Some see privatization as a stein half-empty

Just the thought alone is enough to make a Czech patriot cry in his beer.

The Czech government has kicked off a privatization process that could lead to the sale of one of the state’s most prized possessions: Budejovicky Budvar, a beloved brewery considered as much a national treasure as the premium lager it insists is the world’s original Budweiser.

Officials hint that within a few years, Budvar -- one of Europe’s last state-owned breweries -- might be in private, and possibly foreign, hands.

Czech beer lovers fear that Budvar could even wind up owned by its archrival, U.S. beer giant Anheuser-Busch Cos. For more than a century, the two companies have been locked in a bitter trademark battle for rights to the Budweiser name.

“We are patriots, and if that happens, we won’t be drinking Budvar anymore,” declared Martin Hajny, 27, a waiter in one of the many watering holes in Ceske Budejovice.

Yet Budvar increasingly has been striking deals with its competitors. In a recent interview, Budvar Director General Jiri Bocek would rule nothing out.

“It’s absolutely logical for us to cooperate with our competitors,” Bocek said.

He and Agriculture Minister Petr Gandalovic insist that the process leading to possible privatization has only just begun. They said it was too early to talk about prospective bidders for Budvar, which posted a $9.6-million net profit last year.

This month, the Agriculture Ministry began the search for a law firm to oversee Budvar’s possible transformation from a state enterprise into a corporation in which the state initially would hold 100% of shares. Gandalovic said he expected that transition to start “roughly in September 2008” and added that an actual sale was far from imminent.

“The possible privatization of Budvar is really not on the agenda now,” he said, pledging that the process would be transparent and “all potential bidders will be given equal treatment.”

But a sale is inevitable, said Tony Fletcher, a Prague-based business manager at Canadian brewing industry consulting firm First Key Consulting Inc. He considers Budvar’s current structure “an anachronism.”

“As far as I know, there are no state-owned breweries left -- certainly in Western Europe or indeed in the former communist countries,” Fletcher said.

Already, investment banks and big brewing companies have expressed interest in buying Budvar, Gandalovic said.

Fletcher, noting the rapid consolidation of the brewing industry, said Budvar probably would be of interest to major brewers including InBev, Anheuser-Busch, Carlsberg and Heineken.

Budvar, the third-largest Czech brewery, boosted production by more than 5% in 2006 to 29.9 million gallons.

Exports rose 8%, with a record 14.3 million gallons sent to 50 countries worldwide. The brewer hopes to maintain, if not improve, that growth.

In Europe, Budvar recently struck a deal with Carlsberg to distribute its beer in Finland, Sweden, Croatia, Bulgaria, Serbia and eventually Denmark.

In a similar but more surprising deal announced in January, Anheuser-Busch agreed to distribute Budvar’s Czechvar lager in the United States, giving the Czech company access to its U.S. competitor’s unrivaled network of 600 independent wholesalers.

Though Budvar considers itself the maker of the original Budweiser, it has exported its lager to the U.S. under the name Czechvar since 2001 because Anheuser-Busch has firm control of the U.S. trademark on the name.

Budvar’s Bocek said it would take as long as three years to properly evaluate its cooperation with Anheuser-Busch. America’s No. 1 brewer initiated the deal as part of its strategy to add more high-end imported beers to its portfolio amid surging sales of imported brands.

Budvar shipped 241,800 gallons of Czechvar to the U.S. last year, and exports in the first half of 2007 were up 58%.

That hasn’t stopped the two companies’ global trademark dispute over the exclusive rights to Budweiser and related names. They’re involved in 17 lawsuits in various countries, Budvar spokesman Petr Samec said.

Budejovicky Budvar was founded in 1895 in the southern city of Ceske Budejovice -- called Budweis by the German-speaking people who populated the area. Beer has been brewed here since 1265 and has been known for centuries as Budweiser.

But the founders of Anheuser-Busch also used the name Budweiser for their product because it was well-known in their German homeland.