Homebrew: Colombia's Bavaria faces down beer behemoths by becoming one itself--fast. (Beverages).

As foreign brewing giants snap at each other's heels to buy domestic brands across Latin America, Colombian beer maker Bavaria is snapping back.

The company got its hands on US$850 minion in cash through domestic bonds and loans then stormed along the acquisition trail, buying Panama's largest brewer, Cerveceria Nacional, last year for $260 million. In July, Bavaria shelled out $420 million for nearly a quarter of Peru's monopoly brewer, Backus & Johnston.

That same month, regulators stopped Bavaria's buy of Panama's No. 2 brewery, Baru, for $52 million.

Bavaria already controls the Colombian and Ecuadoran markets, generating a combined $182 million in operating profits during 2001.

Bavaria claims to be Latin America's fourth-largest brewer after AmBev in Brazil and Mexico's Modelo and Femsa. Run by the Santo Domingo family, known for airline Avianca and media properties, Bavaria could end up dominating beer markets in the Andean region and Central America--if regulators don't block it.

"There are not a lot of opportunities left," says Jon Silverman, Bavaria's chief operating officer, "but we are playing in the world league and we are increasing [our participation] wherever we can. It is a quilt we have to put together."

Bavaria says it wants to be second in Latin America only to AmBev--the $2.3 billion merger of Brazil's Brahma and Antarctica Paulista. In 2001, AmBev's net sales of almost 65 million hectoliters brought it $2.6 billion in revenues, according to Fitch Ratings. Modelo sold 36.6 million hectoliters and Femsa 23.6 million. Bavaria sells around 14 million hectoliters, earning $863 million in 2001 net sales, excluding Panama's Nacional.

Bavaria justifies its payout for Backus, more than twice the stock market price at the time, by noting Peru's recently improved tax treatment for beer Bavaria anticipates substantial growth at little extra cost. "We think we are good at detecting undervalued assets," says Silverman.

Bavaria believes that Backus is where Bavaria found itself a year and a half ago--badly in need of an overhaul. Looking to reverse a 30% decline in domestic beer consumption over the past five years, Bavaria shut smaller, regional plants in Colombia to cut costs and launched its first new brand in two decades.

In the first half of this year, net profits rose 20% in peso terms, after absorbing higher interest costs from extra debt. "For the first time in several years, we are seeing increases in per capita consumption in our home market," says Ricardo Obregon, Bavaria's president.

Bavaria leaves behind an era that saw the Santo Domingo family use brewery cash to launch unrelated--and sometimes unrewarding--businesses within Colombia. Non-beer assets have been packed off into a holding company, Valores Bavaria. The brewer's $79 million last year in consolidated net profits now can be directed at other brewing targets.

"These companies like Bavaria, Backus and [Venezuela's] Polar need to decide whether or not to battle each other, work together or ultimately sell out to AmBev," says Joe Bormann, of Fitch Ratings in Chicago. "I believe Bavaria has the ability to stay independent."

Similar battles are emerging at the global level. AmBev and Dutch giant Heineken wrestle over Argentine brewer Quinsa. South African Breweries is buying into Central America and Brazil. AnheuserBusch of the United States and Belgium's Interbrew have footholds in Mexico.

It seems inevitable that Latin America's beer markets will fall into the hands of global giants, just as regional banking, telecom and power distribution did during the 1990s. But Bavaria plans to keep thirsty invaders at bay

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