Labatt acquires value beer brewer Lakeport
On 1 February 2007 InBev said that its Canada-based Labatt Breweries has entered into an agreement to acquire all outstanding shares of Lakeport Brewing Income Fund for CAD 201 million (USD 171 million).
Labatt has offered to buy Lakeport’s shares for CAD 28 each in cash at a 36 percent premium. Buying Lakeport gives Labatt better access to the expanding value segment, which together with the premium segment has outgrown the total beer market in recent years. Between 2001 and 2005 domestic beer sales have been stagnating at 19.5 million hl. Per capita consumption was 83 litres in 2005 according to the Canadian Brewers’ Association.
Lakeport brewery is located in Hamilton in the state of Ontario. Ontario, whose largest city is Toronto, has 12 million inhabitants (out of Canada’s 31 million) and represents the nation’s major economy. As concerns beer sales, in 2003 Ontario accounted for approx. 37 percent, Quebec for 29 percent of the market value in Canada, followed by British Columbia (12%) and Alberta (9%) while the remaining nine provinces only accounted for 14 percent.
Lakeport is Canada’s major discount beer brewer whose motto reads: “Lakeport, Great Beer, Fair Prices.” Incidentally, Lakeport was founded in 1992 as a premium beer brewery. It produced its own brands of premium beer, as well as taking contracts to brew beers for other brands. Lakeport’s retail outlet adjacent to the brewery was the first store in Ontario to sell beer on Sundays.
The brewery was in bankruptcy protection in 1999 when AlphaCorp Holdings Ltd bought the brewery and hired local finance expert Teresa Cascioli to manage the brewery. Lakeport took on contract manufacturing work for other beverage brands and reworked its operations to make the brewery profitable. Cascioli later bought out the other investors to gain complete ownership of the company which she retained until the initial public offering, at which point her ownership fell to 21 percent.
In 2002 Lakeport held an estimated one percent of the market share in Ontario when it pioneered a retail strategy of selling twenty four beer bottles for twenty four dollars, the lowest legal price in Ontario.The famous Two-Four for Twenty Four represented a price difference of nearly CAD 12 to top-selling national brands such as Blue and Canadian, and about CAD 20 to that of the imports. Since 2002 Lakeport has not changed its pricing policy and is still offering 24 bottles of its top-selling brands for CAD 24 plus deposit. Lakeport’s share of the Ontario beer market rose from less than two percent in 2003 to seven percent in 2004 to ten percent in 2005 and eleven percent in 2006, it was reported. In 2005, Lakeport had one of the top ten selling beers in Ontario. By 2006 two Lakeport beers were among the ten top selling beers in Ontario.
InBev said Teresa Cascioli, the Chair and CEO of Lakeport, has entered into a lock-up agreement which means that the 21 percent shares Ms Cascioli owns in Lakeport will be transferred to Labatt. The forty-something Ms Cascioli stands to gain in excess of CAD 40 million from the sale of her shares. Ms Cascioli would not comment on whether she will have a position with Labatt after the sale.
Beer pundits in various web blogs have already speculated on the fate of the union-controlled Lakeport brewery. Many think that Labatt, whose management does not seem to like unions, will close down the plant which currently provides work for 200 people. In 2005 Labatt shut down two of its breweries: the Toronto brewery and the New Westminster Brewery in British Columbia, while InBev’s current CEO Carlos Brito was President of Labatt.
The Lakeport Brewing website declares that Lakeport is "Proudly Union-Made in Ontario". The question is: for how much longer?
