Forget about the bear market. Let's keep the focus where it belongs--on beer. Today's WSJ has an article on the troubles family-owned Mexican brewer Grupo Modelo S.A. is facing in today's beer industry.
I get a little annoyed by this article--and others like it, which I read all the time--because while its premise is pretty clear--that Modelo's days as an independent company are numbered, it never clearly states why. Instead it uses vague statements like the following:
- "He and his tradition-bound company are struggling to adapt to sweeping changes in the beer industry."
- " . . . fewer and bigger players in the capital-intensive industry."
- "The world is changing around them . . ."
- "Modelo is going to face more and more pressure to go beyond its Mexican-centric view . . ."
- "Modelo's independence is threatened by deals they didn't do."
without any further explanation.
Why doesn't the article simply say "Modelo cannot remain independent because of XYZ, and if it does here is what will happen." In my opinion there is nothing in the article that proves that a company like Modelo, 45% owned by its founding families, with a dominant market share, has to sell out to a consolidator like InBev or SABMiller or else. If scale is all-important then say so. If InBev could come in and take away share with its superior capital resources and new brands then say so. If size is necessary to deal with big box retailers like Wal-Mart de Mexico (one of the main factors behind the P&G--Gillette merger, for instance), then say so. If Modelo is being mismanaged and would be worth more in other hands, a la BUD, then say so. The article does none of this.
As far as I can tell the best argument is the following: Public companies, even those with huge inside ownership and that are performing well, must all make a devil's bargain. In exchange for the benefits of public ownership--greatly enhanced liquidity and the ability to have tomorrow's profits travel back in time to today's stock price (what the modern Adam Smith called "supercurrency")--companies must submit to the demands of "spotty-faced youths who live on another planet where growth-at-any-price is the only deity" (that's Felix Dennis, and he has a point. I'm a former spotty-faced youth myself). Public companies must grow, their stock prices must rise--even well-run companies whose very success means they've grown all they can--otherwise someone will come along to take them out in the belief that they can do what existing management could not.
Does this have to be so? Is there no way for a successful but no-longer-growing public company to escape the tyranny of growth? Couldn't it turn itself into a kind of industrial master limited partnership and simply pay out all of its earnings as dividends? It would then trade at a yield commensurate with its excellence and low risk, shareholders would be rewarded--perhaps with bond-like returns, but with bond-like risk, and the family management would maintain its independence while enjoying the liquidity and supercurrency benefits of public ownership.
Until that day comes, of course, the best thing for such a company to do is sell to Berkshire Hathaway.
Comments