Business: The Prague Post Online

Bass chief Staley brewing some trouble for Czech beer merger

The next couple of weeks promise to be a crucial time for Britain's Bass, owner of Prazske pivovary, the Czech Republic's third-largest brewer.

Bass is nervously awaiting a decision by the Czech government's Office for Economic Competition that could redraw the Czech beer map and leave Bass sitting on the margins. The British brewer would face a behemoth of a rival if the office approves a merger between top-ranked brewer Plzensky prazdroj and second-ranked Radegast under a holding company owned by shareholders of the two breweries.

The merger is the brainchild of Japanese investment bank Nomura, which is set to buy 36 percent of state-owned Investicni a postovni banka (IPB). Through their own shareholdings and shares held by their funds, IPB and Nomura together control 66 per cent of Prazdroj and 58 percent of Radegast.

Bass, with a one-third stake in Radegast, is still that brewer's largest single shareholder. Bass was trying to buy more Radegast shares to boost its market share to 25 percent when IPB and Nomura foiled those plans by announcing the merger.

Now Prazdroj and Radegast should give the two banks more than 40 percent of the Czech beer market, a thought Bass' country manager, Graham Staley, can't stomach.

When Prague Post reporter James Drake talked with Staley, the British beer chief sounded determined to stop a merger he thinks could ruin the Czech beer industry -- and Bass' leading status in it.

The Prague Post: How confident are you this union will be blocked?

Graham Staley: Very confident. The rules under competition law are that any market share over 30 percent could be grounds for competitive interference. We're saying [the merger] is not to the industry's advantage.

I believe that with that sort of lead, you've got a critical mass. I think you've got an impetus and a momentum that allows you to ... steamroll forward [while] aggressively growing your market share. In the short term [that could happen] at the expense of profit till you've squeezed out competitors.

TPP: Do you think they'd sell off the breweries in a few years to an enormous conglomerate at an enormous price?

Staley: I believe so.

TPP: Who might buy it?

Staley: People like Heineken, South African Breweries, possibly Kirin of Japan. They have a strong relationship with Nomura.

TPP: I'm sure you know of Nomura's record in Japan over the last year. [Nomura's home office has spent the past 18 months fending off the law and practicing damage control amid evidence that it has been paying off Japanese racketeers.] Do you think they're the sort of people to be running a beer company?

Staley: I don't have any comment on that. I'm concerned about Nomura and their stake in Radegast, and anything else they're doing is for someone else to look into.

We believe that if we had a couple, if not three, large players here in the Czech Republic, all competing with each other, that would provide a healthy competitive environment. If one company monopolizes the market, then that diversity and quality will inevitably be lost.

And the export potential for the entire industry would be lost. Czech beer is seen abroad as a premium, top-shelf product. It wouldn't be that any longer.

TPP: That's all very well. But back at home, in the 1950s and 1960s, Bass gained its market share in the UK by buying up small local breweries and standardizing the product. That's what you think IPB is out to do here. Aren't you the pot calling the kettle black?

Staley: I can't comment on that; I wasn't around in the 1960s.

TPP: So if the Czech Republic ended up with some kind of uniform 'Eurofizz' in two or three years, would the Czechs drink it?

Staley: They'd have to drink it, but Czechs love Czech beer. They don't drink much imported beer. That tells you something.

Here, we are very much keeping the traditional brewing techniques, and we get criticized for that, because people say it's not efficient. But it still retains the traditional taste, and we're determined to retain that.

TPP: If IPB/Nomura get away with [the merger], might you be interested in pitching for the Budvar brewery, which is due to be privatized soon?

Staley: Since I've been here, [privatization] has been discussed and nothing seems to be happening. Obviously [U.S. beer giant] Anheuser-Busch are interested. But really, Budvar's not been the focus of our attention. Radegast has been the focus of our attention for some considerable time.

TPP: Do you think Anheuser-Busch will ever in a million years get their hands on Budvar?

Staley: It's difficult to predict. It doesn't seem likely, but money talks, doesn't it?

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