I've enjoyed researching this story: Two Pacific Northwest brewers, the Seattle area's Redhook Ale Brewery
The interesting aspect of the talks -- in addition to the companies' relative proximity to one another -- is that both parties are partially owned by Motley Fool Inside Value recommendation Anheuser-Busch
Redhook, which operates breweries in Woodinville, Wash., and Portsmouth, N.H., was founded in 1981 by, as the company's website notes, "two blokes who took a chance and founded a brewery in an old transmission repair shop." The company produces Redhook Ale, which originally was modeled after spicy Belgian ales. However, as a series of new ale introductions won adherents for the company, it outgrew the old transmission facility and moved to the former home of the Seattle Electric Railway. Today, Redhook is both a microbrewery and a micro-cap stock, with just more than $45 million in market cap and revenues slightly greater than $30 million.
Widmer Brothers is five years younger than Redhook, founded in 1986 by two brothers who had carefully studied European brewing techniques. The company now crafts such beers as Widmer Hefeweizen, Drop Top Amber, and Broken Halo IPA. Its array of seasonal beers includes the "W" Brewmasters' Release Series, OKTO, and Snowplow Milk Stout. While I haven't sampled any of the company's products, its website is not to be missed by Fools with a taste for beer.
What, then, seems to be afoot here as these two relatively small brewers discuss marriage under the proud gaze of Anheuser-Busch? The answer was probably served up on Friday when Anheuser, which produces nearly half the beer consumed in the U.S., announced that its 2006 shipments had grown by just 1.2%, and that much of that growth had been driven in part by the addition of smaller specialty brands, such as Rolling Rock.
Indeed, U.S. beer consumption has become a slow-growth phenomenon as consumers shift to wine and spirits, to the obvious benefit of companies like Brown-Forman
And so it becomes clear that, despite its dominance in the U.S. beer market, Anheuser must essentially run to keep up with prior years' shipments. It seems that the company has adopted a three-pronged approach to its beer business:
- The steady addition of craft brands
- Continued vertical integration
- Further movement overseas
In the latter area, Anheuser owns breweries or has affiliate relationships in a host of countries, including China. The world's most populous nation has also become the world's largest beer consumer, with steady year-over-year growth of roughly 15%.
I believe that a merger between Redhook and Widmer would fit nicely into the Anheuser scheme by permitting the company to combine two good small brewers, then ultimately acquire the resulting company outright. Until that happens, though, I'd stick with the beer and keep the stock on the shelf.
Further Foolishness on tap: