A half-million dollars ought to be enough.
That’s the point that brewing giant Anheuser-Busch is trying to make in a lawsuit against a New Jersey beer wholesaler over the transfer of Elysian Brewing products to A-B’s own network of distributors in the state.
In the suit, filed in New Jersey District Court on May 4, A-B seeks a declaratory judgment that it complied with state law by paying fair market value for Elysian’s brands to Hunterdon Brewing Co., which to that point had been distributing Elysian beer in New Jersey.
The larger brewer purchased Elysian in January, with the intent to move it into its own distribution network and increase their portfolio variety. According to A-B, its offer of $562,883.46 is an estimated multiple of 5.5 times the gross profits that Hunterdon had made off of Elysian in the 12 months ending March 31. It’s an especially good faith offer, according to A-B, because the law, as written, “does not require any kind of negotiations before a fair market value offer and tender is made.”
As the successor brewer, the suit claims, A-B is allowed to terminate the contract upon providing fair market value without going through a negotiation process.
When A-B apprised Hunterdon of its plans to bring Elysian under the umbrella of its own wholesale outfits in the state, though, its fair market value offer was “rebuffed,” according to the lawsuit. Hunterdon president Michael Short, in talking with A-B, pegged the value of Elysian at 12 times gross profits, the suit says. A-B, per the suit, called it “something in the range of 4.”
When the two companies failed to come to terms, Bob Tallett, vice president of business and wholesaler development with A-B, instead sent Short a letter terminating its contract with Elysian.
Accompanying that letter was the check for more than half a million dollars. In the letter, Tallett said the multiple was “consistent with or higher than comparable New Jersey transactions,” citing the 4.75 multiple it paid for Blue Point in the state (A-B acquired Blue Point in February of last year).
Determining fair market value for a brand is different depending on its rate of growth and upside. In November, in an interview about the subject, Craft Brew Alliance head of supply John Glick told Brewbound a hot product could reasonably fetch anywhere between 6 and 9 times gross profits.
For its part, A-B in the past has vocalized its strategic awareness of the distribution alignment of its acquisition targets, favoring those that already fit well within its own network. In a statement issued to Brewbound, Brendan Whitworth, A-B’s regional vice president of sales, echoed as much.
“Our preference is that we want our brands distributed by our equity wholesalers where possible,” he said. “With that, we exercised our right under New Jersey law to pay Hunterdon fair market value for the Elysian brands, which we recently acquired, so they could be moved to our equity wholesalers in the state immediately.”
Reached by phone, Short said he was unable to comment on the matter at this time, per the advice of Hunterdon’s attorney.
According to the suit, A-B operates six distributorships in the state, including Harrison Beverage Co., High Grade Beverage, Konrad Beer Distributors, Northern Eagle Beverage Co., Ritchie & Page Distributing Co., and Anheuser-Busch Sales of New Jersey.