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Too Late for Boston Beer Buy Out?

By Rich Duprey - Oct 3, 2017 at 6:23PM

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The craft brewer hasn't said it wants to sell, but it may have waited too long anyway.

Considering the tireless advocacy Boston Beer (SAM 3.84%) founder and chairman Jim Koch has done on behalf of craft beer, a buyout of the brewer, which has arguably been the face of the industry for years, seems far-fetched.

Yet plenty of craft brewers have derided the trend of beer giants like Anheuser-Busch InBev (BUD 2.10%) and Constellation Brands (STZ 1.02%) swooping in and buying up small, regional breweries only to sell out themselves when a big enough check was waved in front of them. It is possible Boston Beer could succumb as well, at least that's what some analysts are suggesting.

Boston Beer founder Jim Koch standing in from of some beer barrels.

Image source: Boston Beer.

Running on empty

Boston Beer's stock jumped in response to a note put out by a Credit Suisse analyst who speculated that if the brewer's turnaround failed, the resistance Koch has displayed toward selling out could waver and a mega brewer could step in and convince him to finally sell.

It's not a novel idea. Last year I made a case for Boston Beer selling itself to Anheuser-Busch or going private. The craft brewer has been fighting hard for shelf space and A-B's massive distribution network could ease that problem, exactly as it's been doing for the numerous regional breweries it's been buying.

Conversely, I also said if Boston Beer was determined to go it alone, then it might be better off doing so out of the public spotlight by taking itself private. It's really too big of a brewer to be considered craft and too small of one to effectively challenge its larger rivals. It is caught in a nether world that is sapping its competitive strength.

Although the Credit Suisse analyst looked favorably on the early success Boston Beer has found with its hard seltzer brand Truly, that seems much too small of a niche for it to revive the brewer's prospects. Much as hard soda got a brief boost when it nabbed Coney Island Brewing, that has since faded.

Not even hard cider has been able to sustain itself, despite Angry Orchard being the premier cider on the market and for a while the one beverage that was holding things together for Boston Beer.

It's all about the beer

In the end, if Boston Beer is to be successful again it's going to require that its flagship Samuel Adams beer be a big seller once more. Small, niche products that tap into fads are only going to work for so long. A brewer, craft or otherwise, needs to sell beer, and that may require a sell out on the part of Boston Beer. Credit Suisse gives it a year to make the turnaround work before an acquisition becomes attainable. I think that ship has already sailed -- the craft brewer has waited too long.

A female bartender pouring a beer.

Image source: Getty Images.

Anheuser-Busch recently said it was giving up on making craft beer acquisitions and instead would be pursuing organic growth, such as using its already acquired breweries to open up brewpubs. Constellation Brands, having bought Ballast Point Brewing and Funky Buddha Brewing, may start running into more turbulence and swear off additional deals. Constellation has already said it's identified unfavorable trends in Ballast Point and in the industry, and has begun writing down the carrying value of the craft brewery it paid $1 billion for.

Perhaps the only mega brewer that could still make a bid is Molson Coors (TAP 2.04%), but it's still digesting the $12 billion acquisition of the MillerCoors joint venture made when A-B bought Miller.

The reality is the wave of consolidation that swept over craft beer may finally be coming to an end. However, if a quality brand like Boston Beer were to come on the market, brewers that previously expressed reluctance at making additional acquisitions would certainly re-examine their finances to see if they could squeeze in one more. But by and large, Boston Beer, if it was ever going to sell, has likely waited too long to command the premium price it deserves.

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Stocks Mentioned

The Boston Beer Company, Inc. Stock Quote
The Boston Beer Company, Inc.
$314.59 (3.84%) $11.62
Constellation Brands, Inc. Stock Quote
Constellation Brands, Inc.
$235.43 (1.02%) $2.37
Anheuser-Busch InBev SA/NV Stock Quote
Anheuser-Busch InBev SA/NV
$55.08 (2.10%) $1.13
Molson Coors Beverage Company Stock Quote
Molson Coors Beverage Company
$55.62 (2.04%) $1.11

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