Pabst vs MillerCoors court case may determine the future of Pabst

Brewers Pabst and MillerCoors are currently seeing each other in court. MillerCoors has been brewing Pabst beers under a 1999 contract, and seems reluctant to renew the contract, which reportedly expires in 2020. Pabst has asked the Wisconsin court to award it USD 400 million in damages and force MillerCoors to renew the contract.

Pabst was ranked fifth-largest brewer in the US in 2017, selling an estimated 5.8 million hl of beer, down from 6.8 million hl in 2008. As Pabst does not own a brewery itself, the case could decide the future of Pabst's entire portfolio of heritage beer brands, from Pabst Blue Ribbon to Old Milwaukee, Lone Star, Old Style, Colt 45, Natty Bo, Rainier, Schlitz, Olympia, Stroh's, Schaefer, Schmidt's, Pearl, and Blatz.

The company, whose ownership has been shunted around in the past few decades, was bought by Eugene Kashper and the private equity firm TSG Consumer Partners in 2014 for an estimated USD 700 million. Mr Kashper had (or still has) ties to the Oasis Group, which has brewing operations in Ukraine, Belarus and Kazakhstan.

The original contract between Pabst and Miller Brewing entailed two potential five-year renewals. Now, MillerCoors argues the company should be free to determine whether to renew the contract, while Pabst alleges "that the two need to find a solution together if Pabst wants to continue the agreement". Pabst also insists MillerCoors has a good-faith obligation to negotiate a renewal.

MillerCoors has not ruled out continuing its partnership with Pabst. For its part, it has offered to sell its 7 million hl brewery in Irwindale, California, to Pabst, or to carry on brewing Pabst's beers there, however at a much higher cost.

Pabst insists the only way the company can continue to exist is if MillerCoors, which is owned by Molson Coors, continues to produce its beers under contract, at a cost Pabst finds fair.

According to media, Pabst currently pays MillerCoors nearly USD 80 million a year to brew its beer, while MillerCoors is asking for a fee closer to USD 200 million per year, an amount that Pabst contends would bankrupt it.

Pabst is indeed facing an existential crisis as the amount of brewing capacity it needs cannot be switched to any other US brewer.

The case presents an interesting dilemma, given that Pabst pays MillerCoors to brew its beers, which then compete against MillerCoors' beer in the US market.

Even if Pabst is ultimately victorious in this suit, the writing may be on the wall for it - by 2030 at the latest.

The trial is set to wrap up by the end of November 2018. Considering the lag time before a ruling in this case and the inevitable appeals, we will not know the ultimate outcome for a while.