tag:blogger.com,1999:blog-2080506270244832638.post5766897541990281642..comments2024-03-18T20:44:42.858-05:00Comments on Clark Street Value: Craft Brew Alliance: Speculating on ABI Qualified OfferMDChttp://www.blogger.com/profile/10679835609782815537noreply@blogger.comBlogger41125tag:blogger.com,1999:blog-2080506270244832638.post-80548500256109806322019-11-11T16:24:07.560-06:002019-11-11T16:24:07.560-06:00I feel like an idiot too now .. Didn't buy any...I feel like an idiot too now .. Didn't buy anything obviously.writserhttps://www.blogger.com/profile/04755781938953507727noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-17391595572045327722019-11-11T16:17:20.158-06:002019-11-11T16:17:20.158-06:00https://craftbrewallianceinc.gcs-web.com/news-rele...https://craftbrewallianceinc.gcs-web.com/news-releases/news-release-details/craft-brew-alliance-and-anheuser-busch-announce-expanded<br /><br />$16.50<br /><br />Sheepishly admit that I still own some having bought after the break, certainly a time when I feel much more lucky than good.MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-26588207933963534962019-08-25T15:46:01.292-05:002019-08-25T15:46:01.292-05:00Idk, I mean I personally don't understand the ...Idk, I mean I personally don't understand the hype some people are presenting regarding the Kona beer. There are thousands upon thousands of craft beers that people prefer. I don't think Kona has the history to become some established long term beer. Maybe ABI would out an offer out there if it got low enough? I just can't see the conviction. I don't think the craft beer market will ever be "solved" by the big guys. My town alone has over 20 local breweries. There are simply too many breweries to acquire. And IMO it's all marketing. Kona has had some success with marketing. It's not actually a better beer and it's not going to stick around. When the money dries up so will the taps. Big guys should stick to cheap long established beer. I think they would have more success bringing back throwback brands and allocating money to market them. People love Hamms, Schlitz, Genny, etc. "Drink your grandfather's beer." Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-91437292255947202352019-08-25T14:33:54.554-05:002019-08-25T14:33:54.554-05:00I would not be surprised if next week is a good en...I would not be surprised if next week is a good entry point. Some panic selling, stock drops like a rock and is then swooped up by ABI a few months later. That would be a very low conviction idea though for me, so probably going to pass on a position (again).writserhttps://www.blogger.com/profile/04755781938953507727noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-52840482582063931252019-08-25T12:48:03.174-05:002019-08-25T12:48:03.174-05:00Glad I purchased September puts. Up 240% as of Fri...Glad I purchased September puts. Up 240% as of Friday. Feeling a bit greedy so I may hold a bit longer. Could see a dead cat bounce. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-22494517330407279152019-08-10T06:41:37.660-05:002019-08-10T06:41:37.660-05:00Really nice blog and great discussion. One more th...Really nice blog and great discussion. One more thought on the relative mispricing of the option in your calculation: this very much is predicated on the "break-up" price assumed to be low. An alternative scenario is (for arguments sake) that the current price is equal to the "fair" price (price if offer does not come), because the market attaches a zero probability. In this case, the option would be overvalued relative to stock.Lupo Lupusnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-1504844885588717952019-08-08T17:38:34.703-05:002019-08-08T17:38:34.703-05:00I added some of the $20 Sept expiration calls as s...I added some of the $20 Sept expiration calls as some regret insurance. Appears to be big long shot that ABI will make a qualified offer, although management sounded like it was still on the table, who knows. Sized it knowing that it was unlikely.MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-56928569395264865402019-08-08T16:38:12.621-05:002019-08-08T16:38:12.621-05:00Well no news on buyout after today's call. Not...Well no news on buyout after today's call. Not sure if I'm going to exit my position since the announcement could be after the options expire. <br /><br />Thoughts?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-57618257283642756282019-07-11T10:25:26.442-05:002019-07-11T10:25:26.442-05:00Thanks for laying that out.Thanks for laying that out.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-9222546630747089102019-07-10T18:39:48.898-05:002019-07-10T18:39:48.898-05:00No, but if you're competing in an industry whe...No, but if you're competing in an industry where share of mind = avoiding declining or sales or growing sales, Kona might look like untapped goodwill (untapped volume, untapped pricing power, untapped margins). <br /><br />In numerical terms, here's an illustration of the marginal value that Kona alone would represent to either ABI or Constellation Brands (assume ex-Kona stuff is bonfired): <br /><br />2019E Barrels sold...........500,000<br />$ Turnover.................~$160M<br />At-scale EBITDA (40%).......$64M<br />FY18 BREW wholeco EBITDA....($10M)<br />Marginal EBITDA "acquired".....$54M<br /><br />Marginal value to ABI (13x EV/EBITDA)......~$700M<br />vs Price paid for BREW wholeco today........$330M<br /><br />Marginal value to STZ (17x EV/EBITDA)......~$900M<br />vs Price paid for BREW wholeco today........$500M<br /> <br />Of course these all assume current multiples and normalized margins, current (normal) macro conditions etc etc. But it also assumes volumes don't grow from here, which based on Kona's proven share-of-mind grab is probably conservative. <br /><br />So, acquiring BREW isn't necessary, but it's relatively easy placer mining if you're an at-scale producer. Ben's Jaminhttps://www.blogger.com/profile/01036316291484037538noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-16322958286717972822019-07-10T16:37:38.428-05:002019-07-10T16:37:38.428-05:00The question I'm struggling with it. Does anyo...The question I'm struggling with it. Does anyone actually NEED to buy this? It's easy to point out how it could be a competitive advantage. But it's difficult to point out a need for a competitive advantage and to justify costs. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-47810403613449953542019-07-04T01:45:22.248-05:002019-07-04T01:45:22.248-05:00Good points. Plus by STZ acquiring BREW they’d be ...Good points. Plus by STZ acquiring BREW they’d be taking a potential threat to Corona in-house vs letting it fall into the hands of another competitor with the resources to advance the Kona strategy. That alone must have value to STZ. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-30441418045847589752019-07-03T18:38:28.714-05:002019-07-03T18:38:28.714-05:00That's one reason I doubt an extreme downside ...That's one reason I doubt an extreme downside and why the puts offer little speculative value in my view. <br /><br />At $10, BREW would be trading at ~1.5x EV/sales vs 2.7x at $24.50. STZ trades for 6.3x vs ABI's 5x. STZ's higher multiple should be because its beverages are faster growth, something it shares with Kona but BREW doesn't get that benefit as a standalone listed security. <br /><br />I've seen comments above suggesting that STZ wouldn't put in a competing bid if ABI ponies up, but given that STZ has 8 of the top-15 imported beers in the US (as well as some of the fastest growing), I fail to see how riding that multiple spread even at $24.50 wouldn't interest them? What's it to them if ABI terminates its distribution agreement shortly after an acquisition? Merger would take months to close and they'd then have 6 months to rearrange distribution per their own network. They're largely done absorbing the massive 2013 Modelo purchase so it seems like light work in comparison. Counterpoint: you'd still love to acquire such an asset for cheaper than value if you're either company and rarely do equities get acquired for ridiculous premiums to unaffected. Ben's Jaminhttps://www.blogger.com/profile/01036316291484037538noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-56902663876303831502019-07-03T15:41:10.462-05:002019-07-03T15:41:10.462-05:00Well even if you cut the illustrative chance of a ...Well even if you cut the illustrative chance of a qualifying bid in half to 12.5% - $16.5%, you'd still be in the money wrt to the payout on the August options. I think that was more in tune with the author's point (of course assuming ABI doesn't literally wait till the last possible day to make an offer). Ben's Jaminhttps://www.blogger.com/profile/01036316291484037538noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-33663561732734628922019-07-03T09:06:19.301-05:002019-07-03T09:06:19.301-05:00Dogfish feels like an outlier and not a continuati...Dogfish feels like an outlier and not a continuation of the Ballast Point or Lagunitas transactions from a few years back, but like you mention, I think Kona/CBA shouldn't be bucketed into the craft beer category, or at least that's not how ABI would position Kona. The other brands would likely be sold or scrapped.MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-15455495353108287942019-07-03T02:31:16.455-05:002019-07-03T02:31:16.455-05:00I think you are confusing 'what is BREW worth ...I think you are confusing 'what is BREW worth to AB' with 'at what price can AB buy BREW'. Of course BREW sells beer so it's a strategic asset for AB. However, that does not imply AB will pay a huge premium when they can also acquire BREW for a smaller premium.<br /><br />And given AB's huge stake and the brewing/distribution agreements I think it is very unlikely a competitor will snatch BREW away if AB is trying to buy it.writserhttps://www.blogger.com/profile/04755781938953507727noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-85387036317123078612019-07-03T01:42:03.232-05:002019-07-03T01:42:03.232-05:00And I'd add I do think STZ is hoping AB passes...And I'd add I do think STZ is hoping AB passes on this so they can then buy up the company. That's why I'll buy any selloff if AB passes, especially if it's down to the $8 level being tossed around here. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-18243927943758306602019-07-03T01:34:15.892-05:002019-07-03T01:34:15.892-05:00Except AB is in the business of making, distributi...Except AB is in the business of making, distributing & marketing (mainly) beer so I don't think they'd view owning BREW as a "cost" but rather core to why they exist. No different than the 500+ other brands they care for. https://www.ab-inbev.com/our-brands.html Why would they be overpaying? Based on what it's worth to you or me in the market? You & I aren't in the beer business, so that thinking fails to account for the strategic value AB may assign to it since again this is core to why AB exists. A good starting point for wanting to own this asset would be exactly what they're doing which is positioning Kona as a lifestyle brand competitor to Corona. What value does AB assign to that if it works? What value does AB assign to having BREW fall into STZ's hands & they get it to work? or SAM's?<br /><br />Separately (directed @MDC), can you put some data around this: "peak craft beer M&A environment we've since come down from." There's been some very large deals in the craft brew space. Ballast Point for $1B in '15, SAM (itself currently at an all-time high) paying $300 million for Dogfish in March (and partially based on a $314 SAM share price at the time).<br /><br />Regardless, I don't think AB or BREW for that matters wants Kona to be viewed as a craft beer anyway. It rather wants to be a Corona competitor. As I see things the strategy has shifted away from even the nomenclature of the company itself & the payoff if successful is much higher than simply being another craft brew. Corona isn't a craft brew.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-55922074682923406772019-07-01T11:30:17.874-05:002019-07-01T11:30:17.874-05:00Interesting - thanks, I didn't catch that chan...Interesting - thanks, I didn't catch that change (or more likely a clarification) in the 10-k.MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-57970956430544807402019-07-01T09:35:47.061-05:002019-07-01T09:35:47.061-05:00On Craft Brewing Alliance's most recent 10-K, ...On Craft Brewing Alliance's most recent 10-K, it discusses its relationship with AB. (page 17)<br /><br />"The A-B Distributor Agreement is also subject to immediate termination, by either party, upon the occurrence of standard events of default as defined in the agreement. Additionally, the A-B Distributor Agreement may be terminated by A-B, with six months’ prior written notice to us, upon the occurrence of any of the following events:<br /><br />any A-B competitor or affiliate thereof acquires 10% or more of our outstanding equity securities, and that entity designates one or more persons to our board of directors<br /><br />we are merged or consolidated into or with any other entity or any other entity merges or consolidates into or with us without AB’s prior approval<br /><br />This is different than the change-in-control clause you see in the 8-K, as these conditions have no three-year time limit. From my understanding, this clause is in effect for the duration of the agreement.<br /><br />Then it says in the Brewing Agreement:<br /><br />"The agreement also contains specified termination rights, including, among other things, the right of either party to terminate it if (i) the other party fails to perform any material obligation under the agreement or any other agreement between the parties, subject to certain cure rights, or (ii) the A-B Distributor Agreement is terminated."<br /><br />Then in the International Distributor Agreement:<br /><br />"The International Distribution Agreement contains specified termination rights, including, among other things, the right of either party to terminate the International Distribution Agreement if (a) the other party fails to perform any material obligation under the International Distribution Agreement, subject to certain cure rights or (b) the Brewing Agreement (as defined below) is terminated pursuant to certain specified provisions thereof."<br /><br />Essentially, this suggests that if AB doesn't buy the rest of the shares and someone else wants to take over CBA, AB can first terminate the distributor agreement, then terminate the brewing agreement, then terminate the international distributor agreement. If this is the case, I don't think a competitor can "hitch a ride" on AB's distribution system for the next several years if AB doesn't buy out CBA. If this is the case, isn't the $20mm payment the only "cost" to AB of not making an offer, and perhaps this $20mm fee is better than overpaying for the entire company? <br /><br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-85412353484359928712019-06-28T03:53:47.170-05:002019-06-28T03:53:47.170-05:00It's an interesting situation nonetheless but ...It's an interesting situation nonetheless but I'd say the chance of a qualifying bid is way lower than the 25% - 33% mentioned in the blog post. I also really don't like that if AB makes a last minute offer you are toast with the August options - a very real risk. The Aug 20 calls are an interesting idea but I'm not sure the risk/reward is very attractive.writserhttps://www.blogger.com/profile/04755781938953507727noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-14603359380539271052019-06-28T03:46:25.350-05:002019-06-28T03:46:25.350-05:00To renege on the deal? What deal? There was never ...To renege on the deal? What deal? There was never a buying deal, it was just an _option_. From the August 2016 conference call:<br /><br />===<br />For obvious reasons, it's imperative to clearly state that ABI has no obligation to acquire CBA. <br />[.. ]<br />It would be nice to see CBA share price at $23.25 or $23.50. But at the same time, we've tried to build in a series of cash flows that make the company viable in any event. So irrespective of whether or not, conditions evolve where ABI would make that qualifying offer, then our shareholders are well protected and the company's well protected, and I can hold my head high and this team can feel like we did a good job on behalf of all of our stakeholders, shareholders and employees alike.<br /><br />If that doesn't happen, then we're in a really materially strong position because we still have all of the agreements enforced. We have access to the best distribution network in the world for another almost 10 years at $0.25 a case and we have $20 million in our pocket in order to figure out how to reinvest in the business.<br />===<br /><br />I think it is optimistic to assume AB would basically pay 40% (or whatever) too much for BREW, just to be nice to BREW shareholders. How would that go with the famous 3G zero budgeting accounting department where you probably have to file a request to get a stapler?<br /><br />BREW sales haven't exactly skyrocketed. $14 is just about close enough to $24.50 that AB might consider overpaying but they might as well snap it up at $18. No conspiracy in that. Simply business. <br /><br />And yes, if they don't make a qualifying offer AB is stuck with the distribution agreement. However, if they buy out the company at a lower price that doesn't matter anyway. There's a risk that somebody else tries to snap up BREW but how likely is that given how intertwined they are with AB?writserhttps://www.blogger.com/profile/04755781938953507727noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-74512829396694027972019-06-27T08:11:47.356-05:002019-06-27T08:11:47.356-05:00They were tied up in the SABMiller acquisition, th...They were tied up in the SABMiller acquisition, the graduated price scale is pretty small, especially in the context of ABI's balance sheet. Additionally, maybe they wanted to see Kona play out a little bit more, including the results of the March Madness media buy.MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-59552134254263896022019-06-27T03:57:15.797-05:002019-06-27T03:57:15.797-05:00Thanks for the idea. I'm just getting familiar...Thanks for the idea. I'm just getting familiar with this situation, but if ABI really wanted to acquire Craft Brew Alliance, why not make an offer in the first or second year of the agreement? They'd pay less.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2080506270244832638.post-77159654906336266242019-06-26T08:06:38.700-05:002019-06-26T08:06:38.700-05:00ABI has owned their stake for over a decade, so th...ABI has owned their stake for over a decade, so the distribution agreement wasn't struck at the same time as their investment, but rather in a peak craft beer M&A environment we've since come down from. But I agree with your overall sentiment/tone.MDChttps://www.blogger.com/profile/10679835609782815537noreply@blogger.com