Great European Family Firms


LONDON -- In Europe, more than 80% of all companies are family run, including 25% of the continent's 100 largest businesses. Like the great American family firms and great British family firms I've written about previously, Europe's top family businesses excel when it comes to longevity, reliability, and long-run shareholder returns.

The typical family business tends to have deep, embedded knowledge about its industry, a long-term strategic horizon, and a strong balance sheet to help it weather the harsher phases of the economic cycle -- qualities that foster steady, sustainable growth decade after decade.

Here are three great European family firms for buy-and-hold investors to consider.

Anheuser-Busch InBev (NYS: BUD) Anheuser-Busch InBev, aka AB InBev, has its headquarters in Leuven, Belgium. The group is a family business quite unlike any other.

The "In" in the name comes from Interbrew, which was formed by the 1987 merger of Belgium's two largest breweries: Artois and Piedboeuf. The "Bev" comes from AmBev, which was formed by the merger in 1999 of Brazil's two largest breweries: Antarctica and Brahma. In 2004, Interbrew and AmBev merged to create InBev.

In 2008, InBev acquired U.S. brewer Anheuser-Busch in a mammoth $52 billion deal to create AB InBev. AB InBev, whose global brands include Stella Artois, Beck's, and Budweiser, is the world's largest brewer. The group generated sales of $39 billion last year -- well ahead of its nearest rivals, SABMiller ($22 billion) and Heineken ($21 billion). (The latter, incidentally, is a Dutch family company that was attractively priced for a spell last year.)

In today's uncertain times, the defensive qualities of brewers are much in demand by investors, who are prepared to pay a premium earnings multiple. AB InBev's shares are currently trading at $80.56, putting the company on a rather high forecast current-year P/E of 17. However, that compares favorably with Heineken, on a P/E of 18, and SABMiller, on a P/E of nearly 19.

L'Oreal, which was founded in 1909 by chemist Eugene Schueller, has its headquarters in Clichy, France. Today, L'Oreal is the world's largest cosmetics and beauty company, generating annual sales of $27 billion.

The founder's daughter, Liliane Bettencourt -- France's richest woman -- is 89 years old and suffering from dementia. She has recently quit the board of directors and been replaced by her grandson, Jean-Victor Meyers, one of three directors who are appointed by the Bettencourt-Meyers family group. Collectively, the family owns 31% of the company's shares.

The well-known "lipstick effect" -- women spend more on beauty products in recessions -- is currently in full swing. Hence, L'Oreal's shares, which are trading at $24.79, are highly rated on 21 times forecast current-year earnings -- richer than Avon Products, on a P/E of 19, but cheaper than Estee Lauder, on a P/E of 23.

Banco Santander (NYS: SAN) Banco Santander, named after the region where it was founded in 1857, is the largest bank in Spain and the top-weighted company in the MSCI Spain index.

Current Santander chairman Emilio Botin is the fourth generation of the family to lead the group. The Botin family holds relatively few voting rights in the company today but wields considerable influence through the support of other major shareholders and close allies.

Four Botins sit on the board of directors, including Emilio's daughter, Ana Patricia Botin. Ana Patricia is currently chief executive of Santander U.K. but is expected to succeed her 77-year-old father in due course. Indeed, it's said that Antonio Horta-Osorio, one of Ana Patricia's proteges, joined Lloyds Banking because he knew she would always beat him to the top job at Santander.

Santander has inevitably been affected by the economic chaos in Spain and the European sovereign-debt crisis. However, the group has remained profitable throughout the turmoil, its core capital ratio is strong, and its problem loans and Spanish real-estate exposure are well provisioned. Moreover, as much as 84% of Santander's profit comes from outside of Spain and Portugal, with emerging markets -- mainly Latin American -- contributing 54%.

Santander has paid a dividend of $0.78 for the past three years and is on track to maintain the dividend in 2012. At the current share price of $6.57, the yield is close to 12%. Two things can happen when a yield is so big: The dividend gets cut, or the share price rises substantially, narrowing the yield to a more typical level. In Santander's case, I think there's a good chance it could be the latter, although it may take some time.

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