Over the last eight weeks, Anheuser-Busch InBev and Craft Brew Alliance (CBA) have been working together to finally complete a merger of the long linked together beer companies.
The culmination of that work came Monday with the announcement that Anheuser Busch, which owns 31.2% of CBA, would acquire the remaining stake in the publicly traded Portland, Oregon-headquartered craft brewing company.
The deal was a long-earned victory for CBA CEO Andy Thomas and a credit to his work to restructure CBA’s business in the lead up to the qualifying offer and accelerate the flagship Kona Brewing brand, as well as his measured and unemotional approach after Anheuser Busch spurned CBA in late August.
Many had written off CBA — whose brands include Kona Brewing, Widmer Brothers, Redhook, Omission, Square Mile Cider, Wynwood Brewing, Appalachian Mountain Brewery and Cisco Brewers, as well as the pH Experiment innovation division — after Anheuser Busch declined to make a qualifying offer on August 23, and CBA’s stock price (BREW) dropped from $12.96 on August 22, to $7.33 at the close of trading on Monday. But like a phoenix, CBA’s stock has risen to more than $16 a share on Tuesday.
According to Brewbound, Thomas pointed to Anheuser Busch’s positive posture about its future relationship with CBA, despite the lack of offer to purchase the remaining 68.8% of the company in August.
In the days after the deadline, CBA was finally free to explore other options, including a potential sale to another buyer, although. However, Anheuser Busch would still have a say in any potential deal with two seats on CBA’s eight-member board, and CBA’s route to market remained closely aligned with Anheuser Busch through brewing, distribution and export contracts for up to another seven years.
Although CBA’s leadership team pondered several different strategic directions, they still sought a clearer understanding of what Anheuser Busch’s future intentions. And, as Thomas put it, “all roads led through” Anheuser Busch.
“In really good faith, we met with them a couple of times,” he said. “One of the things that I said was everyone was looking for me to demonize what was going on, but the conversations were very constructive, and in the course of those early constructive conversations, it quickly became apparent to both sides that the right future for us was one where we didn’t get further apart but one where we got closer together again. So we went back to the drawing board to reconsider and reconstitute what would it look like to have some of merger agreement.”
Anheuser Busch’s intentions crystallized on Monday, as the world’s largest beer manufacturer announced it had reached an agreement to purchase the remaining stake in CBA for $16.50 per share — putting a $321 million value on CBA. The $16.50 per share cash offer was more than double what CBA stock was trading for in November, but lower than the $24.50 per share qualifying offer the company would have been required to make in August.
According to Thomas, Anheuser Busch and CBA leaders have yet to discuss what life after the merger closes looks like beyond the company’s portfolio would be added to Anheuser Busch’s craft division, the Brewers Collective, which includes Goose Island, Elysian, Golden Road, and 10 Barrel, among others.
There remain potential hurdles to closing the deal, though, including a proxy vote of CBA’s non-Anheuser Busch affiliated shareholders, who must vote in favor of the transaction before it can close. Thomas expects that vote could occur before the end of 2019. He noted that the company’s independent board of directors unanimously authorized him to sign the merger agreement with Anheuser Busch.
CBA and Anheuser Busch also have to receive regulatory approval from the U.S. Department of Justice and the Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Recall that Anheuser Busch agreed to a consent decree with the DOJ as part of its $107 billion merger with SABMiller in 2018.
Those processes could take up to nine months to complete.
According to an SEC filing made by CBA today, the agreement includes termination rights should the deal not close by November 11, 2020. However, both companies can extend the deadline, should antitrust approval not be received by that date, to February 11th, 2021, and again to May 11, 2021. Should CBA terminate the deal, the company would be required to pay a $9 million cash fee to Anheuser Busch. On the other hand, Anheuser Busch would be required to pay CBA $15 million should antitrust approval not be met.
Thomas called the completion of the transaction a “natural evolution” of CBA’s relationship with Anheuser Busch. He added that CBA’s leadership team is “committed to continuing to lead the company through the period and up until close.”
“As the days go by and we get those things prioritized, we’ll pivot our attention to what comes next,” he said. “For right now, our job is to continue to serve the needs of the stakeholders of CBA, and to do everything we can to make the transaction come to fruition.”
Asked if there could be a possible divestiture of brands within CBA’s portfolio, Thomas declined to speculate.
“I’m not an antitrust expert, so I would defer to people who are more knowledgeable about that,” he said.
According to Thomas, CBA leaders do not anticipate “widespread [job] losses anywhere or any losses anywhere” due to the sale to Anheuser Busch. Thomas pointed to the two companies’ complementary brewery and geographic footprints and wholesaler networks.
“There’s nothing that we anticipate right now that would lead to any job losses,” he said. “Certainly not in the immediate, near-term future and beyond then, there’s nothing that I look at that would be an area of concern.”
In the meantime, Thomas said the reaction from CBA’s stakeholders to the deal has been positive.
“Calls with some select shareholders have been very, very favorable,” he said. “Employee feedback has been really good. In our canvassing of the founders, be that [Kona co-founder] Cameron Healy all the way through Louis and Pops [Brignoni] down at Wynwood or Nathan [Kelischek] and Chris [Zieber] and Danny [Wilcox] at AMB or the Cisco founders, everyone has been very supportive.”
For his part, Healy released a statement praising CBA and Kona’s relationship with Anheuser Busch.
“Kona Brewing Co. has enjoyed a positive partnership with Anheuser-Busch for the past 17 years through our affiliation with Craft Brew Alliance, and I expect the relationship to continue prospering under this new structure for years to come,” he said. “I am excited to see where Kona Brewing Co. goes next, with the new brewery opening in Kona in early 2020 and through the numerous investments we continue to make in our local communities. Mahalo!”