In 1985, Sleeman reopened its brewery in Guelph, Ontario. The small startup Company could barely meet its financial obligations. At the time, its biggest challenge was to keep the organization liquid. To survive, the organization relied heavily on its wit. Truly entrepreneurial and innovative thinkers were attracted to this firm.
In 2004, the Sleeman organization was known as passionate, growth-centric, and rich in entrepreneurial spirit. It experienced intense year-over-year double-digit growth that translated into a 6% national market share. The highly desirable culture attracted and retained tremendously successful and strategically savvy talent.
Growing market demand, and market share created significant capacity issues for Sleeman fueling a series of acquisitions, including:
- Okanagan Spring Brewery, 1994;
- Upper Canada Brewing , 1998;
- La Brasserie Seigneuriale, 1998;
- Shaftebury Brewing Company, 1999;
- Stroh Brands (Canada), 1999;
- Maritime Beer Company, 2000; and
- Northern Goose Beer Company, 2001.
In early 2004 Sleeman Breweries had set its sights on buying Unibroue, a highly prized Quebec-based brewery.
An acquisition is intended to add value by creating new competitive advantages, or building new business opportunities, or establishing new growth platforms.
Sleeman expects to extract value from a merger or acquisition and therefore must investigate any gaps that exist between the perceived value of the venture, and the actual value that the new business will achieve. Actual value is flushed out during the due diligence process.
Francis Hartman, National Director, Human Resources for Sleeman Breweries just returned to her office having met with the firm’s President, Rick Knudson.
Francis pondered the President’s question, “Francis I want you to join the due diligence team and champion the review of the management and human resources areas. Your report will be required by the next management board meeting.” Francis promised to submit her findings as requested.
Canada‘s Brewing Industry.
Canadian brewers have a total capital investment averaging $200 million a year and directly employ over 14,270 Canadians. The industry represents $12.8 billion of the 2003 domestic economy, 1.2% of the GDP, and creates employment in every province of the country. With more than 1,000 brands of beer produced, Canada is the 12th largest brewing nation in the world. In 2003, Canadian beer exports were estimated to be $320 million annually, and growing. Over 18% of Canadian-produced beer is exported ranking Canada sixth among beer exporting nations. The vast majority of exports go to the United States, but Canadian beer is also exported to South America, the United Kingdom, and the European Union. Six of the top 25 brands imported by the United States are brewed in Canada. More than one third of domestic market for Western Canada’s malt barley harvest is consumed by the brewing industry.
In 2003, Canada’s governments received over $4 billion in taxes either directly or indirectly from the industry. Interestingly for 2003 this amount is slightly less that the total revenues forecasted by Nova Scotia! The average tax on a case of Canadian beer is 51% of the retail price. The federal government, through its excise duty, and the GST, collects one third. Provincial governments, by taxing plants and distribution centers, collect the remaining two thirds of tax revenue. See Exhibit 1 for the economic contribution generated by Canadian brewers.
The Canadian beer market is divided into four primary beer-marketing segments: floor pricing (buck-a-beer), value, mainstream, and premium. Margins and consumer brand loyalty attract brewers to the premium category, while the value beer segment adopts a commodity marketing strategy. In 2004, Sleeman’s sales were 58% premium, and 42% value priced.
Sleeman Breweries Background
Sleeman has grown to be the third-largest brewer in Canada, with production operations in British Columbia, Ontario, Québec and Nova Scotia.
The Sleeman story began in 1834 and built a market in Upper Canada until caught bootlegging beer to the United States during the time of prohibition. As a result of this transgression, government forced Sleeman to pay the taxes on the smuggled beer resulting in the firm closing its doors in 1933. The Sleeman family refers to this period as their ‘dark ages’. In 1985, the organization was reopened for business in Guelph, Ontario by John W. Sleeman, the great, great grandson of the first Sleeman brew master.
Sleeman’s Operations Prior to 2004
John Sleeman and his management team were keenly aware of the changing market dynamics. There was significantly increased head-to-head competition for Canadian market share. Customer sophistication with respect to the value-for-money expected from brewers’ products, and the substitutes available in the marketplace was growing. All brewers were placing greater emphasis on costs and brand recognition in Sleeman’s market segments. New production venues to enhance capacity as was increasingly difficult to find as competitors had already established a strong presence in most of the Canadian market. There was increased difficulty in identifying new innovative and differentiated products. There was growing pressure on profit margins; and a growing number of mergers and acquisitions that often force weaker firms from the industry. These factors lead to one pre-2004 conclusion – to grow, the firm needed to adopt an acquisition-merger-alliance strategy. It was clear that in a mature marketplace continued organic double-digit growth would not be possible.
Facing fierce competition, Sleeman’s undertook an aggressive acquisition strategy to achieve rapid growth. In addition, Sleeman entered into a number of alliances: The Boston Beer Company 2000; Sam Adams, South African Brewery, Pilsner Urquell, H.P. Bulmer in 2001; and Strongbow, Sapporo Brewery in 2002. Additional partnering arrangements were made with Guinness, Grolsch and FEMSA.
Mr. Sleeman’s strategy was designed to increase brewing capacity, to build brand equity by growing its market presence, and to exploit economies of scale. He adopted a decentralized organizational design that enabled management to reside at the point of distribution. Each of the strategic business units was given a great deal of autonomy, controlled in part by establishing regional accountability and clear goal setting. The SBU’s processes, operating styles, cultures, geography, and demographics differed from the parent company and from one another.
By 2004 approximately 66% of the company’s total consolidated revenues were generated in Eastern Canada, and the balance was generated in Western Canada. At this time, the firm was divided into three regions: Western Canada, Ontario and Quebec, and Atlantic Canada. See Exhibit 2 – Org Chart (2004)
Sleeman’s strategy succeeded and in just over a decade Sleeman had established the firm as one of the fastest growing premium brewers in North America.
Hartman’s Preliminary Thoughts.
With a sense of pride, Hartman reflected on the accomplishments of the firm to date. As she considered the immediate proactive actions the Human Resources Division could contribute to the due diligence process, she started a checklist of the issues to be examined.
FOR IMMEDIATE RELEASE: April 20, 2004
SLEEMAN CONTINUES DOMESTIC EXPANSION WITH THE OFFER TO
ACQUIRE UNIBROUE
Montréal, April 20, 2004 – The Chairman and CEO of Sleeman Breweries Ltd. (TSX:ALE), John W. Sleeman, and Pierre DesMarais II, Chairman of the Board of La Brasserie Sleeman du Québec Ltée. are proud to announce that Sleeman has made an offer to purchase all of the shares of the Quebec beer maker Unibroue Inc. (TSX:UBE), the acclaimed microbrewery. Sleeman, the third largest and fastest growing brewing company in Canada, would thus become the premier brewer of quality beers in Quebec. The two companies’ respective Boards of Directors have unanimously approved a definitive agreement whereby Sleeman offers to acquire all of the issued and outstanding shares of Unibroue in an all cash transaction valued at approximately $36.5 million, including net debt to be assumed of $5.5 million.
Mrss. André Dion, Robert Charlebois and Serge Racine as well as their respective associates, holding between themselves 71.48 % of all outstanding Unibroue shares, have agreed to irrevocably tender all their shares to the offer.
Highlights of Transaction
- Provides Sleeman with increased brewing capacity in Eastern Canada;
- Adds to Sleeman’s portfolio complementary premium brands with strong customer loyalty;
- Creates an improved platform for growing Sleeman’s brands in Quebec;
- There is the potential for significant operating, sales and marketing synergies once the two organizations are integrated;
- In its first full year of ownership, the transaction will add $5,000,000 to $6,000,000 to Sleeman’s 2005 EBITDA;
- The combined organization will have more than 280 employees and is expected to generate in excess of $90 million of revenue in Quebec.
John W. Sleeman, Chairman and CEO of Sleeman commented on the business combination stating, “This exciting transaction is the next step in the continued growth of Sleeman. The acquisition of Unibroue and its premium brands will complement Sleeman’s current portfolio, in addition to providing the required infrastructure to expand our presence in Quebec. Unibroue has a state-of-the-art brewery operation, a strong portfolio of brands and a highly skilled work force that I welcome to our group of companies. We look forward to the two companies working together to increase market share in one of the largest beer markets in Canada.”
With this acquisition, the Chairman of the Board of La Brasserie Sleeman du Québec Ltée., Pierre DesMarais II added, “We will now be positioned to grow even more in Quebec, both in popularity and in sales. With the brewing facility of Unibroue and their award winning brands including Blanche de Chambly and La Fin du Monde, combined with the Sleeman sales and distribution network, we will continue with our commitment to excellence, to integrity and to the high quality Quebecers have come to expect”.
André Dion, Chairman, President and CEO of Unibroue stated, “The purchase price per share offered in this transaction is fair to Unibroue shareholders while providing the marketing strengths of Sleeman to expand the distribution of Unibroue’s unique craft brews in Quebec and elsewhere across Canada. Unibroue will become an important part of Sleeman’s Quebec strategy going forward and I am pleased that this transaction will continue to provide Unibroue’s employees with a growth oriented environment focused on the expertise of its employees.”
Sleeman’s take-over bid circular is expected to be mailed in early May, 2004 and the transaction is expected to close in June, 2004. More details on the terms of this transaction are provided in the attached “Transaction Summary”.
Unibroue’s Board of Directors has unanimously decided to support the offer and to recommend to its shareholders to accept it. By virtue of the opinion issued to Unibroue by Desjardins Securities, who acted as financial advisor to Unibroue’s Board of Directors, Sleeman’s offer is fair to Unibroue’s shareholders from a financial standpoint.
About Unibroue (TSX:UBE)
Unibroue Inc. is a public corporation of which the subordinate voting shares are listed on the Toronto Stock Exchange. Unibroue is the largest micro-brewery in Quebec and among the largest 20 micro-breweries in North America. Since its creation in 1991, Unibroue has gradually established itself as the leader in the development and marketing of specialty
beers in Quebec. Unibroue brews 12 brands of bottle refermented beers: Blanche de Chambly, Maudite, Fin du Monde, Raftman, Eau Bénite, 1837, Trois Pistoles, Don de Dieu, Éphémère and exclusive brands: La St-Hubert for the St-Hubert restaurants and La Fringante et La Terrible for the Société des alcools du Québec. Also, Unibroue produces three commercial beers, the U, the U2 and La Bolduc. With its head office in Chambly, Quebec along with four warehouses located across the province, Unibroue employs more than 135 employees spread across the areas of sales and marketing, administration, production and distribution. As a reminder, the annual general meeting of shareholders of Unibroue will take place on April 22, 2004 at 4 p.m. et the Fourquet Fourchette restaurant, 1887 Bourgogne avenue in Chambly. More information on Unibroue can be found at www.unibroue.com/english.cfm.
About Sleeman (TSX:ALE)
Sleeman Breweries Ltd. is the leading brewer and distributor of premium beer in Canada and the third largest brewing company nation-wide. The Company has supplemented its core Sleeman brands, which are available in every province, with a family of exceptional regional brands. These include Okanagan Spring and Shaftebury in British Columbia and Alberta, Upper Canada in Ontario, Seigneuriale in Quebec and MacLays in Atlantic Canada. Sleeman entered the rapidly
growing value price category in 1999 by acquiring the Stroh portfolio of brands in Canada. The company markets and/or distributes world-class imported products such as Guinness, Grolsch, Samuel Adams, Scottish & Newcastle (including Bulmers Strongbow English Cider), Sapporo and Pilsner Urquell, and provides contract production for Japan’s Sapporo Breweries’ products. Sleeman is also available in selected U.S. and British markets. Please visit Sleeman’s website at www.ale-sleeman.com.
Transaction Summary
Under the terms of the support agreement between the two companies, the transaction will be structured as Take Over Bids with Sleeman offering $5.25 in cash for each issued and outstanding Multiple Voting Share and Subordinate Voting Share of Unibroue. Valued in aggregate at $36.5 million (including net debt to be assumed of $5.5 million), the offer price represents a per share premium of 34.3% based on the 20-day average closing price for Unibroue’s subordinate voting shares of $3.91 for the period ended April 19th, 2004.
As part of the transaction, André Dion, founder and CEO of Unibroue, has agreed to enter into a consulting agreement for a period of one year.
The offer is subject to a number of customary conditions that are required to be satisfied prior to take-up and payment of Unibroue shares by Sleeman, including, but not limited to, regulatory approval and a requirement that the greater of at least 662/3% of the total number of Unibroue shares, calculated on a fully diluted basis, and such number of Unibroue shares required to ensure minority approval of any required subsequent going-private transaction, be tendered to the offer.
Unibroue’s Independent Committee and Board have concluded that the Sleeman offer is fair to, and in the best interest of, the Unibroue shareholders. Unibroue’s Board has unanimously decided to support the offer and to recommended that shareholders accept the offer and tender their shares. Unibroue shareholders holding approximately 71.5% of the outstanding Unibroue shares have irrevocably agreed with Sleeman to tender their shares to the offer. Unibroue has received an opinion from Desjardins Securities, which has acted as financial advisor to Unibroue’s Board, that the offer is fair from a financial point of view to the shareholders of Unibroue.
The Support Agreement contains terms and conditions for the payment of a break fee if, amongst other issues, Unibroue’s Board should change its recommendation in favour of a competing offer in some circumstances. National Bank Financial Inc. and BMO Nesbitt Burns Inc. have acted as financial advisors to Sleeman for the purposes of this transaction.
Sapporo acquisition of Sleeman on tap
Last Updated Fri, 11 Aug 2006 21:25:51 EDT
Sleeman Breweries Ltd., Canada’s third-largest beer producer, agreed Friday to a $400-million takeover by Japan’s Sapporo Breweries Ltd.
Sleeman shareholders have been asked to approve a takeover bid from Sapporo.
Sapporo will offer $17.50 a share in cash to buy Sleeman, which put itself up for sale earlier this year and had been weighing offers for the company. The total figure for the deal includes debt.
Chairman and CEO John Sleeman agreed to tender all of his shares to the bid, according to a joint release.
“In Sapporo’s offer, we not only received fair value for shareholders, but confidence that Sleeman has an owner with the financial resources and track record to continue to grow and build Sleeman’s national portfolio of premium brands,” Sleeman said.
“This transaction will allow Sleeman to be more competitive in the premium beer category and continue to build the business. Today’s announcement also provides a strong future for both Sleeman employees and Sleeman brands.”
Sleeman announced Thursday that profit rose 41 per cent in the second quarter to $3.5 million, or 21 cents a share. But revenue was essentially flat, at $57.8 million.
The company’s shares fell 21 cents on Friday, closing on the Toronto Stock Exchange at $14.83.
It markets and distributes imported brands like Sapporo, and has also provided contract production for the Japanese brewer’s products.
“We have developed a strong relationship with Sleeman through our contract brewing arrangement and this acquisition enables Sapporo to continue to expand Sleeman’s quality brewing heritage,” said Nobuhiro Hasiba, Sapporo managing director.
Should two-thirds of Sleeman shareholders approve the deal, the transaction is expected to close by mid-October.
Last of the top three
If approved, Sleeman would become the last of the top three Canadian brewers to accept foreign ownership.
Sleeman, based in Guelph, Ont., brews a wide range of beers, from the premium Sleeman and Upper Canada brands to low-cost, high-volume “value brands.” The company traces its roots back to 1834 when founder John H. Sleeman established himself as a brewer.
Sapporo was established just a few decades later. Sapporo Holdings Limited has a value of $4.3-billion, which also includes real estate, restaurant and non-alcoholic beverage segments.
It had been rumoured that Molson Coors Brewing Co., Labatt Brewing Co. Ltd. and Royal Grolsch NV of the Netherlands were also interested in Sleeman.
