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Friday, 21 April 2017 09:53

Founders CEO denies reports brewery will repurchase shares to meet trade group’s membership requirements

Written by  Nick Manes and Joe Boomgaard
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Founders CEO Mike Stevens denied a report in an international trade publication that the company planned to repurchase some of the shares it sold to Spanish brewer Mahou San Miguel. Founders CEO Mike Stevens denied a report in an international trade publication that the company planned to repurchase some of the shares it sold to Spanish brewer Mahou San Miguel. MIBIZ FILE PHOTO

GRAND RAPIDS — Contrary to a report in an international brewery trade publication, Founders Brewing Co. has no plans to repurchase some of its shares from its Spanish investors.

CEO Mike Stevens flatly denied a report from Brauwelt International that said the Grand Rapids-based brewery planned to buy back 8 percent of its shares from Mahou San Miguel, the family-owned Spanish brewery that bought a 30-percent stake in Founders in 2014.

“I can tell you it’s 100 percent false,” Stevens said of the report. 

Pressed further, Stevens said he was unsure how the rumor got started. He said had no reason to believe that Tim Traynor, Founders’ International Market Manager who was cited in the article, had any intention to spread misinformation.  

“(He wasn’t) misinformed, to my knowledge,” Stevens said, adding that he had yet to talk to the European-based executive. “Tim has worked for us for many years. Just knowing Tim, my guess is it was a miscommunication between him and whomever he was talking to.”

[RELATED: Founders prioritizes legacy, synergy, liquidity in deal with Mahou]

According to the Brauwelt International report, Founders would buy back a portion of the shares it sold to Mahou San Miguel so that the company could once again meet the Brewers Association’s membership requirements.

The influential Boulder, Colo.-based trade group requires its members to produce less than 6 million barrels of beer annually, have independent ownership and use traditional brewing techniques. Under the ownership guidelines, a member cannot sell more than a 25-percent stake to another alcoholic beverage manufacturer “that is not itself a craft brewer.”

In its deal with Mahou San Miguel — an industrial brewer that produced more than 11 million barrels of beer in 2015, according to the most recent annual report posted on its website — Founders no longer met the Brewers Association craft brewery definition.

As M&A and investment activity has heated up in recent years in the industry, other well-known producers have also fallen out of compliance for the trade association’s definition. Among them are Chicago-based Goose Island Beer Co., San Diego-based Ballast Point Brewing Co. and Petaluma, Calif.-based Lagunitas Brewing Co., each of which closed on investment deals with non-craft brewery partners.

According to the Brewers Association definition, the craft brewing segment lost 1.2 million barrels of production to acquisitions last year, although new producers added 1.4 million barrels of capacity.

However, most of the new entrants were smaller microbreweries and brewpubs, not the larger regional breweries that have been acquisition targets in recent years, said Bart Watson, the chief economist of the Brewers Association.

The recent deals not only limit membership for the Brewers Association, but they also hamper its ability to achieve its long-stated goal of taking a 20-percent share of the market by 2020. Craft breweries made up 12.3 percent of the market in 2016, according to the group’s data.

“Achieving it, in terms of a 20-percent share, is a long shot at this point,” Watson said in a recent press conference. “I think it would be very difficult to meet that goal at this point, but it was always one that was aspirational…”

If the craft breweries that have been acquired in recent years were added back into the mix, the industry “would have had a point or two higher growth,” Watson told MiBiz.

For his part, Stevens stressed that while he has great respect for the Brewers Association going back to Founders’ early days in the late 1990s, he disagrees with the organization’s definition as it pertains to ownership. He notes that he hypothetically could have sold a majority stake to an investment bank and in that case would still meet the group’s definition for being a craft brewery.

“Focusing on what percent ownership a founder of the company might own is probably not where a trade association should focus their energy,” Stevens said. “I think a trade association should probably focus more toward awareness of the industry, fostering growth in the industry.”

Watson said the association focuses its efforts on the interests of member brewers, but there is some alignment with the companies that no longer meet the craft brewer definition in pushing general awareness of the “fuller flavor beer” industry.

“The BA is driven by our board of directors and is looking out for the interests of small and independent brewers, not some larger craft beer industry,” he said. “But we’re always promoting the beer industry and craft beer enthusiasts, where that overlaps.”

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