A Sam Adams Deal That Just Might Work
Everyone wants a taste of the craft beer market, and this has led to an onslaught of acquisitions. American craft brands such as Goose Island, Lagunitas, Blue Point, Saint Archer and many others have sold (out?) to the world's leading brewers, all of which happen to be based outside the U.S. 1 (This article lays out the issues.)
But Boston Beer Co., the $2 billion owner of Sam Adams and largest independent craft brewer, has been a holdout in the M&A game. Jim Koch, the company's founder, chairman and controlling shareholder -- and perhaps the industry's most recognizable corporate figure -- has long been opposed to selling to a foreign giant, such as Anheuser-Busch InBev. He testified before a Senate committee last July about how the country's high corporate tax rate is driving U.S. businesses to enter into such deals and predicted dolefully that he'd be the last American owner of Boston Beer:
"Why haven't we sold Boston Beer Co. to a multinational or another foreign entity? The simple answer is it's just not who we are ... But don't mistake that for good financial decision-making."
It's still pretty safe to say that Koch is unlikely to entertain offers from, say, AB InBev anytime soon. But one suitor just might be able to lure him to the negotiating table, and that's Constellation Brands.
Constellation, valued at $31 billion and based in Victor, N.Y., used to produce mainly wine and spirits, such as Robert Mondavi, Black Box Wines and Svedka vodka. But in 2013 it acquired the rights to sell Corona and Modelo -- two huge Mexican beer franchises -- in the U.S. And in December, the company closed on a $1 billion takeover of San Diego's Ballast Point Brewing.
Given the importance of manufacturing scale and a presence in growing segments like craft beer, more deals are probably in Constellation's future. And more important, Boston Beer fits the high-margin "premiumization" strategy Constellation says it's pursuing. Boston Beer generates more revenue per hectoliter than most of the top brewers, according to data compiled by Bloomberg Intelligence.
Based on the recent Ballast Point purchase, among others, Constellation's approach to acquisitions may be more palatable to Boston Beer and Koch than that of many other potential buyers, said Ken Shea, a beverage analyst for Bloomberg Intelligence. The company seems to let the businesses it acquires continue running their operations "in a very entrepreneurial way," Shea said. (This is somewhat similar to the strategy employed by Warren Buffett, who doesn't meddle much with what Berkshire Hathaway buys and usually keeps the management teams in place.)
While chatter about a Boston Beer takeover has gone on for years, it's now a cheaper -- and perhaps more vulnerable -- candidate. Since reaching a record high just shy of $324 a share in January 2015, its stock price has dropped by more than half amid increasing competition. This was evident last week, when the company reported a 47 percent decline in first-quarter earnings and gave a disappointing forecast for the year. Boston Beer is now valued at less than 11 times this year's estimated Ebitda, which is a lower multiple than the majority of its peers, according to data compiled by Bloomberg.
If beer is proof that God loves us, then a sale could be proof that Koch loves Boston Beer's shareholders.
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