Anheuser-Bush decides not to purchase the Craft Brew Alliance’s remaining shares

Let’s not move into together. Let’s just keep dating. Whether it was Anheuser-Busch’s heavy debt load or Craft Brew Alliance’s struggling heritage brands, the two companies are just going to keep their business ventures at a partnership level.

Anheuser-Busch had a deadline of Saturday (Aug. 24) to purchase the remaining shares of the Craft Brew Alliance as part of its 2016 International Distribution Agreement, and it decided to pass.  It continues to own a 31.3 percent.

“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,” says Marcelo “Mika” Michaelis, president, Brewers Collective, Anheuser-Busch.

The CBA, as you probably know, includes Appalachian Mountain Brewery, Cisco Brewers, Omission Brewing Co., Redhook Brewery, Square Mile Cider Co., Widmer Brothers Brewing, and Wynwood Brewing Co., but it’s main asset is Kona Brewing. If you’ve followed the earnings reports the last few years, you’ve noticed that the Hawaii-based, island-lifestyle-branded beer has been killing it sales-wise, which led many to believe the Alliance would be worth the full acquisition based on that alone.

That turned out not to be the case, and maybe we should have seen this coming. A-B’s craft beer acquisition strategy since buying its original stake in the CBA way back when has been much more about establishing a real estate footprint with solid brewpubs and brands with regional presence, versus scaling up brands with a nationwide distribution strategy as Kona has been pursuing (See its most recent buy in Cleveland’s fast-growin Platform Beer as an example). None of the other brands under the CBA umbrella really meet the criteria either.

Another factor could be Anheuser-Busch’s current debt situation. A-B declined to buy the rest of CBA for a predetermined price of $24.50 per share, which amounts to about $475 million from what I read on the internet. Anheuser-Busch is already juggling a $100 million in debt, so maybe adding on another half billion didn’t feel like the right move. 

Instead, A-B has confirmed it will be making a $20 million one-time incentive payment today. After the announcement hit the headlines, CBA stocks instantly took a hit (as you’d expect).

CBA CEO Andy Thomas had this to say: “While disappointing, with this decision made, 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. 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.”

CBA’s existing Master Distribution Agreement remains intact through 2028, and the existing Contract Brewing Agreement and International Distribution Agreement remain intact through 2026.

CBA will host a conference call on Thursday, September 5, 2019 to provide an update on the Company’s go-forward business strategy and full-year 2019 financial outlook. Interested parties may access details for the live conference on CBA’s Investor Relations site at www.craftbrew.com.