Private equity player buys Pabst – but what is he buying?
Private equity players like a high-risk gamble. Often brought in when companies need restructuring or about to go bankrupt, these scavengers need to have very keen senses. Those private equity houses that were in the business of buying low, adding debt, and selling high are yesterday’s news. Today’s players have to show a knack for fixing up the companies they buy because otherwise they will have problems taking them public, or selling them in parts, which are their usual exit routes.
Naturally, they must get the business on the cheap. That’s why we enjoyed following the recent debate over how much Mr Metropoulos actually paid for Pabst. A rumour that he forked out USD 250 million for Pabst and other assorted brands was met with quick a denial.
Could he have paid less for a 6.7 million hl beer business, which has no assets (breweries, real estate and stuff), only brands which are contract-brewed by MillerCoors? Not really. Pabst’s owners would have needed the USD 250 million to cover their debts and still have some dosh left to put into their piggy bank.
Beer Marketers Insights say that Pabst is believed to have owed over USD 160 million to MillerCoors and over USD 55 million in unfunded pension liabilities at end of 2009.
Our colleagues also found out that Pabst’s EBIT was USD 22.8 million in 2008, though less in 2009. Considering that Pabst’s revenues were near USD 500 million in 2009, that gives the business an EBIT margin of not quite 5 percent.
On the basis of Pabst’s 2008 EBIT, the selling price could indeed have been lower.
So what did Mr Metropoulos get in exchange for his money? In sum, he got a business whose sales in value have been going up for three years in a row, while its volumes have continued to decline. The Pabst, Colt 45 and Old Milwaukee brand families represent over 60 percent of Pabst’s total volume, projected at 2.1 million hl, 1.1 million hl, and 950,000 hl respectively in 2009 according to Beer Marketers Insights.
How is Pabst doing in 2010? Better than AB-InBev and MillerCoors, say Beer Marketers Insights but not as well as many smaller domestic players. Pabst Blue Ribbon, the company’s main brand, is doing well: it’s growing. But in the retail channels its other brands are losing massively. Old Milwaukee is said to be down 15 percent in the year-to-date, Colt 45 down 4.5 percent, Schlitz Malt down 5.2 percent, Old Milwaukee Light down 25 percent. Even Lone Star/Light, which had shown signs of life last year, is down 7 percent to 8 percent. Old Style is down 29 percent.
That does not leave much to the imagination. All in all, “Pabst is a low margin business with many encumbrances and a tight production tie to MillerCoors until 2014”, Beer Marketers Insights conclude. But since all the major brewers seem to be struggling right now, Pabst’s business, in the right hands, might have some life in it yet.
The question is: who will Mr Metropoulos sell it to eventually?
