Proposed Sale of Kona’s Hawaii Operations Valued at $16 Million

Craft Brew Alliance (CBA) and Anheuser-Busch InBev’s proactive attempt to remove regulatory roadblocks by reaching an agreement to sell off Kona Brewing’s operations in Hawaii will come with a $16 million price tag for prospective buyer PV Brewing Partners.

CBA announced Wednesday evening a “membership interest purchase agreement” in which the Portland, Oregon-headquartered craft brewing company would divest of the Kona brand rights in Hawaii, contingent upon the completion of CBA’s merger with A-B, which was agreed upon in November 2019 and is expected to close by the end of 2020.

PV Brewing’s deal would give it rights to Kona solely in Hawaii and nowhere else in the U.S. or internationally.

Additional details of the transaction were revealed Thursday morning in filings with the U.S. Securities and Exchange Commission.

Notably, PV Brewing Partners — the investment firm made up of former A-B president Dave Peacock and Overland Park, Kansas-headquartered family office VantEdge Partners — will pay an initial $5 million in cash upon closing of the A-B and CBA deal and then the remaining $11 million once CBA achieves “certain construction and production milestones” related to under-construction 30,000 sq. ft., 100,000-barrel brewery in Kona.

PV Brewing will fund the purchase with a combination of debt and equity financing, according to an 8K filing.

Upon closing of the Kona Hawaii deal, CBA and PV Brewing will enter into ancillary agreements, including:

  • An intellectual property license agreement for the Kona brand;
  • A brewing and packaging agreement in which CBA and affiliated operations will brew, bottle and package certain Kona-branded beers for PV Brewing on a transitional basis;
  • A distribution agreement in which PV Brewing will receive sales, promotion and distribution services in Hawaii via wholly owned A-B distributor Anheuser-Busch Sales of Hawaii Inc.

According to the SEC filings, the closing of the Kona deal in Hawaii would occur “upon the later of August 3, 2020,” or immediately after, or the following business day after, the closing of CBA’s merger with A-B, or a later date as required by the U.S. Department of Justice.

The Kona deal in Hawaii could also be terminated if the DOJ determines that:

  • PV Brewing is “not an acceptable” buyer of Kona in Hawaii;
  • The purchase agreement is not an acceptable manner of divesting of Kona in Hawaii;
  • Or a divestiture is not an acceptable remedy in order to obtain regulatory clearance of the merger.

In a report this morning, Cowen and Company managing director Vivien Azer wrote that Kona’s Hawaii business was viewed as a potential “thorn in the DOJ’s side” due to Kona’s market share in Hawaii and A-B’s “distribution brawn.” With the regulatory body conducting a second review, the proposed divestment of a “radioactive asset” is seen as a proactive move.

Azer also noted that the potential divestment of Kona’s operations in Hawaii were foreshadowed in previous filings related to the A-B/CBA merger, notably, this line: “Other than with respect to CBA’s Hawaii business, A-B is not required to make any divestitures, or agree to any other remedies, in order to obtain antitrust-related clearances.”

The proposed deal has made Azer “more optimistic” of the DOJ giving its blessing to the merger.

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