Frederick Brewing Co., which hasn't posted a profit since going public in 1996, said yesterday that it has closed a deal that gives control of the company to a Cleveland-based brewery.
Privately held Snyder International Brewing Group LLC purchased 4.4 million newly issued common shares for $2 million in cash, giving it 51 percent of the company's voting stock. The price is equivalent to about 45 cents a share -- 74 percent less than Wednesday's closing price of $1.75. Shares closed yesterday at $1.375, down 37.5 cents, in over-the-counter trading.
Snyder, headed by Chairman C. David Snyder, will also assume $3 million in debt and buy the Frederick-based brewery's land and plant for $2.9 million in cash, warrants and assumed debt.
The Snyder deal calls for Frederick's co-founders -- Chairman and Chief Executive Officer Kevin Brannon and his wife, Marjorie McGinnis, president -- to resign within six months. Brannon will be replaced by Snyder, and Snyder International's Christopher Livingston will replace McGinnis. Snyder will also bring in a new chief financial officer.
"The reality is Frederick is a very cash-strapped operation, and you can have brilliant people with the best strategies, but if there are no bullets in your gun then you can't execute," said Snyder. "We will set a strategy, some of it with their help, and we will execute."
Snyder got into the beer business after he sold his technology consulting firm, Realogic Inc., last August. That month, with no background in beer, Snyder purchased the bankrupt Crooked River Brewing Co. in Cleveland for $540,000. He later purchased the Little Kings brand.
Snyder said he will refinance Frederick's debt and look for cost-saving measures. The company's name won't change, and it will still produce Blue Ridge, Brimstone, Hempen and Wild Goose brands. No layoffs are expected.
In addition, holders of 1,100 preferred shares of Frederick, originally purchased for $1,000 each, will receive 2.2 million new common shares worth about 65 cents each, or $1.4 million, in exchange.
Two years ago, Frederick Brewing opened a new $8 million plant with the capacity to produce far more barrels than it was selling. Snyder will transfer some of its production there.
In 1997, Frederick lost $4.36 million on $3.1 million in sales. Last year, the loss widened to $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, failed to put the brewery on solid footing. It lost its Nasdaq stock listing in April.
Brannon, the departing CEO, said he and McGinnis will invest in a "tourism-related business" outside the United States. He said he's not disappointed to be leaving.
"I'm going to miss the people, but other than that, I'm not sad. We handed it over in a good fashion, and I don't think anybody gets hurt in this," Brannon said.
Brannon said he and McGinnis still own about 200,000 shares of the company, and Snyder granted McGinnis' request that she get two free cases of Frederick-brand beer every month for the rest of her life.