UPDATE: June 16, 2020: Anheuser-Busch said it would sell the Kona Brewing operations in Hawaii, including the new brewery and two brewpubs, as part of its purchase of Craft Brew Alliance announced last November. The arrangement does not include CBA’s Kona business outside of Hawaii. The companies said the divestiture was done to "expedite the regulatory review process and alleviate potential regulatory concerns regarding the proposed expanded partnership."
- AB InBev will purchase the 68.8% stake it doesn't own in Craft Brew Alliance for about $321 million, or $16.50 a share in cash, the companies said in a statement. Craft Brew owns brands including Kona Brewing, Widmer Brothers and Redhook Brewery.
- AB InBev had initially decided not to exercise an option to purchase these shares in Craft Brew for at least $24.50 each. This purchase option expired in August, and the brewing giant instead opted to pay a one-time $20 million fee to the company.
- As part of a long-standing agreement between AB InBev and Craft Brew, most of Craft Brew's brands are already distributed by the beer giant. The companies said the deal is expected to close in 2020.
As consumers gravitate away from household names such as Budweiser, Coors Light and Miller Lite toward trendier craft beers, spirits and nonalcoholic or low-calorie beverages, it makes sense for AB InBev to expand its presence in these areas.
One of the fastest growing segments during the last decade has come in craft beers, which have rolled out creative names and flavor concoctions. Last year, there were an estimated 7,450 craft breweries, roughly double the number in existence in 2014, according to the Brewers Association. Craft production rose 3.9% in 2018, with the segment responsible for about a quarter of all sales in $114 billion beer market, the group said.
In recent years, AB InBev has purchased craft players such as Goose Island Beer, Devils Backbone, Wicked Weed Brewing and Karbach Brewing. In August, AB InBev acquired Platform Beer, a fast-growing regional brewery founded in Cleveland in 2014.
The latest deal comes after AB InBev passed on a chance to purchase Craft Brew for $24.50 a share in August. Craft Brew had the chance to explore other options after August 23, but a transaction with AB InBev made the most sense for a number of reasons — most notably the sizable stake the beer giant retained that would have given it a signicant say in any other offer from a third party. Considering the lower share price in the actual acquisition, Craft Brew saw deeper value in solidifying the relationship with AB InBev.
AB InBev, through its Anheuser-Busch division, has worked with Craft Brew and its brands in some capacity for more than 25 years. AB InBev is no doubt intimately familiar with Craft Brew's portfolio and growth prospects. It also already distributes Craft Brew's beers though its expansive network. With this acquisition, AB InBev will most likely not have to do much to incorporate the business into existing operations.
"By combining our resources, our talented teammates, and dynamic brands, we will look to nurture the growth of CBA’s existing portfolio as we continue investing in innovation to meet the changing needs of today’s beverage consumers," Andy Thomas, CEO of Craft Brew, said in a statement.
Brewbound, a website covering the craft beer space, said last year AB InBev's two largest craft brands — Goose Island (550,000 barrels) and Shock Top (430,000 barrels) — declined 7% and 23%, respectively. Citing data from the Brewers Association, Brewbound estimated AB InBev's 11 craft brands combined grew 1% in 2018.
By adding Craft Brew to the fold, the publication said AB InBev will add roughly 756,959 barrels in production based on 2018 output. The Kona brand alone in 2019 is pacing at 500,000 barrels.
"Kona is a scarce asset whose value is partially obscured by declines with Widmer and Red Hook brands," Bill Kirk, an analyst with MKM Partners, said in a note a few months ago cited by Seeking Alpha. "We estimate that Kona alone is worth [roughly] $350 [million] to equity holders."
The deal also allows AB InBev to keep pace with other competitors in the beer space. Earlier this year, the Boston Beer Company, the manufacturer of Sam Adams, announced it would buy craft-beer maker Dogfish Head Brewery for $300 million in an effort to keep pace with "an intense amount of consolidation among many craft breweries in the U.S.," most notably the sale of many of them to large international beer giants. And last month, Molson Coors announced a sweeping restructuring that included job cuts, streamlining of its corporate structure and the addition of the word "beverage" to its name to "better reflect its strategic intent to expand beyond beer."
While AB InBev has made other changes to its portfolio — including the introduction of Natural Light Seltzer in a bid to attract college-age fans and partnering in 2018 with Jim Bean to make a collaborative beer called Budweiser Reserve Copper Lager — buying Craft Brew is a low-risk and low-cost move for a company with a $154 billion market cap. As the beer industry continues to rapidly evolve, companies such as AB InBev can't afford to sit still, even if not all their product launches or acquistions end up succeeding.