with a long history, tend to do well only when business is localized ... where you don't have the kind of pressures from the outside that force it to make big decisions and take risks and grow," said Tom Pirko, president of Bevmark LLC, a California-based beverage industry consultancy.

"The family corporation or the family-founded business with a heritage is a phenomenon that is pretty much passing out," he added.

Anheuser is one of several historic food or drink companies still with strong links to founding families. Molson Coors Brewing Co and Mars in the U.S., Femsa and Grupo Modelo in Mexico and confectioners Ferrero and Haribo in Europe are also examples.

Others that have fallen to takeovers in recent years include gum maker WM Wrigley Jr Co, bought by Mars Inc for $23 billion, and Grupo Empresarial Vavaria SA, sold by Colombia's Santo Domingo family to SABMiller.

In the U.S. in particular, the disappearance of another piece of corporate history also marks the dwindling influence of such industrialist families on local politics and philanthropy.

The Buschs in St Louis, Missouri, like the Wrigleys in Chicago, championed local causes and institutions.

Their forefathers were seen as innovators at the forefront of the industrial drive that made the U.S. the world's greatest economy. But nowadays globalization leaves undue family influence looking anachronistic and iconic U.S. brands vulnerable to foreign takeover.

Expectations that a new U.S. administration may bring in fiscal and regulatory changes could also prompt some to sell, said Robbert Van Batenburg, Louis Capital Markets' head of research.

In the beer industry, add in soaring commodity prices, stagnant U.S. sales and relentless consolidation. Anheuser's shares stagnated for five years as it failed to expand internationally like its rivals.

Scottish & Newcastle succumbed to Carlsberg A/S and Heineken NV while Molson Coors and SABMiller merged their U.S. operations.

"Anheuser-Busch was one of the best managed companies for decades, but they didn't know how to manage a global business, so they weren't willing to pay the high price-earnings ratios to make the international acquisitions," said Bill Finnie, business strategy consultant and Adjunct Professor of Strategy at the Olin Business School at Washington University.

BLOOD TIES

August Busch IV is the great, great grandson of German immigrant Adolphus Busch, who took over his father-in-law's St Louis brewery in 1880.

He will lose his position to InBev Chief Executive Carlos Brito, who will be CEO of a combined company.

"Professional and institutional investors just absolutely abhor nepotism," said Bevmark's Pirko. "With very rare exceptions, there are always going to be five people better for that CEO position than somebody who has the family name."

Industry knowledge and international experience are becoming ever more important than blood ties.

Estee Lauder Cos Inc last year named Fabrizio Freda as president and chief operating officer with a view to eventually having the Procter & Gamble Co veteran succeed CEO William Lauder, grandson of the founder.

Estee Lauder shares jumped as much as eight percent on the news as investors welcomed outside management who would focus more on operational improvements rather than family legacies.

"There's often competition between fathers and sons (in family firms), so there's a level of protectiveness and cautiousness that you may not see in other types of companies," said Eleanor Bloxham, chief executive of the Corporate Governance Alliance, a senior executive board education, information and advisory firm.

One family firm that has undoubtedly been put in the spotlight by InBev's move is 83-year old Modelo.

The brewer of Corona beer is 50 percent owned by Anheuser but more than half its voting shares are controlled by a group of families led by Antonino Fernandez.

His nephew, CEO Carlos Fernandez, has said he expects the company to still be under Mexican control in a year's time. But the company, already viewed as financially conservative and insular after steering clear of international acquisitions, may have failed to move fast enough to really capitalize from the InBev takeover, analysts have said.

With reporting by Martinne Geller and Aarthi Sivaraman in New York, Bradley Dorfman in Chicago and Chris Aspin in Mexico City; editing by Rory Channing

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