Over 99% of the voted shares at the annual shareholder meeting of the Munich based Spaten-Franziskaner Bräu KGaA approved the restructuring of the enterprise announced last September.

We visited the annual meeting to gain an overview of important impulses originating from the company. With a transaction as complex as this one, it is important that we do not get lost in details. We focus on aspects that we consider essential.

As we described after last September's announcement of Spaten's cooperation agreement with Interbrew, the firm will focus on its real estate business. Taking a closer look at the annual report to shareholders, one notices a highly professional analysis of the real estate market, better than that of many real estate investment funds. Despite the weak environment, especially in the Munich office market, the company continues to have an enviable occupancy rate of 97.9%. Net rental income could be increased in a weak environment. To our knowledge, only the city of Munich owns more real estate in the city; in addition, the holdings in Dinkelacker give Spaten large real estate holdings in the Stuttgart area. The expertise and relationships that have been developed to the city councils decades are highly valuable; Spaten's personally liable managing partner Dr. Kayser-Eichberg deserves praise for avoiding risky projects in unfamiliar regions. We do not expect a change in this strategy if and when significant money flows from Interbrew to the enterprise.

As we assumed last September, the shareholder meeting confirmed that no real estate is transferred to "Spaten-Franziskaner-Bräu GmbH", the unit to be spun out as part of the cooperation agreement with Interbrew. That also applies to the very valuable factory grounds of Spaten and Löwenbräu. These are not only not transferred, but the enterprise has received a mandate to buy a new property within the city-limits of Munich and to develop a new brewery for the spun-out unit. The transfer of the brewery provides an opportunity for a much higher yield on the old factory grounds; the new location within city-limits is, amongst others, necessary to be able to serve beer at the Octoberfest. Relevant to the valuation is that - unlike what is customary with similar transactions - Spaten does not only retain all of its real estate, but that it also receives a lucrative order to develop a new property. We can well imagine that Spaten will also develop properties for other companies in the future.

Dr. Jobst Kayser-Eichberg emphasized at the annual meeting that he wants to focus his energy on real estate, and that he believes he could significantly improve the yield in this area. His preferred valuation method is a 15 to 16 times multiple of net rental income. Before deducting debt, but after including heritable building rights, "non-owned" and factory properties, he estimates their value to be about €770-€840m or €2,000 per share. If we assume that Dr. Kayser-Eichberg will no longer be distracted from the time consuming beer business and can focus on optimizing the real estate portfolio, we see, in the medium-term, an increase in net rental income, yields, as well as share price. The aforementioned numbers do not include the share of real estate holdings at Dinkelacker.

Aside from strengthening its position in a weak real estate sector, the brewery has also increased its beverage sales by 7.3%. Overall consumption in Germany continues to decline, but Spaten expanded its market position, especially with its Franziskaner-Weissbeer. Spaten recognized that it needs a strong partner to ensure the long-term health of the brands. It is the right decision to choose a time of strength to partner with Interbrew, even if a shareholder at the annual meeting lamented that the "good" beer business is given away, while the "weak" real estate is held onto.

Multiple questions were asked at the shareholder meeting pertaining to the usage of the proceeds that can be expected from Interbew. As the amount of the payments, as well as their use, depends on a variety of factors, management did not want to engage in speculation. However, Dr. Kayser-Eichberg clearly stated his priorities: taxes - debt reduction - distributions; other uses, such as investments in real estate is possible, but in our assessment, of lower priority.

After a strong increase of 56.7% of this year's dividend, Dr. Kayser-Eichberg has announced further significant increases for the future. Of the first €167m payment, the firm will receive about €70m to €75m are likely to be withheld for taxes; another small part is likely used for debt reduction. However, we would not be surprised if a significant portion of the amount will be distributed to shareholders; this could well be €200 per share.

In this context, note that Sedlmayr Treuhand GmbH has acquired the shares of Custodia AG and Custodia GmbH, thereby raising their stake in the entire enterprise to 71.68% for a payment of just under €200m. The agreements with Interbrew show that Sedlmayr Treuhand negotiated intermediary financing should this have been necessary. "Intermediary" because, as was confirmed at the annual meeting, Sedlmayr Treuhand offered to hold Custodia's shares until a permanent owner is found. However, we can look at the purchase from another perspective: this is one of the largest insider-purchases Germany has ever seen. By emphasizing a more active dividend policy, it becomes much likelier that Sedlmayr Treuhand GmbH wants to keep these shares longer-term, as higher dividends enable the financing. And should they sell these shares, then only at a much higher price.

Indeed, through the enormous strengthening of Sedlmayer Treuhand GmbH, it cannot be ruled out that the family wants to expand its share further. This may still sound utopian, but is within reach should, as we expect, the put-option to sell the spun-out Spaten-Franziskaner-Bräu GmbH be exercised during 2005 or in early 2006.

Not particularly discussed at the shareholder meeting, but nonetheless noteworthy and passed with an over 99% margin, was a change in the company's bylaws: future dividends may be paid in real goods in lieu of cash. Numerous bylaw changes passed were summarily explained with a need for increased flexibility. We can well imagine that a large shareholder requested this clause to open the possibility to be paid out with real estate should the yield and dividend policy not be according to his liking. If the shareholder were to receive real estate, he could manage its potential according to his desires.

In our analysis last September, we assigned a value of €612m to the Interbrew cooperation agreement (€578m Spatenbeer, €106m Dinkelacker-Schwabenbräu net of €70m taxes), about €1,500 per share. Net of debt about €1,075 per share. We assigned a value of €523 per share to the real estate participation at Dinkelacker-Schwabenbräu. If we now apply Dr Kayser-Eichberg's preferred method to value the real estate holdings, we arrive at a value per share of €3,600. If the yield indeed improves, we easily arrive at a per share value of €4,000 per share, similar as through our method based on historical property values last September. Of course, a discount from this amount is justified until the dust has settled and as the cooperation with Interbrew unfolds. However, this analysis helps to explain why Sedlmayr-Treuhand is such an aggressive insider buyer.

Finally, we repeat our recently published assessement that we believe that the future of the real estate company will no longer be a publicly traded limited partnership, but a corporation. This in turn should contribute that the share price will approach its inner value.

We are expanding our share holdings in the company.