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Rumours about Boston Beer future continue

03 June 2024 By Ron Emler

Investors are still feeding on rumours about the future of Boston Beer Co. Ron Emler investigates.

First, as reported by the drinks business, market speculation tipped both Heineken and Molson Coors as possible suitors.

Then last week the shares rocketed following a Wall Street Journal report that the brewer was in talks about a takeover by Japan’s Suntory, the parent of Jim Beam bourbon.

That report stressed that matters were at an early stage and that a deal might not be forthcoming.

Played down

Both sides have played down the speculation but neither has totally denied the prospect of the trading relationship they formed in 2021 becoming a full marriage.

Boston said: “We do not comment on rumours. We are fully focused on our business as an independent company and our return to growth.”

Suntory was quoted by Bloomberg as saying that it was “not in talks to purchase Boston Beer.”

Both statements were carefully worded and do not completely exclude a closer coming together.

Attractive

Boston’s shares look attractive to a potential suitor, having plummeted more than 25% in the past 12 months.

But the stock has jumped almost 31% on the recent rumours which started only two days after the shares closed at their lowest price since February 2019.

At today’s price, Boston’s market capitalisation is about US$3.95 billion, far below its record valuation of US$15.98 billion in April 2021.

The likely price put on a potential deal is unclear, although it would unusual if it did not include a significant premium, especially as no sale could proceed without the consent of Jim Kock, who founded Boston in 1984 and remains its chairman.

He owns 100% of the of the voting rights on the company’s Class B shares.

Hard seltzer

Boston is best known for its Samuel Adams iconic beer range which built up a huge following earlier this century.

Its fortunes accelerated in the hard seltzer boom immediately before the Covid crisis struck in 2020, with the company taking second place behind White Claw in the sales league table.

Boston bet big on the category and fell from grace as the pandemic broke, sales slumped, it was left with vast overstocks and contract producers had to be paid hundreds of millions in dollars in compensation for cancelled capacity.

Its beer and cider brands have continued to decline but it has taken drastic action over the past couple of years and its Truly and Twisted Tea brands are forecast to be on an upwards curve, pushing volumes into growth mode for the first time in four years.

Margins

Supply chain costs have eased, in-house production is rising and other efficiencies should push gross margins back to normalised levels of above 40% over the medium term.

Add to that a debt-free balance sheet and record levels of cash flow and Boston looks attractive to not only investors but also to potential predators looking to take a greater sharecin the burgeoning RTD market.

Suntory has made no secret of its plans to greatly expand globally in the RTD marketcthrough its newly renamed Suntory Global Spirits.

In 2021, it forged a strategic partnership with Boston to use its spirits (including Jim Beam) incthe brewer’s RTDs and to formulate bottled Truly Vodka.

Equally both Heineken and Molson Coors want a bigger slice of seltzers and RTDs and atctoday’s price, Boston would provide comparatively cheap expanded access to thoseccategories.

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