Boston Beer invests in bricks and mortar
The Boston Beer Company signed an agreement with Diageo to acquire the Pennsylvania Brewery.
A company, whose original modus operandi was virtuality (i.e. contract-brewing) is gradually turning round to becoming an old economy–type brewery, investing in company-owned brewing capacity. In August, The Boston Beer Company and brewer of Samuel Adams beers announced that it has signed a purchase and sale agreement with Diageo North America to acquire a brewery, located 60 miles outside of Philadelphia, for USD 55 million.
The purchase is expected to take place in late spring 2008, subject to the satisfactory completion of due diligence by Boston Beer. If the results of the due diligence process are satisfactory, the company will discontinue exploring the option of building a new brewery in Freetown, Massachusetts, it was announced.
Boston Beer estimates that the Pennsylvania brewery will initially increase Boston Beer’s brewing capacity by approximately 1.6 million barrels of beer annually with the potential for expansion to over 2 million barrels with modest incremental investment. This brewery provides the company with additional flexibility and ensures adequate capacity for continued growth.
Boston Beer is familiar with the site’s brewhouse, having brewed some of its beer there from 1994-2001. In fact, Boston Beer won several major awards for Samuel Adams brewed at this brewery. The Pennsylvania brewery will complement the breweries that the company owns and operates in Boston, Massachusetts and Cincinnati, Ohio.
Boston Beer anticipates that the brewery will require substantial investment and renovation in order to brew Samuel Adams craft beers there once again, the extent of which will not be fully understood until the due diligence is completed. Until such evaluation is complete, Boston Beer claims that it is impossible to estimate precisely the total cost of any required renovation and upgrade or the operating and financial statement impact to the company.
That much is certain: The brewery is expected to begin brewing Samuel Adams beers in the third or fourth quarter of 2008.
Diageo and Boston Beer have agreed to a production services agreement that will provide for Boston Beer’s continuing production of Diageo products if requested by Diageo after the sale is final.
Boston Beer’s purchase of the brewery includes retaining 194 jobs for the local community.
Over the past few years, Boston Beer has considered several ways of increasing brewing capacity including expanding its existing breweries, building a new brewery on a site in Freetown, Massachusetts or buying one of several breweries around the country that were potentially available.
Last year, Boston Beer entered into an agreement with an option to purchase a parcel of land in Freetown, Massachusetts as a site for the construction of a new brewery. Over the course of the last year, the company invested over USD 4 million in an exhaustive evaluation of the cost of constructing a new brewery. After this process, it became clear that construction, whose cost estimate now significantly exceeded USD 200 million, might not be the company’s best long-term brewing option.
Already in April, Boston Beer announced that it has signed an agreement with a wholly-owned subsidiary of City Brewing Company to brew some of its beer in Latrobe, Pennsylvania.
