The deadline for Anheuser-Busch InBev to make a qualifying offer to acquire the remaining stake of Craft Brew Alliance (CBA) came and went today without an offer.
The world’s largest beer manufacturer, which already owns 31.3 percent of the smaller Portland, Oregon-headquartered craft beer maker, had until today, August 23, to either make an offer for the remaining stake in the company at a minimum of $24.50 per share (about $328 million) or pay a $20 million fee.
Ultimately, A-B decided to pay a one-time $20 million fee to CBA, whose brands include Kona Brewing, Widmer Brothers, Redhook, Omission, Square Mile Cider, Wynwood Brewing, Cisco Brewers and Appalachian Mountain Brewery, as well as the pH Experiment.
In a statement, A-B Brewers Collective president Marcelo “Mika” Michaelis said:
“The long-standing and strong partnership we have with Craft Brew Alliance (CBA) is extremely valuable to Anheuser-Busch. While we are not making an offer to purchase the remaining shares of CBA, our existing commercial partnership with CBA continues to be a key complement to our industry-leading craft portfolio and we look forward to working together for many years to come.”
In a separate statement, Andy Thomas, CEO of CBA, called A-B’s decision “disappointing” but said with the company’s immediate ownership situation now clear, “management can turn its attention to refining strategic alternatives to maximize shareholder value.”
“Over the past several years, we have built a sustainable infrastructure, optimized our footprint, and amassed a diversified portfolio of brands to support future profitable growth anchored by robust growth in the Kona brand and the addition of our three newly acquired brands,” he said. “Looking to the future, we are optimistic that our healthy balance sheet, bolstered by the $20 million payment, and strategic investments in innovation and increased brand awareness will enable us to deliver long-term shareholder value. We look forward to sharing more details of our growth plan in the coming weeks.”
Still, more questions remain than answers. Chief among them, why did A-B pass on the opportunity to acquire CBA and its fast-growing Kona Brewing brand, which is on pace to be a 500,000-barrel brand by year end? And, moving forward, what is A-B’s interest in the company?
Due to the size of CBA, such a transaction would have necessitated review and approval by the U.S. Department of Justice and the Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
The prospect of a qualifying offer had hung over CBA in recent years, and a transaction seemed to make sense as CBA’s route to market is closely aligned with A-B through brewing, distribution and export contracts. However, those deals will remain in place for up to another seven years, at CBA’s election, including a Master Distributor Agreement (MDA) to leverage A-B’s wholesaler network at $0.25 per case through 2028, the ability to contract brew up to 300,000 barrels at A-B’s production facilities at a savings of $10 per barrel; and export opportunities through A-B subsidiaries.
Without the spectre of an A-B offer, CBA is now free to explore other options unencumbered, including a potential sale to another buyer.
Following CBA’s Q2 earnings report earlier this month, Thomas said that there are “an infinite number of possibilities” for CBA in the event an A-B never materialized. Nevertheless, A-B will still have a say in any potential deal, holding two seats on CBA’s eight-member board.
CBA now reaps $20 million to use as it sees fit. In a “Quick Take” report today, Cowen managing director for beverages, cannabis and tobacco Vivien Azer suggested CBA could use that windfall to restructure its business, pay down debt, repurchase shares, or invest behind Kona and new innovations in the “beyond beer” space.
A-B passing on an outright acquisition of CBA comes just weeks after the company announced a deal for Cleveland, Ohio-based Platform Beer Co., the company’s first craft acquisition since purchasing North Carolina’s Wicked Weed in 2017.
CBA will hold a conference call on Thursday, September 5, to give an update on its business strategy moving forward, as well ass full-year 2019 financial projections.