Shares of Craft Brew Alliance (NASDAQ:BREW) traded down more than 16% on Friday after beverage giant Anheuser-Busch InBev (NYSE:BUD) decided against making a qualifying offer to buy out the smaller brewer. The decision came as a surprise to many investors, and leaves Craft Brew management with some difficult choices as it plots its future as an independent.
As part of a 2016 cooperation agreement between the two brewers, Anheuser-Busch, owner of about one-third of Craft Brew shares, had until Friday to either offer to buy the remaining shares for $24.50 apiece (or about $475 million) or pay Craft Brew $20 million.
Anheuser-Busch said that although "the long-standing and strong partnership we have with Craft Brew Alliance is extremely valuable," it would not make an offer. Under the terms of the original deal, Craft Brew can continue to use Anheuser-Busch's massive distribution network and brewing facilities, but investors were hoping for a buyout.
Craft Brew, whose brands include Kona Brewing, Redhook, and Square Mile Cider, called the decision disappointing. CEO Andy Thomas said that in the coming weeks, the brewer would detail for investors its plan to go it alone.
"With this decision made, management can turn its attention to refining strategic alternatives to maximize shareholder value," Thomas said. "Over the past several years, we have built a sustainable infrastructure, optimized our footprint, and amassed a diversified portfolio of brands to support future profitable growth anchored by robust growth in the Kona brand and the addition of our three newly acquired brands."
In addition to Kona and Redhook, Craft Brew in recent years has added Appalachian Mountain Brewery, Cisco Brewers, and Wynwood Brewing.
The good news for Craft Brew is that the $20 million payment can wipe away a considerable portion of its more than $70 million in total debt, giving the company more flexibility. But it was already feeling the heat to shop itself prior to the Anheuser-Busch decision, and that seems likely to intensify now.
There is a market for beer brands, as highlighted by Boston Beer's purchase of Dogfish Head Craft Brewery earlier this year. But with Boston Beer in integration mode right now and Anheuser-Busch not interested, the list of potential suitors is limited.
Beer has been a slow-growth category of late, but consumer staples can be an important part of a diversified portfolio, balancing growth stocks. The easy option for Craft Brew Alliance is now off the table. It will be interesting to see what management can come up with next.