IPA meets IPO: Small brewery selling shares
The first IPO in decades by a local microbrewer won’t raise much money. Also, Ukrainian billionaire is indicted on a charge of bribes in mining plan that would have sold titanium to Boeing and others.
By Seattle Times business staff
For the price of a pint of Breakaway IPA at American Brewing Co. in Edmonds, you could soon buy eight shares in the microbrewer itself.
The little company and some current shareholders are preparing to sell shares in an initial public offering of stock, the first since the mid 1990s by a brewery here.
The 3-year-old company will use proceeds to fund expanded brewing and distribution of its four main beers, including Flying Monkey Dogfight Pale Ale and Caboose Oatmeal Stout.
CEO Neil Fallon says the flagship Breakaway IPA is carried by local Safeway, PCC and Metropolitan Market stores, and a variety of bars and hotels.
The company’s brewpub is a block from the Edmonds waterfront, and it’s starting to package six-packs for wider distribution.
Geoff Kaiser, editor of SeattleBeerNews.com, says American Brewing’s management and the longtime craft brewer it hired, Skip Madsen, “do have more ambition than your average brewery.”
“Their beer is good. They do a great IPA, which is very important in the Northwest,” says Kaiser, who also likes the oatmeal stout.
Even the most enthusiastic beer drinker may think twice, however, before plunging into the stock: This is not your standard IPO, with big-time investment bankers raising millions of dollars in new capital.
The IPO will yield at most $285,000 for the company, which is selling just 570,000 shares at 50 cents apiece, according to its preliminary prospectus. Meanwhile, some existing shareholders will be selling nearly 4.6 million shares, grossing about $2.3 million.
Another cautionary note: American Brewing’s equity won’t trade on even the lowest tier of Nasdaq, but in the over the counter market — which means buyers later may find it difficult to sell their shares, the prospectus acknowledges.
Also lacking will be an investment bank to underwrite the share sale and provide friendly research reports. It’s a self-directed offering in which the company and those shareholders will market the stock themselves, once it’s cleared by the Securities and Exchange Commission (SEC).
Fallon and Vice President Julie Anderson, American Brewing’s two founders, won’t be shedding any shares, though. That may reassure investors who wonder why they should buy when others are selling. The founders will retain 59 percent of the company, and will have 97 percent voting control.
With revenues of nearly $1 million, American Brewing reported a $330,000 loss for 2013, according to its prospectus.
Last year it ranked 20th among the state’s roughly 200 craft or microbreweries, producing 3,119 barrels or nearly 100,000 gallons, according to data from the Washington State Liquor Control Board. Top dog Redhook brewed 149,000 barrels, while the 10th largest, Silver City Brewery in Bremerton, produced 7,615 barrels.
Fueled by about $700,000 already raised in a private placement, American Brewing has been adding bigger boilers and fermenting tanks, remodeling its tasting room and readying 56,000 empty 12-ounce cans to be filled with one or two of its beers, the regulatory filing says. The expansion should yield physical capacity to handle 10,000 barrels or more, though “current funding will achieve 5,000-7,000 barrels per year.”
Competition for space in grocery stores is tough, Kaiser says. “The key is you’ve got to be able to continually supply what stores like QFC want.”
Publicly traded craft brewers have been an unpredictable bunch. Redhook went public in 1995 during the early craze for microbrews, struggled and in 2008 combined with Oregon’s Widmer Brothers as Craft Brew Alliance, whose shares have doubled in the past year. Boston Beer Co., maker of Sam Adams, is another large craft brewer whose stock has outperformed the market in the past 12 months.
Pyramid Breweries, of Seattle, now 30 years old, also went public in 1995, but its shares steadily declined until it was acquired in 2008.
American Brewing is much smaller than Redhook or Pyramid, which went public with underwriters and traded on Nasdaq. It’s even much smaller than Mendocino Brewing, a publicly traded California company with national distribution and revenues of $36 million last year.
Mendocino reported this past week that over-the-counter trading in its shares is “limited, sporadic and highly volatile.”
At its recent price of 25 cents a share, the entire company is valued at $3 million.
That’s half the valuation implied by the stock sale at American Brewing, which at this point sells a lot less beer.
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Bribery alleged in plan to mine titanium
A Ukrainian billionaire and five others have been indicted by federal prosecutors in Chicago on charges of arranging $18.5 million in bribes to officials in India to allow mining of titanium that they planned to sell to Boeing and others. The Chicago Tribune, which reported the indictment Wednesday, said Boeing was not accused of any wrongdoing. It was identified in the charges only as Company A.
The Tribune said industrialist Dmytro Firtash, 48, one of Ukraine’s most influential oligarchs, was arrested at the request of the FBI last month in Vienna and released a week later after posting bond of nearly $174 million. He has been ordered as part of his bond to stay in Austria as U.S. prosecutors seek to have him extradited to Chicago to face the charges — a process that could take months.
Firtash, who has long allied himself with Russian President Vladimir Putin, was arrested amid the political upheaval in Ukraine that has led to Russia’s seizure of the Crimean Peninsula. Prosecutors, though, said the charges were filed under seal last June in Chicago and have nothing to do with recent events in Ukraine.
The indictment alleged that beginning in 2006, the defendants conspired to pay at least $18.5 million in bribes to secure licenses to mine minerals in the eastern coastal Indian state of Andhra Pradesh.
The mining project was expected to generate more than $500 million annually from the sale of titanium products, including sales to “Company A.”
The indictment says one of Firtash’s lieutenants, Suren Gevorgyan, traveled twice to Seattle for the purpose of “meeting with personnel from Company A concerning the potential supply of titanium products.”
Boeing, in a statement released last week, said it signed a “memorandum of understanding” with Firtash-owned Bothli Trade in 2006 “to conduct a feasibility study on the potential for sourcing titanium sponge.”
“This was at a time of short supply of the material,” the company said. “But Boeing never pursued the (plan) as supply became more plentiful and the (memorandum of understanding) lapsed.”
Boeing said it has never done any other business with Bothli.
According to the indictment, the agreement Company A explored involved buying 5 million to 12 million pounds of titanium sponge annually from the Indian project.
Firtash used his business reputation, financial resources as well as “threats and intimidation” to orchestrate and conceal a bribery scheme involving Indian officials who needed to approve licenses before the mining could take place, according to the charges.
After the charges were announced last Wednesday, Firtash’s business conglomerate, Group DF, released a statement calling Firtash’s arrest “an abuse of the Austrian justice system for ulterior political motives.”
“There is no truth to the accusations,” DF Group Deputy Chairman Robert Shetler-Jones said in the statement. “It is not a coincidence that the U.S. is trying to extradite our chairman at the moment when Mr. Firtash is needed for the economic and political reconstruction of Ukraine.”
The five other defendants remain at large, the Tribune reported.
The indictment seeks forfeiture from Firtash of all interests in Group DF and its assets, including 14 companies registered in Austria, 18 companies in the British Virgin Islands and more than 100 other companies from Cyprus to Switzerland.
The indictment also seeks the forfeiture of more than $10.5 million from all six defendants.
“Criminal conspiracies that extend beyond our borders are not beyond our reach,” Zachary Fardon, the U.S. Attorney in Chicago, said in a statement. “We will use all of the tools and resources available to us to ensure the integrity of global business transactions that involve U.S. commerce.”