- AB InBev did not make a qualifying offer to purchase remaining shares of the Craft Brew Alliance by the Aug. 23 deadline, the company said in a release. Instead, AB InBev opted to pay a one-time $20 million fee to the alliance.
- The world's largest beer maker currently owns 31.3% of the alliance, whose brands include Kona Brewing, Widmer Brothers, Redhook, Omission, Square Mile Cider, Wynwood Brewing, Cisco Brewers and Appalachian Mountain Brewery.
- AB InBev's master distribution agreement with the Craft Brew Alliance remains intact through 2028, while brewing and international distribution agreements remain intact through 2026.
No definitive reasons were given for AB InBev's move, although BevNET reported that because of Craft Brew Alliance's size, antitrust review and approval would have been required from the U.S. Department of Justice and the Federal Trade Commission. The publication estimated the remaining stake at $328 million, or at least $24.50 per share.
Although some of the alliance's brands have performed well, AB InBev might be more comfortable as an investor given the challenges the alliance has faced. Kona, which is growing quickly and could hit 500,000 barrels by the end of the year, has been a bright spot for the company.
According to one investor, the Craft Brew Alliance has seen "significant volume declines" from its Widmer and Redhook brands and faces other profitability challenges in scale. David Cohen of Midwood Capital Management, which manages funds owning about 2% of the alliance, cited these reasons in a letter to the company's board in mid-May encouraging a sale to AB InBev or another third party.
Craft Brew's CEO Andy Thomas said in a statement AB InBev's decision was disappointing, but now the company can "turn its attention to refining strategic alternatives to maximize shareholder value." These moves include supporting the Kona brand's growth and incorporating three new brands acquired this past fall — Appalachian Mountain Brewery, Cisco Brewers and Wynwood Brewing. The company also plans to introduce two hard seltzer brands this fall, along with a line of gluten-removed seltzers and a Kona hard seltzer.
Thomas said the alliance is optimistic its "healthy balance sheet" — along with the $20 million payment from AB InBev, innovation investments and more brand awareness — will help the company deliver value to shareholders. He added further details on the alliance's growth plan would be coming soon, likely during a Sept. 5 conference call on its business strategy and full-year financial outlook.
The company's optimism may not be misplaced. The Kona brand posted an 11% jump in shipments during the second quarter ending June 30, while total shipments were up 2.6%. The company also saw second-quarter core beer sales up 2.7% over the year-ago period because of the higher shipment volumes, while total company gross margin expanded by 220 basis points to a record 41.6%.
Whether the Craft Brew Alliance will continue to report encouraging numbers after its brewing and distribution contracts with AB InBev expire is another question, but there are a few years to find out. In the meantime, the alliance could continue to remain a standalone entity or potentially sell itself to another big brewing company such as MillerCoors or Heineken. But AB InBev would have input on any acquisition deal since it has two seats on Craft Brew Alliance's eight-person board.
AB InBev has been diversifying its portfolio by acquiring the Babe Wine canned wine brand and new craft beer members for its Brewers Collective unit. Most recently, it added Platform Beer, a fast-growing regional brewery founded in Cleveland in 2014 that makes seasonal beverages, sour beer, ciders, fruit ales, barrel-aged beers and a line of hard seltzer.
Enhancing these segments could help the brewing giant compete in a challenging marketplace. Sales of the company's flagship Budweiser and Bud Light brands have slid as consumers flock toward spirits, craft brews, Mexican beer and wine. Consequently, AB InBev may want to focus on building up its own craft beer and other brands and remain a significant investor in the alliance until the market settles down some and it can decide how to proceed.