USA: Why AB InBev will not buy Craft Brew Alliance

The Aug. 24 deadline is coming closer where AB InBev has to decide whether it wants to acquire the remaining share of Craft Brew Alliance (CBA) that it doesn't already own. So far, AB InBev owns a minority share of 31.3 percent in CBA, which is according to its own statements the fifth largest craft brewing company in the United States. CBA consists of 8 craft breweries with Kona Brewing from Hawaii being the most important.

Under an agreement signed in 2016, AB InBev has to make a qualifying offer of USD 24.50 per share (about USD 475 million based on the number of shares CBA had outstanding at the end of the last quarter) until next Saturday, or else it has to pay CBA USD 20 million.

The stock of CBA is currently trading below USD 13 per share, what suggests that the market doesn't think a deal will happen. If AB InBev would really go for the deal, it would be overpaying the market by more than 222 million. This is massive compared to the 20 million ‘penalty’ and makes a deal unlikely to happen.

Times have also changed since the agreement was signed.  In the meantime AB InBev has bought SABMiller and loaded a hefty debt burden on its shoulders. In addition, it already owns 13 craft brewers in the U.S. different from CBA. So, it really does not need CBA any more.

This does not leave a lot of rationale to buy CBA. With its share of 32.2 percent in CBA, AB InBev can sit and wait how things develop and whenever it think it is appropriate, AB InBev can submit an offer that seems reasonable.

In addition, since AB InBev already owns nearly one third of CBA the ‘penalty’ payment of USD 20 million flows partly back to it.

What will happen, if AB InBev does not draw the option? Not a lot. CBA and AB InBev have concluded a master distribution agreement which lasts until 2028. CBA can also continue to produce up to 300,000 barrels in facilities owned by AB InBev and AB InBev will continue helping CBA grow an international footprint, especially in Brazil and Mexico.

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