New Belgium Brewing announces sale to Lion Little World Beverages (Kirin Holdings Company Limited)

Discussion in 'Beer News & Releases' started by ypsifly, Nov 19, 2019.

  1. JackHorzempa

    JackHorzempa Poo-Bah (4,317) Dec 15, 2005 Pennsylvania
    Society

    I think it is reasonable to say that when it comes to the larger, distributing craft beer industry we are entering a sort of a new paradigm.

    Below I discussed in post #29:

    • “Artisanal Beverage Ventures (ABV) is currently the 'umbrella' for Southern Tier, Victory and more recently Sixpoint. Once they have properly 'digested' Sixpoint maybe add another larger, distributing brewery to the list (maybe 2021?).
    • Canarchy – which owns Oskar Blues, Cigar City Brewing, Deep Ellum, Utah Brewers Cooperative, Perrin Brewing and Three Weavers
    • Legacy Breweries Inc., which includes Ninkasi, Laurelwood,…
    I could envision all the above 'merging in' other breweries plus some additional Venture/Holding Companies starting to compete with the above three.”

    Perhaps in hindsight I could add Lion/Kirin as bullet number 4?

    It will be interesting to see how all of this shakes out in 2020 (and beyond).

    Cheers!
     
  2. RobHB

    RobHB Initiate (101) Aug 20, 2017 New Jersey

    ...and there it is
     
  3. JackHorzempa

    JackHorzempa Poo-Bah (4,317) Dec 15, 2005 Pennsylvania
    Society

    Boy, you can't blink around here or else you might miss something.

    I thought that ABV would take some time to more fully 'digest' Sixpoint but needless to say I am mistaken here.

    Cheers!

    @rotsaruch
     
    mikeinportc and RobHB like this.
  4. rgordon

    rgordon Meyvn (1,006) Apr 26, 2012 North Carolina

    I'm not at all surprised by this development, it seems to be a perfect model of the evolving modern beer industry. This decent number of employees receiving a nice payout redounds nicely on New Belgium Brewing. As a former distributor, and many years ago, I well recall the common plaint, "Where can I get Fat Tire"........
     
    Bitterbill likes this.
  5. NeroFiddled

    NeroFiddled Poo-Bah (10,997) Jul 8, 2002 Pennsylvania
    Trader

    Agreed. I think the thing here is that although we all know that some kind of layoffs will be coming, no one will be losing their job right off the bat. And unless the place is just shuttered, which I'd highly doubt, most everyone should be able to continue to keep working.

    Another thing that I guess I need to point out, because most people don't seem to realize it, is that brewers don't get paid very much. Despite what some people think, brewing is a nickel and sometimes dime business. I'd guess that out of 300 people there about 200 make $45K or less. Given that, $100K in your retirement account is great.
     
  6. islay

    islay Disciple (318) Jan 6, 2008 Minnesota
    Trader

    From the accounts I've read, all of the shares in New Belgium are distributed through the ESOP. Stockholders in ESOP plans have full voting rights, at least for matters of great significance like the sale of the company; I'm not sure why @cg123, who claims to be knowledgeable about ESOPs, seems to be claiming otherwise in the final post I quoted. That means this deal will go through if and only if the voters (all of whom are employees) holding a majority of shares (and who bother to vote) approve the sale. In other words, this deal goes through if and only if the employees/owners want it to go through, and they're only going to want it to go through if they think it's favorable to them. Let's not make them into victims. This is an opportunity for them that they can choose to exercise or not exercise. My guess is that they will consider this a highly favorable deal and overwhelmingly will choose to exercise this opportunity.

    Stock is valuable to own only because of the future cash flows it is anticipated to yield, either in the form of dividends distributed to current stockholders or in the form of capital gains upon sale of the stock. Given New Belgium's history of expansion, presumably the vast majority if not all of its profits were being reinvested into the company, which means dividends were small or nonexistent. This sale will create those capital gains and thus create the cash flows that every stockholder wanted sooner or later.

    The vast majority of ordinary folks are much better off with a broadly diversified portfolio and without a huge chunk of their net worth tied up in a single company; the latter situation produces a huge amount of idiosyncratic risk. This sale gives the New Belgium's employees the opportunity finally to diversify their portfolios (at least the portion of them currently tied up in the ESOP). That's a great thing for them, ceteris paribus. Keep in mind that a very realistic possibility for any given business is that it eventually ceases operations while owing more to creditors than its assets are worth, in which case its equity holders get nothing. This sale, if voluntarily approved by New Belgium's employee-owners, prevents them ever from suffering that fate.

    The fact that the employee stock is in an ESOP means that the employees won't have to pay capital gains taxes on the net proceeds from the sale (great deal for them). The fact that the proceeds of the sale can be rolled over into an IRA and thus sheltered from taxes for decades (in many cases) is a giant benefit to the employees upon the sale of their shares. They can always take the 10% tax penalty and withdraw funds early if they're desperate for cash now. Now, the fact that they will have to pay full income tax rates instead of the (mostly) lower capital gains tax rates when they eventually withdraw funds does mitigate the tax advantage, but the vast majority of them are likely to benefit financially on the net from the ESOP/IRA tax shelter (in large part because they were not charged income taxes upfront for the quite valuable stock that was distributed to them in the ESOP). There are additional tax benefits to ESOPs that I won't bother to get into here, but suffice it to say that people are saving a lot of money in taxes because of the ESOP.

    I don't know how this possibly could be spun as some sort of loss for or screwing over of New Belgium's employees.
     
  7. nesarebad

    nesarebad Devotee (456) Feb 4, 2012 Massachusetts

    TIL that money in your Retirement account = “Nothing”. Live fast, die young I guess...
     
  8. cg123

    cg123 Initiate (93) Feb 27, 2012 Ohio

    I agree. Good for the employees to be able to diversify their investments. I did not mean for my comments to sound negative. Just trying to clarify that employees were not just getting a chunk of money simply because they were getting bought out.
     
    mikeinportc likes this.
  9. philhyde

    philhyde Disciple (381) Jul 22, 2010 Oregon
    Society Trader

    So what are the odds that the NB employees don't approve the deal? Is it a simple majority vote?
     
  10. cg123

    cg123 Initiate (93) Feb 27, 2012 Ohio

    My statement meant that the employees were not getting anything extra bc of the buyout.
     
    mikeinportc likes this.
  11. nesarebad

    nesarebad Devotee (456) Feb 4, 2012 Massachusetts

    They are getting the realized value of the stock that was given to them. Pretty good outcome for them.
     
    islay likes this.
  12. nesarebad

    nesarebad Devotee (456) Feb 4, 2012 Massachusetts

    Your logic is interesting...
     
  13. islay

    islay Disciple (318) Jan 6, 2008 Minnesota
    Trader

    Each stockholder would get one vote per share, which they could exercise themselves or delegate to a proxy. If a quorum is reached (often 50%+1 of voting shares present), then, typically, the sale could be approved by a simple majority of that quorum based on one vote per share (such that a minority of voters theoretically could outvote a majority of voters if that minority of voters holds the majority of the shares). I say "typically," because it's possible that New Belgium has provisions that could require a larger than 50%+1 majority for such a major action; I don't know.

    This deal was negotiated by representatives of the company that were hired by and have a fiduciary duty to the employee-owners. They agreed to this deal because they believe it's in those employee-owners' best interests. That suggests to me that it's likely that most of the employee-owners are on board, at least on a share-weighted basis.

    It's possible that this tentative deal could foment a bidding war for New Belgium, in which case the employee-owners might reject the deal because they think a better offer is coming. I highly doubt the deal would be rejected out of mere "principle" (such as commitment to employee-ownership or a knee-jerk antipathy to "selling out") or because they think they're getting some sort of raw deal or worried about getting fired. I could see some of the newer and/or lower-level employees worrying about the last piece, but presumably they hold a small proportion of the voting shares.

    That said, some people get really emotional and financially irresponsible when it comes to owning and working at breweries (hence folks leaving much-better paying jobs to toil away for $30,000 annual salaries or hourly equivalents), so if any group is going to reject a favorable deal, it might be this one. I'm sure such a rejection would induce massive internal fallout and resentment among those who wanted to sell. My guess is that this deal sails through with only a small amount of opposition, perhaps largely from some folks who know they'll be outvoted and thus have the luxury to take a "principled" position that they may well have eschewed if they thought their votes actually mattered to the outcome.
     
    officerbill and philhyde like this.
  14. onezendad

    onezendad Initiate (133) Apr 16, 2018 Ontario (Canada)
    Society

    Volume pure and simple.
     
  15. hopfenunmaltz

    hopfenunmaltz Meyvn (1,479) Jun 8, 2005 Michigan

    If anyone is surprised at the amount brewes make, then you don't know many Brewers. It is common knowledge that they work hard for little pay. If you are the brewing manager at at a very large brewery, you are paid very well. The vast majority of breweries are small.
     
    Bitterbill and cavedave like this.
  16. cavedave

    cavedave Poo-Bah (2,612) Mar 12, 2009 New York
    Trader

    Indeed. An ex homebrew partner took the head brewer job at a new brewery that ended up to be rated one of the best/the best in his state within three years. All his own recipes. The beer sold very well. He had to quit because he couldn't live on what he made as head brewer.

    OTOH, the beer still sells well under another brewer, so I guess from the brewery's perspective paying their head brewer starvation wages is a good strategy.
     
  17. unlikelyspiderperson

    unlikelyspiderperson Meyvn (1,137) Mar 12, 2013 California
    Society Trader

    In the context of brewer pay, Id be interested to know what the head brewers make at NB, who the top paid brewers are, and why we don't have a "brewer owned" seal for some genuine "independent" beer?
     
  18. islay

    islay Disciple (318) Jan 6, 2008 Minnesota
    Trader

    Supply and demand determine prices, including in the labor market. There's a very large supply of willing and eager brewers because so many people want to "live the dream." Also, no formal education is required (not that it can't help); just about any able-bodied person could do it if he's committed to the task (not that some don't do it better than others, but those folks are hard to identify early in their careers). Hence, prices (i.e., wages) for brewer labor are low.

    Brewer is a position that brings a lot of social cachet, at least in some quarters, as well as pride of output, so a lot of the returns to working as a brewer (or in another capacity at a brewery) are psychic rather than financial. The same goes for brewery owners. Essentially, it's starving artist syndrome: If you insist on doing what you love, chances are you're not going to get paid much.
     
    officerbill likes this.
  19. denver10

    denver10 Poo-Bah (2,619) Nov 17, 2010 New Mexico

    I might not know my left from right here but is it maybe possible that Lion/Kirin doesn't need to turn around New Belgium? Two massive production facilities, trained staff on hand, could this be about more than just New Belgium the brand, but the production facilities?

    I am sure New Belgium is a significant piece, and obviously selling more will always be better and desired, but access to some production facilities in North America that they could use to expand their own brand in this market, seems like that could be a significant reason for this sale. If they bought the New Belgium brand at a value that was comparable to the sales they pulled off in 2018, or even better for Lion/Kirin the trend (and that 11% drop says all I need to know why New Belgium sold, there is no way they were going to reverse course in the upcoming years to that rate), then Kirin has some wiggle room with how they set their expectations for New Belgium products.
     
  20. islay

    islay Disciple (318) Jan 6, 2008 Minnesota
    Trader

    From Forbes: "Specific financial terms of the transaction were not disclosed, but sources with knowledge of the deal said Lion would spend between $350 and $400 million to acquire the country’s fourth-largest craft brewery."

    I'm trying to square that range away with the figure cited in "A Letter From Kim:" "Over the life of our ESOP, including this transaction, the total amount paid to current and former employees will be nearly $190 million."

    Either way, it looks like New Belgium will be sold for far less than the billion-dollar-plus price it was seeking in 2015. That may well have been an ambitious valuation even then, but I'm sure the price tag for this sort of deal has dropped significantly as industry growth has slowed, the seller's market for breweries has cooled off in the last couple of years, and after the Constellation Brands calamity with Ballast Point.
     
    pudgym29 likes this.
  21. JackHorzempa

    JackHorzempa Poo-Bah (4,317) Dec 15, 2005 Pennsylvania
    Society

    As I made mention in post #116:

    "I suppose that Lion Little World Beverages (Kirin Holdings Company Limited) with a ‘broader’ business plan thinks they can turn things around...".

    I suppose we will collectively learn more in the future if the sale goes through.

    Cheers!
     
    officerbill and philhyde like this.
  22. officerbill

    officerbill Devotee (434) Feb 9, 2019 New York
    Society

    Kirin for US distribution is currently brewed “by Anheuser-Busch in the U.S., under the strict supervision of a Kirin brewmaster.
    I imagine Kirin would like to bring that in-house and brew their namesake beer themselves.
     
  23. Grave252

    Grave252 Initiate (52) Mar 12, 2017 Minnesota
    Trader

    Just to clear up a few (or many things) in this thread...

    Most importantly, there is no shareholder vote with an ESOP. The shares are held within the ESOP which is overseen by a trustee or group of trustees. They have power to act on behalf of the employees assuming they view it to be in the best interest of the ESOP and it's collective "owners". The third party valuation provides a per share value, but that has no bearing on what the company ultimately sells for. They could be purchased for a premium, or a value considerably less than what it was valued at. In this case, looks as though they are being bought at a significant premium which is a positive. If it was the opposite case, there would likely be a class action lawsuit against the company (just about the only recourse for employees if they were to be sold well under what was previously valued).

    Occasionally, ESOP's are forced to sell if there is a significant wave of looming retirements and they don't have the cash to cover the reimbursements (which are generally paid out in 5 installments upon retirement).

    The 100K number is just PR work. If you work for an ESOP you accumulate shares based on service time, level, etc. A taproom bartender who worked for five years at the company is not walking away with 100K. Many people may, but the majority will not.

    Lastly, 300 employees is being thrown around a lot in here. To be clear, NB has closer to 1000 employees than they do 500.
     
    cg123, philhyde and officerbill like this.
  24. islay

    islay Disciple (318) Jan 6, 2008 Minnesota
    Trader

    The statement I bolded is not accurate with regard to major actions like the sale of the company. "In non-public ESOP companies, voting rights on shares allocated to ESOP accounts must be passed through to ESOP participants for votes on major corporate matters such as a merger or consolidation, recapitalization, reclassification, liquidation, dissolution, or sale of substantially all of the assets of the corporation." Also, both "A Letter From Kim" and multiple media accounts confirm that the sale is subject to shareholder vote.
     
  25. MNAle

    MNAle Poo-Bah (1,657) Sep 6, 2011 Minnesota
    Society

    Also this:
    Shareholder Voting, Proxies and Other Voting Disclosure Material
    All ESOP participants have at least some voting rights. In private companies, ESOP participants must be able to direct the trustee on the voting of allocated shares for sale of all or substantially all of the company's assets, merger, liquidation, recapitalization, reclassification, dissolution, or consolidation. Note that ESOP participants do not necessarily have the right to direct the trustee on votes regarding the sale of the company's stock. In public companies, ESOP participants must receive the same rights as other shareholders. When vote pass-through is required, appropriate information on the issues must be provided, just as it would to other shareholders.

    --- The Rights of ESOP Participants
     
  26. jesskidden

    jesskidden Poo-Bah (1,912) Aug 10, 2005 New Jersey
    Society Trader

    Kim Jordan's letter's postscript says:
    ...but does not specifically say it would be an actual vote.

    Yeah, the "300" number is also based on Kim Jordan's letter:
    ...but she does not say that is the total number of NB employees or even the number of those in the ESOP.
     
    officerbill and philhyde like this.
  27. Grave252

    Grave252 Initiate (52) Mar 12, 2017 Minnesota
    Trader

    "Note that ESOP participants do not necessarily have the right to direct the trustee on votes regarding the sale of the company's stock" The stock is being sold here.

    Other considerations: There are un-allocated shares as well as shares held by debt holders which the trustee has full rights over.

    @islay - You are an MN guy right? Are you familiar with Lifetouch? One of the biggest ESOP's there was. Purchased by Shutterfly and the ESOP holders got absolutely torched. Ask someone who worked there if they had a vote...
     
  28. MNAle

    MNAle Poo-Bah (1,657) Sep 6, 2011 Minnesota
    Society

    Except that "ESOP participants must be able to direct the trustee on the voting of allocated shares for sale of all or substantially all of the company's assets, merger, liquidation, recapitalization, reclassification, dissolution, or consolidation."
     
  29. southdenverhoo

    southdenverhoo Disciple (389) Aug 13, 2004 Colorado

    if what I read about a) NB's production capacity between the two plants b) NB's sales in 2018 c) Kirin's US sales is all true, Kirin could make all the beer they sell in the US, in the US, while still making all the NB products the market can handle. Surely that would save them big $$ in transportation costs...

    EDIT: never mind, already brewed in US in a contract brewing deal. Well, they can probably do it cheaper in a NB facility but maybe not a huge savings...
     
    #149 southdenverhoo, Nov 21, 2019
    Last edited: Nov 21, 2019
  30. JackHorzempa

    JackHorzempa Poo-Bah (4,317) Dec 15, 2005 Pennsylvania
    Society

    Depends on how much AB is charging to brew their beer.

    And while there is a lot of BA dislike/distrust of AB, they have tremendous ability to consistently produce AAL beers. I am not prepared to state that the NB breweries couldn't consistently produce AAL beer but AAL beers are one of the most difficult beer styles to consistently produce. A consideration for Kirin here.

    Cheers!
     
    SABERG, rgordon, BJC and 1 other person like this.
  31. nesarebad

    nesarebad Devotee (456) Feb 4, 2012 Massachusetts

    Lets stick to spreading misinformation about beer, rather than how ESOPs work. So many experts in this thread...yeesh.
     
    PA-Michigander likes this.
  32. Kman_Colorado

    Kman_Colorado Initiate (61) Aug 17, 2014 Colorado


    Most likely the difference is debt payoff. The presumption is the ESOP borrowed to purchase the shares. If so, the lender will hold the shares as collateral and won't release them until the debt is paid. Therefore the ESOP receives $350m-$400m, pays off the debt and is left with net proceeds.

    The $190m is tricky because the wording makes it seem like a payout over the life of the ESOP and not just this transaction. For all we know it paid out $160m over the previous years and only $30m from the sale.
     
    sharpski and islay like this.
  33. Dandrewjohn

    Dandrewjohn Disciple (388) Apr 13, 2013 Texas
    Society

    The Voodoo DIPA is the one that really kicks butt. Hoping Kirin doesn't kill the golden goose.
     
  34. officerbill

    officerbill Devotee (434) Feb 9, 2019 New York
    Society

    I completely agree with what you said, but how does it look from a PR and company pride perspective to continue having your signature beer brewed by a competitor when you now have the capacity to brew it yourself? It might make economic sense, but with a Japanese company it might also be a matter face.
     
  35. JackHorzempa

    JackHorzempa Poo-Bah (4,317) Dec 15, 2005 Pennsylvania
    Society

    I am not sure how to pose my questions delicately so...

    Do you think that most American consumers of Kirin beer really track where their beer is produced. Do you think that most American consumers of Kirin really care?

    If anything you might think that the folks who drink Kirin beer in the US would prefer that their Kirin beers were produced in Japan but figuratively (and literally) that 'ship has sailed' a very long time ago.

    Cheers!
     
    philhyde and officerbill like this.
  36. MNAle

    MNAle Poo-Bah (1,657) Sep 6, 2011 Minnesota
    Society

    I don't think @officerbill was suggesting the American consumers care. I think he was suggesting the Japanese executives care, probably especially when dealing with other Japanese executives.
     
  37. jesskidden

    jesskidden Poo-Bah (1,912) Aug 10, 2005 New Jersey
    Society Trader

    Oh, but the AB brewers are under "strict supervision" by Kirin.:rolling_eyes:
    [​IMG](Sounds kinky to me, but...)

    Back in the 90s when this deal was first struck, Kirin also got the license to brew Budweiser for the Japanese market. Not sure if that is still the case (most recent mention I find after a quick website search is their 2011 AR), but if it is, they probably wouldn't want to mess that.
     
  38. officerbill

    officerbill Devotee (434) Feb 9, 2019 New York
    Society

    No
    No
    Yes, I do think Kirin drinkers would prefer them to be brewed in Japan, but like you said, that's not going to happen.

    I'm looking at it from the corporate end. Sure, Kirin Ichiban isn't directly competing against Budweiser and it made sense, in many ways, to contract with AB when Kirin didn't have a physical presence in the US.
    The end consumer probably doesn't really care, but
    it's going to be embarrassing for Kirin continue having someone else brew their namesake beer now that they have the facilities to do it themselves.
     
  39. jesskidden

    jesskidden Poo-Bah (1,912) Aug 10, 2005 New Jersey
    Society Trader

    Well, some of them did.
    Kirin Beer False Advertising Class Action Settlement
     
  40. islay

    islay Disciple (318) Jan 6, 2008 Minnesota
    Trader

    dcotom, pjeagles and officerbill like this.