Quilmes Industrial (QUINSA) S.A. History

Address:

Teniente General Perón 667
Buenos Aires, C.F. 1038
Argentina

Telephone: (54) (11) 4321-2700
Fax: (54) (11) 4394-2310

Public Company
Incorporated:1888 as Brasserie Argentine Quilmes S.A.
Employees: 6,234
Sales: $648.5 million (2003)
Stock Exchanges: Bourse de Luxembourg New York
Ticker Symbols: QUIN.LU; QUINp.LU; LQU
NAIC: 312111 Soft Drink Manufacturing; 312112 Bottled Water Manufacturing; 312120 Breweries; 551112 Offices of Other Holding Companies

Key Dates:

1890:: Peter Frederick Otto Bemberg and his son open a brewery in the city of Quilmes.
1948:: The Bemberg breweries and other family properties are confiscated by the government.
1959:: The breweries and other properties are returned to Bemberg family ownership.
1980:: Cervecería y Maltería Quilmes S.A. holds about 70 percent of the national beer market.
1989:: Incorporated in Luxembourg, the company becomes Quilmes Industrial (QUINSA) S.A.
1995:: The company's production of beer has increased fourfold in a decade.
2000:: Quinsa's net sales peak at $955.1 million.
2003:: A Brazilian brewer, AmBev, purchases a potentially controlling share of Quinsa.

Company History:

Quilmes Industrial (QUINSA) S.A. is a Luxembourg-based holding company that, through its principal subsidiary, dominates the production and sale of beer in Argentina, Bolivia, Paraguay, and Uruguay. The same subsidiary also takes part in a joint venture producing and marketing mineral water in Argentina. A subsidiary of this subsidiary controls the two largest bottlers and producers of PepsiCo Inc. beverages in Argentina. Although incorporated in Luxembourg, Quinsa is administered from Buenos Aires, where it maintains its executive offices.

A Century of Beermaking: 1890-1989

Born in Germany, Peter Frederick Otto Bemberg first came to Argentina in 1850 and, aided by marriage into the well-connected Ocampo family, successfully took part in ventures exploiting the young nation's rich natural resources. He was also a financier who based his operations in Paris. Two years prior to establishing a brewery in the city of Quilmes in the province of Buenos Aires in 1890, he and his son Otto Sebastián Bemberg incorporated the business in Paris. Quilmes quickly dominated the beer market in Argentina, with branches in all major cities. It acquired several more breweries, among them Schlau in Rosario (1907) and Palermo in Buenos Aires (1916). Later additions included Norte in Tucumán and Maltería de Los Andes in Mendoza during the 1940s. The enterprise manufactured the first malt using Argentine barley in 1921, and this enterprise supplied not only the company's own breweries but practically the entire national beer industry. At the same time, and with the same objective of import substitution, the first bottle-cap factory in Argentina was established at Quilmes to replace cork stoppers. Associated companies produced ice, carbonic gas, and soft drinks. Among the carbonated sodas that it produced was a very popular orange drink, Naranja Bilz. This line of business disappeared in the 1970s.

Beverages were only one part of the activities of the Bemberg group. The family-owned string of enterprises included a large bank, railroads, streetcar lines, bread and cheese factories, textile mills, cattle ranches, and forestry stations. Otto Sebastián Bemberg remained in Paris, and his five children married French spouses. In 1947-48, however, under the authoritarian rule of President Juan Perón, the government confiscated all the Bemberg-dominated holdings, consisting of 33 companies and including 250,000 acres of land (although the legal process of expropriation was not completed until 1954). According to family lore, this action was taken because the Bembergs snubbed the president's charismatic wife, Eva Duarte Peron, when she visited Paris and sought to stay at their mansion as a house guest. The breweries were turned over to a labor federation, with the Quilmes plant becoming Cervecería y Maltería Argentina E.N.

Peron was overthrown by a military junta in 1955, and the Bemberg properties were returned in 1959. Cervecería y Maltería Quilmes S.A. now became a unit of Enterprises Quilmes S.A., a Bemberg-controlled holding company founded in 1952 and registered in Luxembourg. In the next two decades, several Quilmes breweries were closed, including Palmero in 1977 and Schlau in 1978, as beer drinking in Argentina fell by almost two-thirds per capita. In 1980 Quilmes, which held almost 70 percent of the remaining national beer market, began a radio and television advertising campaign, heavy on music, aimed at persuading Argentinians--particularly youths--to drink the beverage all year round, instead of only during the summer. This accented a trend that began as early as the 1930s, when Argentine beermakers first started featuring young people in their ads, generally engaged in sporting activities such as tennis and horseback riding.

In 1984 Quilmes sold a 15 percent interest in the enterprise to Heineken N.V. The cash helped the company finance a renovation of the Norte and Andes breweries and to build a new $36 million plant in Corrientes. The following year, the company chairman, a great-grandson of the founder, went outside the family for the first time in hiring a chief executive: Norberto Morita, the Argentine-born son of Japanese parents. In this period Cervecería y Maltería Quilmes and three other beverage units in Uruguay and Paraguay were subsidiaries of Quilmes International (Bermuda) Ltd., the industrial arm of Enterprises Quilmes. The Uruguay plant produced a beer named Pilsen; the two in Paraguay made Pilsen, Bremen, and Bavaria. Quilmes also was importing Heineken for distribution and sale. (It manufactured Heineken in Argentina from 1997 to 2003.)

Expansion in the 1990s

Quilmes Industrial (QUINSA) S.A. was established as a separate Luxembourg-incorporated company in 1989, when the brewing interests of Enterprises Quilmes were spun off from the rest of the latter's business interests, which were chiefly financial. All the operating subsidiaries of Quinsa continued to be held through Quilmes International (Bermuda), or QI(B). In 1991 a brewery was built and brought on line in Santiago, Chile, at a cost of $30 million. The following year a big brewery entered production in Zarate, Buenos Aires, at a cost of $71 million. This facility was expanded in 1994 to double its capacity, at a cost of $53.5 million. Also in 1994, a new malt factory and a new mineral water plant began production. A new, larger Paraguayan brewery opened in 1995. During 1995-96 Quinsa acquired two breweries in Bolivia, and the following year it purchased Cervecería Bieckert S.A., the oldest brewery in Argentina. The company introduced Liberty, Argentina's first alcohol-free beer, in 1993, and a light beer in 1997. It began exporting Quilmes to the European Union in 1998 and the United States in 1999.

By this time Quilmes held nearly 80 percent of a beer market that had more than quadrupled per capita since 1982. Production grew fourfold between 1985 and 1995, net sales soared from $271 million in 1990 to $754 million in 1994, and profit rose from $16.1 million to $86.7 million during the same period. The company invested $300 million in new plants between 1992 and 1995 without having to borrow money, and 60 percent of its productive capacity was now in facilities less than six years old.

Quinsa was soon to find itself in crisis, however. Brazil's Companhia Cervejaria Brahma began trucking bottles of its Brahma-label beer into Argentina in 1992, then, in 1994, built its own brewery in Argentina, mounted a strong marketing campaign, and offered big price discounts. Compania de Cervecerías Unidas S.A. (CCU), a Chilean company allied with a German brewery, acquired several local and regional Argentine beermakers and, in 1996, began producing and distributing Budweiser under license. Another challenger was Germany's Warsteiner Brauerei Hans Cramer GmbH, which entered the Argentine market with two premium beers, Isenbeck and Warsteiner. Quilmes's Chilean venture was continuing to lose money, and its label there, Becker, held only one-eighth of the market. Even worse, Argentine beer consumption peaked in 1997, after which the economy fell into recession. In 2000 the Brazilian challenge became even more serious, with the merger of Brahma and archrival Companhia Antarctica Paulista Industria Brasileira de Bebidas e Conexos to form Companhia de Bebidas das Americas (AmBev), the world's third largest brewer. Quinsa's net sales peaked at $955.1 million in 2000.

Quinsa, in 1999, brought in Perrier Vittel S.A. as partner in its mineral water venture, Eco de los Andes, and agreed to import and distribute its Perrier and Nestlé Pureza Vital brands. In the same year it purchased 51 percent of Buenos Aires Embotelladora S.A. (Baesa), the largest PepsiCo bottling and distributing franchise in Argentina, for $80.6 million. Aside from returning Quilmes to the carbonated soft-drink business, the Baesa acquisition brought with it distribution of Baesa's mineral water label, Glaciar. When Quinsa bought PepsiCo's second largest Argentine bottling franchise, Embotelladoras del Interior S.A. (Edisa), in 2000 for $36.5 million, it added another mineral water brand, Villa de los Arroyos. Quinsa also raised its share of Baesa to 98 percent in that year. Baesa and Edisa became the soft-drink division of Cervecería y Maltería Quilmes.

New Century, New Alliance

As Argentina's recession worsened, the government found itself unable to make payments on its sizable debt and defaulted, causing the national currency--the peso--to fall from parity with the dollar to a value of less than one-third of the dollar. Accordingly, private firms such as Quinsa saw their dollar-denominated debt more than triple while their sales faltered because of the recession and a 40 percent inflation rate resulting from peso devaluation. Quinsa's owners--still chiefly the Bemberg, Montalembert, and de Ganay heirs of the founder--turned to rival AmBev for support, selling it what appeared to be a future controlling share in the business.

In the first stage of the deal, agreed upon in 2002 and completed in January 2003, AmBev in effect turned over its businesses in Argentina, Bolivia, Paraguay, and Uruguay to Quinsa in exchange for new nonvoting class B shares in the company. It also bought existing Class A shares from Beverage Associates Corp. (BAC), a company based in the British Virgin Islands and organized by Bemberg descendants that held most of these voting shares, for $346.4 million. This transaction gave AmBev 38.6 percent of Quinsa's voting shares, with BAC continuing to hold 53.5 percent and holders of publicly traded shares the remainder. Counting Class B shares, AmBev now owned, at a price of about $700 million, 49 percent of Quinsa, while BAC owned 30 percent. AmBev executives received half the seats on the ten-member board of Quinsa directors but left its executives in charge of operations. In the second stage of the deal, BAC received a recurring put option to sell its remaining Quinsa shares to AmBev between 2003 and 2009, while AmBev won a call option enabling it to buy BAC's shares beginning in 2009, making payment in newly issued AmBev stock and essentially allowing it to take over Quinsa at a 15 percent discount.

Commenting on the deal, a banker who was involved told John Barham of LatinFinance, "The concept is that you want to do the exchange [of shares] at a value the companies are worth at that time, not now. Beer companies' values are related to how much cash they generate. This stresses that BAC feels there is a lot of upside left in the company. ... This structure ensures that if things get better in Argentina, Quilmes will be sold for a lot of money. If things have not improved, AmBev will not have to pay a high price."

After losing $135.9 million in 2002, Quinsa rebounded in 2003 with an increase of about one-third in sales and net profit of $36.8 million. Of its net sales, 75 percent was attributable to sales of beer and 43 percent to beer sales in Argentina. Quilmes's five Argentine breweries held an 80 percent share of the domestic market, with its leading brand, Quilmes Cristal, holding a 46 percent national share. The Argentine subsidiary also had two malting plants. The Bolivian subsidiary had five breweries and an estimated 97 percent market share in the country. The Paraguayan subsidiary's brewery produced Pilsen and several other labels and held 94 percent of the national market. Prior to being spun off to a separate company also owned by QI(B), the Uruguayan brewery held 98.5 percent of the national market with Pilsen and several other beers. The Chilean brewery's beers, Becker and Báltica, held only 10 percent of the market there. Baesa controlled 88 percent of the production and sale of PepsiCo carbonated soft drinks in Argentina and was also the only PepsiCo bottler and distributor in Uruguay.

In September 2003 Quinsa completed the restructuring of company debt, which belonged in large part to Cervecería y Maltería Quilmes, by extending the maturities of $232.6 million in bank loans from 2004 to 2009. In all, the long-term debt was $329.2 million. In June 2004, Quinsa owned 87.6 percent of Quilmes International Bermuda, with AmBev and BAC owning the remainder. (BAC had bought Heineken's 15 percent share in January 2003 for $102.7 million.) QI(B) held virtually all of Cervecería y Maltería Quilmes and controlling interests in the other beer subsidiaries and 49 percent of Eco de los Andes.

Principal Subsidiaries: Cervecería Boliviana Nacional S.A. (Bolivia); Cervecería Chile S.A.; Cervecería Paraguay S.A. (Paraguay); Cervecería y Maltería Quilmes S.A.I.C.A. y G.; Quilmes International (Bermuda) Ltd. (Bermuda); Seven Up Consesiones S.A.I. y C.

Principal Competitors: Coca-Cola de Argentina S.A.; Compania de Cervecerías Unidas S.A.; Warsteiner Brauerei Hans Cramer GmbH.

Quilmes Industrial (QUINSA) S.A. History

Key Dates:

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