Pyramid buys Portland Brewing

Seattle-based brewery now third largest on West Coast; more mergers ahead?

Jan 27, 2004 - Two of America's first modern day craft brewers will soon one. In what is easily the most important specialty beer story of 2004 and one of the biggest in the brief history of craft breweries, Washington-based Pyramid Breweries announced it will acquire the brewing and brewery-restaurant operation of Portland's Portland Brewing. The deal will make Pyramid the third largest craft brewer on the West Coast, behind only Sierra Nevada Brewing and Redhook Ale Brewery.


"As far as singular news events, this is a top ten story," said Tom McCormick, who edits BEERWeek, a newsletter for the specialty beer industry. As a former pioneering distributor, McCormick has been there to see it all. "It is the first acquisition of it's kind in the industry and displays the maturity of the category. I would expect more mergers and acquisitions of this dimension in the future."

There have been other large deals, some involving the largest breweries in the country, and Pyramid CEO Martin Kelly alluded to them in a company press release. "The craft brewing business is very competitive and changes daily. To stay ahead, breweries must keep moving forward," he said. "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."

During the mid 1990s operations generally known to the public as "microbreweries" (although they grew well beyond micro) were booming and both Anheuser-Busch and Miller Brewing took stakes in smaller breweries. A-B still owns its share of Redhook and Widmer Brothers Brewing. Miller sold Shipyard Brewing in Maine back to the original owners, then closed the Celis Brewery it bought in Texas.

"It's interesting to note that Pyramid stated in their press release that they were avoiding forming an alliance with a multinational brewery - putting a positive and 'craft' spin on getting larger through the acquisition," McCormick said. "It does provide, in a 'micro' kind of way, what the A-B deals accomplished with Widmer and Redhook; increased production efficiencies and more importantly, greater access to market. The biggest advantage to the acquisition will be greater success in the California market for Portland products, which have struggled in the past, and greater exposure to the consumer through the Pyramid pub network."

In a press release, Pyramid states that the transaction will bring together key markets and products that complement rather than overlap, and is expected to enable the combined company to secure better distribution and retail presence.

Pyramid will acquire Portland Brewing's brewery and brewery restaurant assets for total consideration of approximately $4.2 million, consisting of a combination of assumed liabilities, cash and, at Pyramid's option, Pyramid common stock. The transaction is subject to approval by the shareholders of Portland Brewing and other customary closing conditions. Shareholders representing approximately 74% of Portland Brewing's outstanding voting power are committed to vote in favor of the transaction.

"As I have mentioned in BEERWeek, it will continue to become more difficult for smaller craft brewers to grow into the Portland/Pyramid size. And even more significant, it will be very important for those currently of the Portland/Pyramid size to stay sharp, focused and look at new opportunities - partnerships, marketing and distribution alliances and/or acquisitions included."

Pyramid brewed 113,000 barrels of beer in 2002, while Portland made 57,100. Totals for 2003 are not yet available.

Pyramid was founded in 1984, Portland in 1986. Pyramid is particularly strong in Washington, where it was born, while Portland is one of Oregon's top-selling craft breweries. Its best known brand is MacTarnahan's, named after brewery patriarch Robert "Mac" MacTarnahan. Pyramid estimates that with the acquisition of Portland Brewing's operations, it will generate estimated annual revenue exceeding $46 million, operating three production breweries and five brewery-restaurants.

"This transaction will leverage complementary strengths--the creativity and strong Oregon distribution of Portland Brewing's operations with Pyramid's sales, marketing and distribution resources in Washington and California -- to drive the success of both Portland Brewing and Pyramid brands," said Portland Brewing CEO Jerome Chicvara.

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