Financially strapped Frederick Brewing Co. announced yesterday that it has entered into an agreement with Snyder International Brewing Group LLC that gives the Cleveland-based company the exclusive right, until July 25, to acquire a majority interest in the Maryland brewer.
"If we close the deal, it would be a different sort of environment, possibly, but what we're after is to provide long-term stability here, and we think this is one of the ways to go about doing it," said Frederick Brewing Chairman Kevin Brannon. "It is bittersweet, in a sense."
If the deal goes through, it is expected that Snyder would invest a "substantial amount" of cash in exchange for a majority of the outstanding stock. Snyder also would refinance Frederick Brewing's debt and buy its plant. Brannon, who runs the company with his wife, Marjorie McGinnis, said it is too early to discuss the purchase price or what roles he and McGinnis would play under a Snyder deal.
Brannon said it was likely that Frederick Brewing would produce up to 35,000 barrels of Snyder brand beers in its facility. No layoffs would be expected from the deal, Brannon said.
Frederick Brewing has had a string of losses that have grown, even while sales of its Blue Ridge, Hempen and Wild Goose brands have increased. Its net loss widened from $2.6 million on $1.7 million in sales in 1996 to $4.36 million on $3.1 million in sales in 1997 -- the same year it opened a new $8 million plant with the capacity to produce far more barrels than it was selling. Last year the company reported a net loss of $4.7 million on revenue of $5.5 million.
Several restructuring attempts, including the elimination of six salaried positions and pay cuts for senior managers, have failed to put the brewery on solid footing.
Its cash-flow problem left it unable to pay a certified public accountant to do the year-end and first-quarter reports on time; a report for the first three months of 1999 should be filed with the Securities and Exchange Commission within the next four or five business days, Brannon said. The company's shares, which debuted at $6 in March 1996, have fallen dramatically. The company did a 10-1 reverse stock split in March in an attempt to boost the share price to keep its Nasdaq listing -- a move that did not succeed. Now traded over the counter, the shares closed yesterday at $1.5625, up 56.25 cents.
"The domestic beer industry is in a state of great flux right now," said C. David Snyder, chairman of privately held Snyder, whose brands include Crooked River, Little Kings and Hudy Delight.
"We see tremendous opportunities to consolidate and reconfigure promising companies and brands in all segments of the market. Frederick Brewing fits our strategy very well, thanks to its first-rank brewery and the strong performance of its core brands."