"Anheuser Busch InBev's acquisition isn't a done deal" - Interview, Andy Thomas, Craft Brew Alliance CEO - Part I

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Andy Thomas moved up to the CEO position at Craft Brew Alliance in 2014, following several years in the company's commercial operations. Previously, he spent 12 years at Heineken USA - the last two of which were as unit president. Thomas's experience in big brewing has proved useful at CBA, as the company moves to deepen its ties with major shareholder Anheuser-Busch InBev. In part one of this two-part interview, Thomas provides insight into the latest deal, which gives AB InBev a staggered, qualified offer option to acquire CBA. 

Craft Brew Alliance is 32%-owned by Anheuser-Busch InBev

Craft Brew Alliance is 32%-owned by Anheuser-Busch InBev

To understand how AB InBev became involved in the first place, Thomas takes me on what he calls a 60-second history of CBA. "AB InBev has owned a stake in our business since its formation - since before the company existed," he says. CBA's two founding craft breweries - Redhook and Widmer Brothers - had separately established distribution alliances with Anheuser-Busch in the late 1990s, as they both looked to expand.

"Craft had become enough of a distraction that they were starting to eat the big brewers' lunches," says Thomas. "Some brewers were more aggressive than others to secure share-of-mind, if you will, and with the wholesalers. A number of microbreweries feared that they would be inhibited in their route-to-market. So, at the time, craft brewers sought to seek distribution agreements with larger brewers to make sure they were still in good favour."

In exchange for securing distribution, both Redhook and Widmer sold equity stakes to AB, to "ensure their long-term interests were aligned", Thomas says. Then, in 2008, the two breweries, along with Hawaii's Kona Brewing Co, became CBA, combining their respective AB shares, which now total 31.6%.

Then, in August, CBA's relationship intensified with what was now the US arm of AB InBev, with the brewing giant securing an option to buy CBA outright, within the next three years. Thomas describes the move as being part of the company's DNA, to partner with firms that can help CBA achieve wider market access. Setting out the new framework, he says, was a way to "create certainty" and "eliminate chatter".

"There [was] a lot of buzz," says Thomas. "We are a PLC, AB InBev was buying a lot of craft breweries... 'Instead of our business, the main point-of-discussion in meetings became 'What's going to happen with CBA and AB InBev?' As we contemplated the future with AB, we said, let's acknowledge that there's a possibility... that we might want to do this. Everyone is speculating, let's end the speculation."

Thomas is keen to clarify, however, that AB InBev does not hold all the cards when it comes to the possibility of it acquiring CBA. "AB InBev doesn't necessarily have an option per se," he says. "What we tried to do was put in place a framework whereby if both companies decided that the best thing to do would be to become one, instead of this concept of what I call 'collaborative independence', that we both knew what we were getting in to."

The CEO believes the deal is unique in the drinks industry. "I don't know of another deal out there that says, 'We might want to do this and we are going to demonstrate to everybody why it would be good'... but also acknowledges that it is not a fait accompli and that we make it clear to everybody that this isn't a done deal."

Andy Thomas, CEO, Craft Brew Alliance

As part of the announcement in the Summer, CBA upped its contract brewing arrangement with AB. Around 300,000 barrels of CBA's production will move from its four breweries - as well as from its third-party production deal with Blues City Brewing in Memphis - to facilities owned by AB elsewhere in the US.

Thomas describes the 300,000-figure as a "floor, not a ceiling".  "We have upwards of 100,000 barrels that are brewed in Memphis," he notes. "With this agreement, we will be moving this 100,000, plus another 200,000 to AB." This equates to "about one-third" of CBA's brewing total.

At the moment, this capacity will supply the US but, going forward, it could be used to supply export markets. "There's a possibility for that," says Thomas. "It isn't the explicit idea, but it isn't precluded in any way by the deal."

Speaking of exports, the new agreement also sees AB InBev take brands from CBA's portfolio to Brazil, Mexico and Chile. "Those are countries where the craft beer movement is starting to become a consumer trend and where AB InBev has a good business system," says Thomas. "We are able to partner with them to provide some brands in addition to the brands they own, to satisfy that consumer opportunity."

Beyond these markets, CBA partners with a network of independent importers, called Craft Can Travel. "I think you will see our international business continue to develop in these independent routes, where the market is fragmented in such a way that the smaller, independent importer might still be the best route-to-market," says Thomas. "We'll complement that with markets where independent importers can't really get any scale because it's either a monopoly or a duopoly. Typically, in the markets where it's a monopoly or a duopoly, AB InBev is a major player there."

Following AB InBev's acquisition of SABMiller, Thomas can also see opportunities in Africa - where SAB had an enormous footprint - although he is not hanging on the telephone. "It will be a positive opportunity for us," he says. "I think in the scheme of priorities, as Megabrew gets formed, we will be pretty low on the list. So, I don't think we're going to get a call from some of the new concerns in Africa that quickly." 

Click here to read part two of this interview

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