What a difference a year makes. In Nov ’18, Pabst went to court over acrimonious charges that MillerCoors tried to illegally end their contract brewing production deal. Case settled before jury could decide and both sides claimed to be happy relationship would continue, presumably well into next decade. Fast forward a year: Pabst announced deal with City Brewing that City would take over most of Pabst’s production over next 5 years, beginning in 2021. Deal inked to last through 2040, which suggests some confidence on Pabst’s part given current trends.
“This partnership provides clarity and certainty for our employees and our customers, and will allow us to innovate more effectively,” Pabst ceo Eugene Kashper said. Details of Molson Coors-Pabst contract unknown, but gotta figure Pabst innovations pretty low on priority list for MC breweries. Then too, Molson Coors brewery footprint under “constant review,” as ceo Gavin Hattersley acknowledged on recent conference call. New Canadian production coming on and many expect Molson Coors will transfer some production for US to Canadian breweries. Giving up Pabst production makes that move even easier. Kinda ironic that even when MC told Pabst back in 2015 that it couldn’t produce Pabst after 2020, contract would still have run thru 2022. So, new plan looks a lot like the old plan: transition Pabst out of MC, around the same time.
City Brewing, which has plants in La Crosse, WI, Memphis, TN and Latrobe, PA, has been on a roll as key supplier for Mike’s and Boston products, plus others. Some say there’s more to deal than simple production agreement, that a transaction occurred, possibly thru a holding co. But Eugene insisted: “We’re not buying City Brewing, nor planning to buy City.” Pabst, he said, “wants to remain a virtual brewer.” Pabst in tuff period. It’s down 10% or so in scans yr-to-date, on track to close yr just above 4 mil bbls and slipping to #7 slot in US by yr-end, tho it has some new products comin’ to market.
AB to Buys Rest of Craft Brew Alliance Meanwhile, AB will buy 68.8% of Craft Brew Alliance it doesn’t own, for $16.50 a share, approx $221 mil. Assuming DOJ approves, and it may take a while, AB will make its biggest craft purchase yet. CBA’s 719K bbls in 2018, added to AB’s approx 1.5 mil bbls in Brewers Collective, will easily make AB #1 in craft by our count. Deal follows Boston’s purchase of 280K bbls of Dogfish Head, for $300 mil earlier this yr. But even with additional 6 mos of Dogfish Head, Boston will be under 2 mil bbls of craft beer in 2019. CBA, like AB, declined in recent yrs; dropped 72K bbls, 9% since 2014 peak. What AB’s mostly buying, Consumer Edge’s Brett Cooper points out, is growing Kona portfolio, now near 70% of CBA volume. Purchase price kinda steep if viewed as multiple of EBITDA. That’s because CBA never made much money. But if AB can generate its typical 35-40% EBITDA margin on Kona’s approx $114 mil in rev, Brett noted, it should make around $40 mil of EBITDA on Kona alone. Brett’s analysis ignores the rest of the biz, which AB will fold into mostly successful Brewers Collective, growing double digits in 2019. Then too, virtually no distrib alignment issues, given long-term AB-CBA relationship. And AB’s already producing some CBA volume. AB likely to find some savings from folding in entire CBA biz.
