For the last several months I’ve been saying that Pyramid was ripe to be bought. However, I anticipated a very large player (like Miller) to swoop in and make the purchase. On that point, I was quite mistaken. Magic Hat Brewing Company and Pyramid Breweries announced that they will merge, pursuant to a letter of intent. The plan is for Magic Hat to aquire Pyramid for $2.75 per share – the stock closed at $1.76 a day before the announcement. Once the assumption of Pyramid’s ten million dollars in dept is taken into account, the deal will be valued at nearly 35 million dollars.
According to Pyramid CEO Scott Barnum, “the combination of these two well established, high profile craft breweries will be very complementary given our respective brand portfolios and the geographies in which we predominantly operate. Additionally, there will be a number of important benefits for Pyramid to be part of a private company versus continuing to operate as a stand alone public entity.”
The CEO of Magic Hat, Martin Kelly stated that “we have a great deal of respect for Pyramid’s brand heritage, award-winning beers and its dedicated employees…” Martin Kelly should know a little something about Pyramid given that he is an ex-employee. He joined Pyramid in 1999 as President and Chief Operating Officer, and then became the CEO in December of that year. In the years that followed, Pyramid expanded its operations significantly, bringing on two new Alehouses (Walnut Creek and Sacramento) and acquiring the Portland Brewing Company. At the time of acquiring the Portland brewing company in January of 2004, Kelly delivered a message that seems consistent with this current move, “The craft brewing business is very competitive and changes daily. To stay ahead, breweries must keep moving forward. Some breweries have chosen to go the route of aligning themselves with large, multinational, industrial brewers. We believe that approach can stifle creativity and lead to less choice for consumers. Our approach aligns two independent Northwest breweries and retains the creativity and integrity craft brewers are known for.”
It seems that as CEO of Vermont’s Magic Hat Brewing, Kelly’s style has not changed. Prior to making this move to grow through the acquisition of Pyramid, Magic Hat was in the midst of an expansion project that will double the capacity of its South Burlington Brewery.
In my opinion, aggressive growth can be a good thing. However, it can also be a risk in the beer industry because slight changes in the landscape (ingredient availability, cost of sales, cost of metal for kegs, consumer preferences, etc) can have a severe impact on the bottom line. Could Pyramid have weathered the current industry climate had it not been so aggressive in the Martin Kelly years? That’s hard to say. Even Redhook brewery, (who has strong distribution ties with Anheuser-Busch and were once stock market investor favorites) have had to resort to merging with Widmer in order to stay in the game.
This move could also give Pyramid a chance to start over. With the Magic Hat buy out, Pyramid can escape the scrutiny of being a public company and return their focus to the core: brewing great beer. That said, it will be interesting to see how or if the two breweries merge their cultures and brands. Magic Hat is known for being fun and somewhat unpredictable. To the contrary, Pyramid is a well thought out and dependable brand. Magic Hat’s Website looks like the worst elements of pop culture slammed into into it at full speed, while the Pyramid website feels conservative and stuffy. Most likely, the two will consolidate some of their business operations and perhaps some of their beer line (aka, some folks will be laid off), but both will continue to maintain their current brands and marketing philosophies. On the upside, both breweries may also get a foot in the door to distributors on the opposite coast. As a result, Seattle folks may start to see more Magic Hat beer in the stores and the East Coast might start to see more Pyramid on the store shelves.
Whatever happens next, I hope it only strengthens Pyramid’s footing in the market and makes it an even more valuable asset to the Pacific Northwest. Still, I’m always skeptical about out of town ownership and I’m curious to see if Pyramid continues to feel like a resident of the Pacific Northwest given the new arrangement. At any rate, I guess there’s little more to do now than sit back, drink down a Thunderhead IPA, and watch as the acquisition proceeds.