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Boston Beer Fortifies Craft Footprint with Dogfish Head Merger

Zacks Equity Research

The Boston Beer Company, Inc. SAM has entered into a merger agreement with Dogfish Head Brewery in a cash and stock deal worth about $300 million. The transaction, which is likely to close late in second-quarter 2019 and conditioned upon the satisfaction of customary conditions, will bring a strong and dynamic American-owned platform for craft beer and beyond. As the deal is expected to be neutral to slightly accretive in 2019, it will not have a significant impact on Boston Beer’s full-year earnings.

Dogfish’s shareholders will get $173 million in cash, excluding certain transaction-related expenses. Additionally, the founder of Dogfish Head, Sam Calagione, and his family will obtain nearly 406,000 Boston Beer’s shares at a share price of $314.60. While Sam Calagione will join the company’s board of directors in 2020, Dogfish’s off-centered co-workers will be part of the Boston Beer’s team.

Boston Beer expects its existing cash on hand and available line of credit to be sufficient for funding the cash part of this transaction. Per the Brewers Association, the merged company will be an independent craft brewery, well-positioned to compete with the leading beer conglomerates in the craft beer space. The newly-formed company will also boast a balanced portfolio of major beer and "beyond beer" brands as well as leadership in expertise, innovation and quality.

Furthermore, the merged entity, to be led by Boston Beer’s CEO, will combine a portfolio of Boston Beer's craft beer and strong sales team with Dogfish’s popular IPA and session sour brands. This, in turn, will help the new company to gain leadership in the high-end U.S. beer market.

In the meantime, Dogfish Head remains on track to sell about 300 thousand barrels in 2019, which represents high single-digit improvement over 2018. Its current year’s net sales are projected in the band of $110-$120 million. Dogfish Head produces beer, mostly at its brewery in Milton, DE, and sells its beer in more than 40 states. Boston Beer expects to consolidate Dogfish’s results, beginning late in the second quarter.

We expect Boston Beer to gain from the afore-mentioned merger, thus contributing to its top and bottom line performance. Meanwhile, the company is benefiting from sturdy depletions growth and robust portfolio of globally recognized brands. This Zacks Rank #3 (Hold) stock also remains committed to its three-point growth plan, focused on the revival of its Samuel Adams and Angry Orchard brands, cost-saving initiatives and long-term innovation.


 

In the past three months, shares of Boston Beer have gained 29.1%, outperforming the industry’s 5.9% growth.

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