Item 8.01 Other Events.
Craft Brew Alliance, Inc. ("CBA" or the "Company") previously announced its
entry into the Agreement and Plan of Merger, dated as of November 11, 2019, by
and among the Company, Anheuser-Busch Companies, LLC, a Delaware limited
liability company ("A-B"), and Barrel Subsidiary, Inc., a Washington corporation
and a direct wholly owned subsidiary of A-B ("Merger Sub"), pursuant to which
Merger Sub will merge with and into the Company (the "Merger"), with the Company
surviving the Merger as a wholly owned subsidiary of A-B.
In connection with the Merger, the Company filed with the U.S. Securities and
Exchange Commission (the "SEC") a definitive proxy statement (the "Proxy
Statement") on January 21, 2020. As disclosed in the Proxy Statement, on
January 3, 2020, a lawsuit relating to the Merger was filed in the Superior
Court of Washington, King County-a purported class action complaint brought on
behalf of a putative class of the Company's shareholders, captioned Kost et al.
v. Craft Brew Alliance, Inc., et al., Case No. 20-2-00389-1 SEA (the "Kost
Action"). As also disclosed in the Proxy Statement, on January 14, 2020, a
second purported class action complaint brought on behalf of a putative class of
the Company's shareholders, captioned Birkby et al. v. Craft Brew
Alliance, Inc., et al., Case No. 20CV02867, was filed in the Circuit Court of
the State of Oregon for the County of Multnomah.
Following the filing of the Proxy Statement and prior to the filing of this
Current Report on Form 8-K, four additional complaints were filed, alleging
substantially similar claims: Sabatini et al. v. Craft Brew Alliance, Inc., et
al., Case No. 1:20-cv-00138, filed in the United States District Court for the
District of Delaware on January 29, 2020 on behalf of a putative class of the
Company's shareholders (the "Sabatini Action"), Halberstam v. Craft Brew
Alliance, Inc., et al., Case No. 2:20-cv-01243, filed in the United States
District Court for the Central District of California on February 7, 2020 on
behalf of an individual shareholder (the "Halberstam Action"), Michael Roberts
et al. v. Craft Brew Alliance, Inc., et al., Case No. 1:20-cv-00208, filed in
the United States District Court for the District of Delaware on February 12,
2020 on behalf of a putative class of the Company's shareholders (the "Michael
Roberts Action"), and Dennis Roberts v. Craft Brew Alliance, Inc., et al., Case
No. 1:20-cv-00337, filed in the United States District Court for the District of
Colorado on February 10, 2020 on behalf of an individual shareholder.
The Company believes that the claims asserted in the above-referenced actions
are without merit and that no supplemental disclosure is required under
applicable law. However, in order to moot unmeritorious disclosure claims, to
avoid the risk of the actions delaying or adversely affecting the Merger and to
minimize the costs, risks and uncertainties inherent in litigation, without
admitting any liability or wrongdoing, the Company has determined to voluntarily
supplement the Proxy Statement as described in this Current Report on Form 8-K.
In light of the supplemental disclosures, plaintiffs in the Kost, Sabatini,
Halberstam, and Michael Roberts Actions have agreed to dismiss their individual
claims with prejudice, and plaintiffs in the Kost, Sabatini, and Michael Roberts
Actions have agreed to dismiss their class claims without prejudice. Nothing in
this Current Report on Form 8-K shall be deemed an admission of the legal
necessity or materiality under applicable laws of any of the disclosures set
forth herein. To the contrary, the Company specifically denies all allegations
in the actions, including allegations that any additional disclosure was or is
required, and believes that the supplemental disclosures contained herein are
immaterial.
The supplemental disclosures contained herein should be read in conjunction with
the Proxy Statement, which should be read in its entirety. Defined terms used
but not defined herein have the meanings set forth in the Proxy Statement.
The resolution of the Kost, Sabatini, Halberstam, and Michael Roberts Actions
will not affect the timing of the special meeting of the Company's shareholders,
which is scheduled to be held on February 25, 2020, or the amount of the
consideration to be paid to the Company's shareholders in connection with the
Merger.
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AMENDED AND SUPPLEMENTAL DISCLOSURES
The following disclosure supplements and restates the third paragraph under the
heading "Background of the Merger", beginning on page 17 of the Proxy Statement:
In 2016, CBA explored a number of strategic alternatives and reviewed its
existing commercial arrangements with A-B. These strategic alternatives included
the continued execution of CBA's strategy as a stand-alone company, a potential
merger or sale of the entire company (both with A-B and with third parties), the
enhancement of existing commercial arrangements with A-B and engaging in
commercial transactions. In connection with CBA's exploration of strategic
alternatives and review of commercial arrangements with A-B, the Board formed
the Committee, which is a special committee of directors comprising all of CBA's
directors who were independent and not affiliated with A-B, to consider
strategic alternatives and review commercial arrangements with A-B and, if
appropriate, negotiate on behalf of the shareholders not affiliated with A-B.
Goldman Sachs and Wachtell, Lipton, Rosen & Katz ("Wachtell Lipton") were
retained to act as the Committee's and CBA's financial advisor and legal
counsel, respectively. These explorations and review culminated in the execution
of new and amended commercial agreements between CBA and A-B and certain of its
affiliates in 2016. Among other things, these agreements obligated A-B to make a
$20,000,000 payment to CBA on August 23, 2019 if A-B or one of its affiliates
did not make a "qualifying offer" to CBA prior to that date. A "qualifying
offer" was defined as an offer to purchase all of the outstanding equity
securities of CBA not owned by A-B or its affiliates at a per share price of not
less than $22.00 prior to August 24, 2017, $23.25 prior to August 24, 2018, and
$24.50 on or prior to August 23, 2019, and on certain other non-financial terms.
The following disclosure supplements and restates the twenty-third paragraph
under the heading "Background of the Merger", beginning on page 21 of the Proxy
Statement:
On October 29, 2019, the Committee met in person, together with members of CBA's
senior management team and representatives of Goldman Sachs and Wachtell Lipton,
in North Carolina. Mr. Thomas and the representatives of Goldman Sachs and
Wachtell Lipton updated the Committee on the status of discussions with A-B, a
representative of Wachtell Lipton reviewed the directors' fiduciary duties and
presented a detailed summary of the terms of the draft merger agreement and
reviewed non-price terms and issues surfaced during the discussions to date, and
a representative of Goldman Sachs discussed with the Committee a potential
transaction with A-B, including preliminary financial analyses of CBA on a
standalone basis and in the context of a transaction. During this meeting, the
Committee and its advisors discussed and reviewed CBA's strategic and
competitive positioning, projections of future performance, valuation, potential
reactions to an offer from A-B at various prices and CBA's strategic
alternatives to continuing independently or engaging in a transaction with A-B,
including the likelihood or unlikelihood of other parties being willing and able
to acquire CBA or engage in a shareholder-value-maximizing strategic transaction
with CBA. It was the view of the Committee that A-B was the potential
transaction partner most likely to offer the best combination of value and
closing certainty to CBA's stockholders and, if there were another buyer capable
of and willing to make a more compelling offer to acquire CBA, agreeing to and
announcing a transaction with A-B would be the best way to elicit any such
offer, which offer would not be precluded by the terms of the merger agreement.
During a break in the meeting, Messrs. Thomas and Reed received a call from
Messrs. Katerberg and Jamel, which they summarized to the Committee after the
call concluded. During this call, the A-B representatives indicated the topic of
an acquisition of CBA by A-B would be discussed at a meeting of the board of
directors of ABI, A-B's parent company, scheduled for November 7, 2019, and that
A-B hoped to schedule a meeting between A-B and CBA for November 8, 2019 to
discuss potential transaction terms in the event that A-B were to determine as a
result of its board of directors meeting to make a proposal to CBA. During the
call, Mr. Thomas encouraged A-B to propose a price greater than $15 per share.
The Committee meeting resumed and, following discussion, including as to the
matters discussed below in the section entitled "Reasons for the Merger;
Recommendation of the Board; Fairness of the Merger" (to the extent known at
this time), the Committee continued to believe that a proposal in the range
being indicated by A-B could potentially be highly attractive to CBA and its
shareholders relative to the alternative of remaining independent and continuing
to execute on its business plan with no change to its relationship with A-B and
relative to CBA's other strategic alternatives, and that management should be
authorized to engage with A-B should A-B determine to make a proposal.
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The following disclosure supplements and restates the ninth paragraph under the
heading "Opinion of Goldman Sachs & Co. LLC", beginning on page 35 of the Proxy
Statement:
Goldman Sachs calculated the implied enterprise value of CBA for purposes of
calculating the foregoing multiples by multiplying the $16.50 in cash per share
of CBA common stock by the total number of fully diluted shares of CBA common
stock outstanding as of November 8, 2019, calculated using information provided
by CBA management using the treasury stock method and adding to the result CBA's
net debt (defined for this purpose as CBA's debt less cash, reflecting the
$20,000,000 payment from A-B on August 23, 2019 and $10,000,000 debt repayment
using such proceeds, and which is referred to in this section as "Net Debt") as
of October 31, 2019 ($31,000,000), as provided by CBA management.
The following disclosure supplements and restates the thirteenth paragraph under
the heading "Opinion of Goldman Sachs & Co. LLC", beginning on page 36 of the
Proxy Statement:
Goldman Sachs derived ranges of illustrative enterprise values for CBA by adding
the ranges of present values it calculated for the unlevered free cash flow and
illustrative terminal values, as described above. Goldman Sachs then subtracted
CBA's Net Debt as of October 31, 2019 ($31,000,000), as provided by CBA
management, from the range of illustrative enterprise values to derive a range
of illustrative equity values for CBA. Goldman Sachs then divided the range of
illustrative equity values by the implied total number of fully diluted CBA
common stock outstanding as of November 8, 2019, based on the derived range of
illustrative equity values, and calculated using information provided by CBA
management and the treasury stock method, to derive a range of illustrative
present values per share of CBA common stock of $11.34 to $16.68.
The following disclosure supplements and restates the fifteenth paragraph under
the heading "Opinion of Goldman Sachs & Co. LLC", beginning on page 36 of the
Proxy Statement:
Using the projections, Goldman Sachs derived a range of theoretical future
enterprise values for CBA as of December 31 of each of 2019, 2020 and 2021, by
applying a range of illustrative multiples of enterprise value to Adjusted
EBITDA for the next 12-month period, which is referred to in this section as
"NTM EBITDA," of 10.5x to 14.5x to the estimated Adjusted EBITDA for the
following full year reflected in the projections. Goldman Sachs then derived a
range of theoretical future values per share of CBA common stock as of
December 31 of each of 2019, 2020 and 2021 by subtracting the estimated Net Debt
of CBA as of that date (of $33,900,000, $38,500,000 and $29,700,000,
respectively) and dividing the result by the estimated fully diluted CBA common
stock outstanding as of that date, all as reflected in the projections. Using an
illustrative discount rate of 7.0%, reflecting Goldman Sachs' estimate of CBA's
cost of equity, Goldman Sachs discounted to present value the range of
theoretical future values per share of CBA common stock it derived as of
December 31 of each of 2019, 2020 and 2021.
The following disclosure supplements and restates the twenty-first paragraph
under the heading "Opinion of Goldman Sachs & Co. LLC", beginning on page 38 of
the Proxy Statement:
Based on the results of the foregoing calculations and Goldman Sachs' analyses
of the various transactions and its professional judgment and experience,
Goldman Sachs applied a range of enterprise value to LTM EBITDA multiples of
8.8x to 31.5x to CBA's estimated Q2 2019 LTM Adjusted EBITDA for 2019 as
reflected in the projections, to derive a range of implied enterprise values for
CBA. Goldman Sachs subtracted from this range of implied enterprise values CBA's
Net Debt as of October 31, 2019 ($31,000,000), as provided by CBA management,
and divided the result by the implied total number of fully diluted CBA common
stock outstanding as of November 8, 2019, based on the derived range of
illustrative equity values, and calculated using information provided by CBA
management and the treasury stock method, to derive a range of implied values
per share of CBA common stock of $3.50 to $16.77.
The following disclosure supplements and restates the CBA Management Projections
table and accompanying footnotes under the heading "Unaudited Prospective
Financial Information of CBA", beginning on page 49 of the Proxy Statement:
($ in millions)
2019 2020 2021 2022 2023 2024
Revenue $ 196.2 $ 202.7 $ 213.6 $ 224.1 $ 230.8 $ 237.7
EBITDA(1) $ (2.4 ) $ 13.2 $ 18.7 $ 24.0 $ 25.1 $ 26.0
Adjusted EBITDA(2) $ 2.3 $ 13.2 $ 18.7 $ 24.0 $ 25.1 $ 26.0
Unlevered Free Cash Flows(3) - $ (2.5 ) $ 11.0 $ 15.0 $ 15.7 $ 16.2--------------------------------------------------------------------------------
(1) EBITDA for purposes of the projections is defined as earnings before
interest expense, other income, income taxes, and depreciation and amortization,
excluding deferred revenue from Parent's payment of $20,000,000 to CBA pursuant
to the terms of the existing commercial agreements between Parent or its
affiliates and the Company. This measure is different from measures determined
in accordance with U.S. GAAP and may not be comparable to similar measures used
by other companies and should not be considered as an alternative to operating
income or net income as a measure of operating performance or cash flow or as a
measure of liquidity.
(2) Adjusted EBITDA for purposes of the projections is defined as EBITDA
adjusted for the $4,700,000 charge recognized in 2019 related to the class
action settlement agreement between Theodore Broomfield et al. and the Company,
dated May 23, 2019.
(3) Projected free cash flows for fiscal years 2020-2024 represent the
estimated unlevered net operating profit after tax for the relevant fiscal year,
adjusted for depreciation, changes in net working capital, capital expenditures
and certain one-time cash flow items.
*****
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Additional Information about the Merger and Where to Find It:
This communication is not intended to and does not constitute an offer to sell
or the solicitation of an offer to subscribe for or buy or an invitation to
purchase or subscribe for any securities or the solicitation of any vote or
approval in any jurisdiction, nor shall there be any sale, issuance or transfer
of securities in any jurisdiction in contravention of applicable law. In
connection with the transaction, the Company filed with the SEC a definitive
proxy statement on Schedule 14A (the "Proxy Statement") on January 21, 2020, and
the Company and A-B jointly filed a transaction statement on Schedule 13e-3 (the
"Schedule 13e-3") on January 21, 2020. Following the filing of the Proxy
Statement and Schedule 13e-3 with the SEC, the Company mailed the Proxy
Statement and a proxy card to its shareholders on or about January 21, 2020 in
connection with the transaction. INVESTORS AND SECURITY HOLDERS OF THE COMPANY
ARE URGED TO READ THE PROXY STATEMENT AND OTHER RELEVANT DOCUMENTS FILED OR TO
BE FILED WITH THE SEC CAREFULLY BECAUSE IT CONTAINS IMPORTANT INFORMATION ABOUT
A-B, THE COMPANY, THE TRANSACTION AND RELATED MATTERS. Investors and security
holders are able to obtain free copies of the Proxy Statement and other
documents filed with the SEC by the Company and/or A-B through the website
maintained by the SEC at www.sec.gov. In addition, investors and security
holders are able to obtain free copies of the documents filed with the SEC by
the Company in the Investor Relations section of the Company's website at
www.craftbrewallianceinc.gcs-web.com or by contacting the Company's Investor
Relations at Investor.Relations@craftbrew.com or by calling 503-331-7270.
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Forward-Looking Statements:
Some of the statements in this communication are forward-looking statements (or
forward-looking information) within the meaning of applicable U.S. securities
laws. These include statements using the words "believe," "target," "outlook,"
"may," "will," "should," "could," "estimate," "continue," "expect," "intend,"
"plan," "predict," "potential," "project," "intend," "estimate," "aim," "on
track," "target," "opportunity," "tentative," "positioning," "designed,"
"create," "seek," "would," "upside," "increases," "goal," "guidance" and
"anticipate," and similar statements (including where the word "could," "may,"
or "would" is used rather than the word "will") and the negative of such words
and phrases, which do not describe the present or provide information about the
past. There is no guarantee that the expected events or expected results will
actually occur. Such statements reflect the current views of management of the
Company and are subject to a number of risks and uncertainties. These statements
are based on many assumptions and factors, including general economic and market
conditions, industry conditions, operational and other factors. Any changes in
these assumptions or other factors could cause actual results to differ
materially from current expectations. All forward-looking statements
attributable to the Company, or persons acting on its behalf, and are expressly
qualified in their entirety by the cautionary statements set forth in this
paragraph. Undue reliance should not be placed on such statements. In addition,
material risks that could cause actual results to differ from forward-looking
statements include: the inherent uncertainty associated with financial or other
projections, including depletions and shipments; the effect of out-of-stock
issues and lower contract brewing shipments; price increases; gross margin rate
improvement; the level and effect of SG&A expense; the effect of the class
action settlement; effective tax rate changes; the risk that the conditions to
the completion of the transaction (including the Company's ability to obtain the
shareholder approval required to consummate the merger and the timing of the
closing of the merger) may not be satisfied, or the regulatory approvals
required for the transaction may not be obtained on the terms expected or on the
anticipated schedule; the outcome of any legal proceedings that may be
instituted against the parties and others related to the merger agreement;
unanticipated difficulties or expenditures relating to the transaction, the
response of business partners and retention as a result of the announcement and
pendency of the transaction; an inability to realize synergies and operating
efficiencies from the transaction within the expected timeframes or at all; the
integration between the Company and A-B may be more difficult, time consuming or
costly than expected; revenues following the transaction may be lower than
expected; the anticipated size of the markets and continued demand for A-B's
products and the impact of competitive responses to the announcement of the
transaction. Additional risks are described under the heading "Risk Factors" in
the Company's Annual Report on Form 10-K for the year ended December 31, 2018,
filed with the U.S. Securities and Exchange Commission (the "SEC") on March 6,
2019. Forward-looking statements speak only as of the date they are made. Except
as required by law, neither A-B nor the Company has any intention or obligation
to update or to publicly announce the results of any revisions to any of the
forward-looking statements to reflect actual results, future events or
developments, changes in assumptions or changes in other factors affecting the
forward-looking statements.
Participants in Solicitation:
The Company and certain of its respective directors, executive officers and
employees, and A-B and certain of its respective directors, executive officers
and employees, may be considered participants in the solicitation of proxies in
connection with the proposed transaction. Information regarding the persons who
may, under the rules of the SEC, be deemed participants in the solicitation of
the shareholders of the Company in connection with the transaction, including a
description of their respective direct or indirect interests, by security
holdings or otherwise, will be included in the Proxy Statement described above
when it is filed with the SEC. Additional information regarding the Company's
directors and executive officers is also included in the Company's proxy
statement for its 2019 Annual Meeting of Shareholders, which was filed with the
SEC on April 10, 2019, or its Annual Report on Form 10-K for the year ended
December 31, 2018, which was filed with the SEC on March 6, 2019. These
documents are available free of charge as described above. Additional
information regarding A-B's directors and executive officers is also included in
its Annual Report on Form 20-F for the year ended December 31, 2018, filed with
the SEC on March 22, 2019.
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