Hop Talk

Not a scoop, by any means, but word is out that Magic Hat Brewing is buying Pyramid Breweries.

From the press release:

The closing of the proposed transaction, subject to the conditions referred to above, is anticipated to occur not later than August 31, 2008.

The board of directors of Pyramid has approved the transactions contemplated by the Letter of Intent.

“The combination of these two well established, high profile craft breweries will be very complementary given our respective brand portfolios and the geographies in which we predominantly operate. Additionally, there will be a number of important benefits for Pyramid to be part of a private company versus continuing to operate as a stand alone public entity. This consolidation makes both good strategic and financial sense and is well timed, particularly as the beer industry’s competitive dynamics continue to intensify,” said Pyramid CEO Scott Barnum. “The Company will continue to have offices in Seattle, its historical home, and will seek opportunities to capitalize on the enhanced assets and capabilities of the new combined entity,” he added.

Martin Kelly, CEO of Magic Hat said, “We have a great deal of respect for Pyramid’s brand heritage, award-winning beers and its dedicated employees, and look forward to consummating this transaction, which provides both strategic and financial benefits both to Pyramid’s and Magic Hat’s stakeholders.”

I have had—and enjoyed—beers from both of these brewers. Pyramid is apparently having some financial difficulties and have had to let some staff go. I guess I just don’t know what to think of it. Last year was Red Hook and Widmer, and now this.

I wonder if this is the leading edge of a wave of consolidation in the craft brewing segment. We have seen such things in other business segments; remember when there were eight “big” accounting firms? The high costs of raw materials, packaging, and transportation certainly aren’t helping matters.

Best discuss it at the pub.

(via multiple sources)

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You don’t need to have your finger on the pulse of the beer industry to have heard the continuing rumors of the two largest beer producers in the world (one by sales, the other by volume) in merger talks. Their recent mutual distribution agreement is widely seen as a precursor to a full-fledged merger. Profits for A-B were up in the 4th quarter of 2007, but the large jump on February 1 is attributed to these InBev merger rumors. (CNN Money: Anheuser-Busch Shares Up on InBev Report)

I’m no pundit, and certainly you can get more coverage from mainstream media sources (CNN, Bloomberg, Reuters, New York Times) and the beer blogosphere (Jay Brooks, and more), but I would be remiss if I didn’t bring it to your attention. Of course, around this time last year the same rumors were circulating, but they seem more strident this time.

There won’t be any in-depth analysis here, but I do wonder what will happen. Assuming the rumors are true, who benefits? The stockholders in the two companies, obviously. The workers at the companies? Generally not. Employees who hold company stock in their retirement plans count as stockholders, of course, but then there’s all the employees who will lose their jobs as the merged company gets rid of “redundancies”. Executives will do well, if only with golden parachutes.

Of course, that’s not the focus of this blog either. We’re about the beer, here. So what about it? I expect there will continue to be experimentation with products in the “craft” space. If only because craft beer is still, at least for the time being, growing at a double-digit rate. Really, though, I expect more of the same. I expect the companies to realize cost-savings by brewing far-away recipes closer to home. Why ship all that beer across the Atlantic when you can brew it at a regional A-B facility and slap the “exotic” label on it?

But, honestly, do I expect any new, interesting, good beers to be produced by this new company? No.

What really concerns me is the smaller brewers; the ones whose beers I love. Instead of dealing with a couple of industry giants and working to find their own niche (and distribution), they’ll now have to compete with a Ginormous Behemoth. Will any niches be left and will they be big enough to sustain the “real” craft brewers? I wonder if we’ll see a contraction in the craft beer space similar to what we saw after the go-go eighties.

I wish I knew what it all means. I can’t ignore it.

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Boy, have I been out of it.

Turns out two of the (U.S.) Northwest’s biggest and best-known craft brewers are going to merge. This will result in a craft brewing company on par with Sierra Nevada second only to Boston Beer Co. in size.

Granted, it’s nowhere near the kind of numbers that MillerCoors will be producing, but I don’t drink their beers. I have occasioned to drink both Red Hook and Widmer.

And I’m just hearing about it now.

The Oregonian: Widmer, Redhook Combine to form 2nd largest U.S. Craft Brewer

(via I Love Beer, among others)

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Just a couple of quick links to interesting items that we really liked and, frankly, wished we’d written:

The Zythophile: Pernicious myths and a ban on hops
On tracking down persistent urban beer myths.

First Draft: Shotgun Wedding
Analysis and speculation of the announced merger of Miller and Coors.

I love beer: Portland Recap, Chapter 2
A bicycle tour of Portland.

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Associated Press: Molson Coors, SABMiller combine U.S. ops

NEW YORK - The makers of Coors and Miller Lite plan to combine their U.S. brewing operations in an effort to compete better against industry leader Anheuser-Busch.

The joint venture announced [today] will be known as MillerCoors and will have responsibility for selling brands including Miller Lite, Miller Genuine Draft, Coors, Coors Light and Molson Canadian in the U.S.

Anheuser-Busch Cos. accounts for about half of the U.S. market with brands such as Budweiser, Michelob and Bud Light.

SABMiller PLC will have a 58 percent economic interest in the venture and MolsonCoors Brewing Co. will own 42 percent of the new company. They will have equal voting interests, however.

Precise financial terms of the deal were not disclosed.

Shares of MolsonCoors climbed $6.17, or 12.1 percent, to $57 in morning trading Tuesday. SABMiller shares rose 2.3 percent to 1,499 pence ($30.57) in midday trading in London.

The joint venture will also result in cost savings of $500 million, the companies said. That savings will mainly come from reducing shipping distances, finding economies of scale in brewing operations, optimizing production and eliminating duplicate corporate and marketing services.

London-based SABMiller, which brews Miller Lite as well as a slew of European beers, and Denver-based Molson Coors, the brewer of Coors Light and the craft beer Blue Moon, will each have five representatives on its board of directors.

Pete Coors, vice chairman of Molson Coors, will serve as chairman of the new company and Molson Coors Chief Executive Leo Kiely will be the new CEO of the joint venture. Tom Long, CEO of Miller, will be appointed president and chief commercial officer.

Under the terms of the agreement, the companies said they will conduct all of their U.S. business exclusively through the venture.

The companies project MillerCoors will have combined annual beer sales of 69 million U.S. barrels with revenue of about $6.6 billion.

Coors said the joint venture will allow both companies to compete for U.S. consumers who are “looking for greater choice and differentiation,” as wine and spirits continue to entice beer drinkers and imports and craft beers garner a larger share of the market.

The companies said by combining their U.S. operations, the venture will be able to invest more in marketing its brands to consumers and compete more effectively with larger brewers like Anheuser-Busch and InBev NV S.A., which imports a large number of global beers into the U.S. and is the world’s largest brewer by volume.

“Given the highly complementary nature of our U.S. assets, operations and geographic footprint, this is a logical and compelling combination that we expect will create significant value for shareholders while benefiting distributors, consumers, retailers and the market overall,” said SABMiller Chief Executive Graham Mackay.

The companies said the deal will add to both of their earnings in the second full year of combined operations.

The companies said $50 million of the total cost savings will be recorded in the first full financial year after the two companies combine. Another $350 million will be saved in the second year and the last $100 million will come in year three.

The companies added they will have to make a one-time cash outlay of $450 million to achieve those savings.

A final agreement is expected to be signed by the end of 2007 with the deal closing in mid-2008, the companies said.

Rumors of this were circulating back in June.

I guess Mackay’s comments that “Craft Beer Will Fade” really make sense in this context. Wishful thinking indeed. I guess he doesn’t believe that A-B will fade instead.

I can’t see how this is good for beer drinkers. Good for investors, of course, but offering new and better products to consumers is an afterthought.

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The Toronto Globe and Mail offers their analysis of the Molson-Coors merger three years after it was announced.

The verdict? It’s working.

So, while [investors and brokerage firms] were sleeping, here’s what they missed: The merger is working. After a difficult start, Molson Coors has got its act together. It has cut costs, refinanced debt, opened a new brewery in Virginia and sold more silver bullets to beer-drinking Canucks than ever before. The stock market has responded: In the past year, Molson Coors shareholders have made 38 per cent, including dividends, beating returns from Anheuser-Busch and Heineken.

Molson Coors, three years on

Molson Coors

(via Click A Bottle)

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European and American stock markets were abuzz today about a possible merger between Anheuser Busch and InBev.

InBev is the world’s largest brewer by volume. Anheuser Busch is the largest by sales.

Their markets don’t overlap much, with InBev primarily outside of North America.

This is not one of the scenarios I imagined when I talked about their distribution agreement.

Is there anything to worry about? At least, from a craft beer fan’s perspective?

I don’t know. I’m not a big fan of giant consolidations like this. InBev, at least, has let the breweries they’ve brought under their umbrella stay true to their product. I have even enjoyed a few of their brands, such as Bass Ale.

Even as big as this company would be I think there’s still room for craft brewers. However, A-B has been for several years now trying to sneak into the craft beer space, by creating beers with different brand names and trying to hide their affiliation. Wild Hop Lager is the latest. (Ron’s review.) They’re not the only ones, of course. SABMiller and Molsen Coors do the same thing.

On the one hand, this isn’t a terrible thing. My wife is a fan of Coors’ Blue Moon Belgian White. I’ve had it and it’s not bad. Not generally what I drink but certainly different than say, Coors Light. I can even see where this might even be necessary. If they called it “Coors Belgian White” the people who think Coors is cheap beer will avoid it, and Coors fans would try it and probably not like. Either way, it’s a loss. People’s long-standing perceptions of a brand are hard to get over. The Japanese car makers understood this. That’s why when they wanted to start selling luxury cars in the U.S., they created Acura, Lexus, and Infiniti. They don’t hide the fact that each is owned by Honda, Toyota, and Nissan, but they don’t scream it from the hilltop either. And, it makes sense. People at that time had a perception of Toyota cars: reliable, fairly inexpensive, and good gas mileage. And there was no way any of them were going to pony up $70,000 for a Toyota. But a Lexus…

So, the big American brewers’ “craft” beers are in a similar situation. I just have two problems with this: They often go to great lengths to disguise who the actual brewer is. This is disingenuous at best, downright fraudulent at worst. Not everyone is savvy enough to figure out who is really behind a brand. Further, I want to support my small, local brewer. He (or she) is a normal person with a family and a passion for good beer. Sure, he’s making some money but he’s not filthy rich. He’s a part of the community. He’s not some faceless corporation looking only at the bottom line and Wall Street.

My fear is that a merger like this would allow the larger company to spend even more money fooling people looking to try something beyond the King of Beers, the Silver Bullet, and the High Life. And, yeah, they might put together a decent product. Maybe. And their pockets are so deep that they could sell it at a loss for years and force smaller brewers out of business. And there goes the wonderful variety we’ve come to appreciate.

I don’t really know what’s going to happen, but it’s a story I’m going to keep an eye on.

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