For investors itching to invest in multinational brewers, here's a word of advice: You won't have much -- if any -- influence on corporate policy.
Many of the world's largest brewers have complex ownership structures that look they were designed by the Dutch artist M.C. Escher, a master of enigmatic images that challenge the eye and the mind. These giants are characterized by significant stock ownership by multiple descendants of corporate founders and builders; assorted holding companies and trusts; and/or multiple sets of stock that keep average investors on the sidelines.
Unless they can influence the ruling families, individual investors and even institutions will have little impact on companies such as Anheuser-Busch InBev (NYSE:BUD), Molson Coors, FEMSA (NYSE:FMX) and AmBev (NYSE:ABV).
Mexican standoff
Let's say you're concerned about what Anheuser-Busch InBev might do with its 50.2% ownership of Grupo Modelo, Mexico's leading brewer. Because of some legal structuring, Grupo Modelo's board retains operational control.
Does the world's biggest brewer want to spend more money for the rest of the Mexican company? Will it keep the status quo? Would it risk selling Grupo Modelo or allowing the Mexican company to buy back its shares?
Whatever the decision, the average shareholder will have little influence. Founding families that created InBev in 2004 via a merger of Belgian and Brazilian brewers -- and who bought Anheuser-Busch last year -- own a majority of Anheuser-Busch InBev shares. They also own enough stock to choose eight members of the company's 13-member board.
Beer and other beverages
Let's look at FEMSA, which is Mexico's second-largest brewer. FEMSA acknowledges it's discussing its beer business with companies it won't identify. Analysts speculate that the suitors are SABMiller and Heineken.
FEMSA also owns just over half of the shares in Coca-Cola FEMSA (NYSE:KOF), the second-largestCoca-Cola bottler in the world, while Coca-Cola (NYSE:KO) owns about one-third of the shares. FEMSA also runs a fast-growing chain of convenience stores in Mexico called Oxxo.
Does FEMSA sell the beer division, or create a joint venture? Does it sell the whole company? What role does Coca-Cola play in the discussions?
Whatever the FEMSA board decides, the result will likely be a fait accompli.
FEMSA has three sets of stock, but only Class B shares have full voting rights. A voting trust representing estates, trusts, and many members of families that played a role in the creation of FEMSA holds 75% of Class B shares. The voting trust's holdings represent about 39% of all common shares. The next-biggest shareholder is William H. Gates III -- yes, the chairman of Microsoft (NASDAQ:MSFT) – with 6.5% of common shares.
Morningstar, always a stickler on corporate governance, says FEMSA's structure is "unwieldy." Morningstar cites a large board filled with descendants of several founding families, adding that corporate rules provide "little power" for shareholders to remove directors.
O Canada, O Colorado
Another family affair is Molson Coors, which created MillerCoors last year, a U.S. joint venture with SABMiller. The deal put the Miller and Coors brands under one administration, cutting costs and trying to increase pressure on the Budweiser franchise.
Some analysts speculate that the joint venture is a precursor to an SABMiller takeover. Do you like that idea? Unfortunately, you have no say with Molson Coors, whose corporate structure is branded by Morningstar as "overly complex."
Created by a merger in 2005, the company has two headquarters and two sets of U.S. stock. The shares trade on two stock exchanges -- New York and Toronto. The Coors and Molson family shareholders choose most board members and they hold most of the voting power.
Corporate complexity elsewhere
International brewers that trade in the U.S. don't have a monopoly on family ownership structures. At Wal-Mart Stores (NYSE:WMT), for example, descendants of founder Sam Walton -- through individual ownership, trusts, and estates -- control about 43% of the shares.
At the Washington Post, the publishing giant has two sets of stock. It is a "controlled company" for New York Stock Exchange reporting purposes, because members of the Graham family vote for 70% of the board members.
Ironically, the former Anheuser-Busch was a takeover target partly because it was a strong practitioner of corporate democracy. It dropped its poison-pill takeover defense, and it was moving from the staggered election of board members to voting for all directors yearly. Although August A. Busch IV was in charge before the takeover, family members owned relatively little stock.
Foolish takeaway
There's a moral to this investing story. In good times, individual shareholders may not care if corporate structures look like designs by M.C. Escher. However, in not-so-good times, investors wanting to make changes by voting their shares should pay heed to the saying of financial philosopher Stanley Kirk Burrell, better known as MC Hammer: "U Can't Touch This."
