Tuesday, April 29, 2008

Magic Pyramid

I just learned that Magic Hat has filed a letter of intent to buy Pyramid, a cross-coast merger that will take Pyramid private, and possibly give it some of that Magic Hat magic. Magic Hat's offering $2.75 a share for Pyramid stock, a nice premium over Monday's close of $1.76. Pyramid's board has approved the transaction, as have "certain shareholders" who own about 29% of the company's stock.

From BusinessWire:

“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. This consolidation makes both good strategic and financial sense and is well timed, particularly as the beer industry’s competitive dynamics continue to intensify,” said Pyramid CEO Scott Barnum. “The Company will continue to have offices in Seattle, its historical home, and will seek opportunities to capitalize on the enhanced assets and capabilities of the new combined entity,” he added.

Martin Kelly, CEO of Magic Hat said, “We have a great deal of respect for Pyramid’s brand heritage, award-winning beers and its dedicated employees, and look forward to consummating this transaction, which provides both strategic and financial benefits both to Pyramid’s and Magic Hat’s stakeholders.”


The deal is subject to the agreement on a merger transaction, and is expected to be completed by the end of August. It includes the Pyramid and MacTarnahan Alehouses.

Well...as Scott Barnum said, it certainly looks like a complementary merger. There's not a lot of market overlap -- though it's a question whether either company really has the reach to meet in the middle -- and the portfolios should mesh well. People have been murmuring about Magic Hat looking to be bought for years; apparently they preferred to do the buying. My big question is...how come? Why combine a solidly Northwest brewing company with a solidly New England brewing company? Can't be the great success Redhook has had with their New England expedition. I would suspect it's more a craft-based case of the consolidation fear that's gripping the world's big brewers: pair up and get large now, before all the good partners are gone and you're left as an also-ran.

10 comments:

Rustmeister said...

I hope that means we'll see Magic Hat here in TN.

Chris said...

Perhaps they're looking at this as a means of reducing costs, and not just a case of "grow or die" as you suggest. If they can brew the MH beers in Pyramid's facilities and vice versa, they can both expand their reach and cut transportation expenses at the same time.

Either way, it's an interesting development, and given the number of requests I get for MH beers (almost daily), it seems like they'd have very little trouble establishing a market in the PNW.

Lew Bryson said...

Rusty, I doubt it...they're probably going to be busy selling MH in Portland and Pyramid in New England. Maybe in a few years, though.


Chris, that's the natural thought, and it seems to be working for Flying Dog. I just don't see New England thirsting for Pyramid Hefe, and I really wonder if Magic Hat's style of beer will sell in the PNW; maybe it will. Dunno. Like you said: interesting.

Anonymous said...

The bigger they are, the harder they fall.

Matt said...

Lew,

I was under the impression that Flying Dog has moved all of its brewing operations to Maryland. Am I mistaken?

Lew Bryson said...

Matt, you're right. I'm living in the past: Flying Dog is doing all its brewing in Maryland now. Thanks for the catch.

sam k said...

There's something poetic about a company run by a guy named Barnum being bought by a company that makes a product called Circus Boy!

Jeff Alworth said...

Pyramid's a fairly weak company, in my view. Its purchase of MacTarnahan's got it a lot of real assets, but a very weak brand. Brand loyalty for Pyramid isn't a lot greater, so this looks like another deal that may pencil out for the MBAs, but doesn't seem to me to make beer sense.

And it spells the likely end for MacTarnahan's.

Anonymous said...

magic hats products are so average considering all the bells and whistles they put into the packaging . though the odd notion isnt bad but you have to buy a whole 12 pack to get 3 . every time i see pyramid its one dusty case sitting there by itself

Richard said...

Jeff, I am not sure how you define "weak brand" since the sales by volume data tabulated by the Brewers Association shows that Pyramid sales in 2007 were ranked No. 5 among US craft brewers and MH was 12th. I think somewhere out there, namely the folks in the Pacific NW, are showing them some love.

IMO, the merger allows MH to extent their funky, hipster packing and branding of a product at a relative low cost (since I am assuming that some MH products like No. 9 will be brewed in Seattle) into another heaven of hipsters and independent spirits....makes sense to me.

I, however, will pass on products from both breweries. They are just not my style and I was a 60's, long hair, hippy freak.