Spaten Valuation after Interbrew Cooperation Agreement

(translation of German 20 Sep 2003 report)

There is significant leeway in the valuation of the real estate with over 160 properties at Spaten and another large number at Dinkelacker. Spaten's properties include some of Munich's most important locations (e.g Haus am Karlstor GmbH; or Karstadt Münchener Freiheit in Schwabing). An appreciation of 30% based upon a valuation from the seventies is likely to significantly undervalue the holdings. We assume a long term rental income of over €100 per share for Spaten's real estate as well as Spaten's and Löwenbräu's factory grounds; i.e. before including rental income from Dinkelacker. Our computed share price should thus be at the lower range its true value. Because of the conservative parameters employed, we do not take a discount of the property values as would be common when valuing a US REIT.

With a highly conservative valuation of Spaten's real estate, we achieve a valuation of about twice of current market prices. Over the past couple of years, Spaten has developed from a sleeping family enterprise to an increasingly transparent concern; now, it is becoming a real estate jewel. Axel Merk has close historic ties to Spaten; as a result of the announcements, we did not only buy further shares for ourselves, but also adopted Spaten shares as a "core holding" in our European portfolios.

The expected sale 2005 of the Löwenbräu stake in Interbrew-Germany raises cash that will allow Spaten to be very flexible. Among others, we expect that an arrangement will be found to facilitate the generational transition among the general partners (Sedlmayr-family). A possible conversion back from a partnership to a corporation in conjunction with a special cash dividend would be a solution, especially taking care of tax considerations.

Essential is that the announcements clearly define Spaten's future, and the separation from the brewing business took place with an excellent partner from economic, tax and regulatory perspectives. [3]

We congratulate Spaten's Dr. Jobst-Kayser Eichberg for these excellent steps that announce a new era. If the trend in increased transparency continues; if the real estate management continues the conservative course introduced by Dr. Kayser-Eichberg; and if the dividend policy will be adjusted to reflect the new corporate structure, we expect that both Sedlmayr-heirs as well as shareholders will be very content with the path chosen.

If you have further questions, please contact us.

Axel Merk
Merk Investments

Analyst Disclosure: Axel G. Merk, his family, Merk Investments as well as Merk Investments' clients hold Spaten shares.

Risk Disclaimer: Investments in the stock market is associated with a variety of risks. This is not a direct buy recommendation. Aside from the typical risks associated with shares, please note that Spaten is a publicly traded limited partnership ("Kommanditgesellschaft auf Aktien KGaA"), which might impact the valuation. Also note that trading liquidity of Spaten shares is traditionally low, even if it has been elevated in recent months due to takeover rumors. Also be aware that a large portion of shares outstanding are held by very few parties.