The Dogfish Head-Boston Beer Merger
Nineteen years ago, AOL, then a dial-up email service, bought Time Warner, a giant multifaceted media corporation, for $162 billion—at the time the largest merger ever. It was the frothiest crest of the bubbling dot com boom. AOL’s stock valuation was hugely inflated on future expectations of growth, allowing a company with $5 billion in annual revenues to purchase one making $27 billion. In the thinking of the time, AOL was the company of the future and Time Warner, old media, was a walking brontosaurus enjoying its last few breaths before extinction. AOL brought its vaunted list of email subscribers to the table along with Compuserve, while poor Time Warner dragged dying properties like cable stations HBO, TNT, and TBS, Warner Music, and Sports Illustrated along for their encore. The future is hard to predict, but even people with very little media or investment savvy immediately thought this was a debacle.
Yesterday, Boston Beer announced it was merging with Dogfish Head. In an 800-word joint letter issued by brewery founders Jim Koch and Sam Calagione, they describe their thinking.
We are bringing together two of America’s pioneering and award-winning independent craft breweries–with the industry’s best collection of brewing talent and a dynamic portfolio of craft and beyond beer brands–to position our company for success in an ever-growing and ever-changing world of brewing.
Any company not looking at radical opportunities in a competitive industry will go the way of the typewriter. To be able to compete and continue to grow, we realized that we have to do things differently. Our merger is different.
We will grow faster and stronger together and be among the winners in the long-term with the strongest portfolio of high-end craft and beyond beer brands in the industry–a powerful combination of lagers, IPAs, sours, hard seltzer, spirits, and hard teas–and enhanced distribution strength, top-ranked sales capabilities, and two founders that remain at the helm.
I was standing with a glass of hazy IPA at the Other Half Brewery in Brooklyn when news of this first happened, and I couldn’t really process the information. Craft beer has seen a lot of consolidation, and these brewery collectives are becoming a standard model. But it’s one thing when Oskar Blues and Cigar City team up. They’re nearly a continent away, and have fairly congruent portfolios and approaches to making and selling beer. Or when Duvel starts putting together a group that include Ommegang, Boulevard, and Firestone Walker, three stellar breweries located at intervals across the country.
We’re thrilled to announce that we're joining forces with @dogfishbeer, bringing together 2 pioneering and passionate industry leaders in America. This partnership will create the most dynamic American-owned platform for craft beer & beyond! Learn more: https://t.co/7q36g81y7D. pic.twitter.com/KW7bekkoTZ— Samuel Adams Beer (@SamuelAdamsBeer) May 9, 2019
Dogfish Head and Boston Beer, on the other hand, are both stalwarts of the Northeastern US and have very little in common either with regard to portfolios or approach. Sam Adams built a national brewery on a 35-year-old amber lager and augmented its declining sales with flavored malt beverage and cider divisions. You could describe such a brewery in many ways, but “off-centered [beer] for off-centered people” (Dogfish’s longtime slogan) would never fit the bill. Even when he founded the brewery, Jim Koch trumpeted his connection to family brewing, and a decades-old beer recipe. He was restoring tradition, not creating a brewing revolution. Dogfish Head, meanwhile, has embraced experimentation more than any other American brewery, making wild and sometimes outlandish beer decades before that became a feature of American brewing.
We have to put all the usual caveats here. I have no idea what the details of the deal are, nor does anyone know the future company’s strategic plan. I’m not familiar with distribution arrangements or how this merger will affect them. (Distribution is almost always a central factor in brewery mergers and acquisitions.) There’s always the possibility that the companies have been planning this for awhile and have a creative plan to integrate these very different breweries that will boost, rather than diminish, both. But the letter from Jim and Sam doesn’t hint at any such thinking. Rather, it seems like this was a deal created by two companies spooked by the direction of the industry. The deal hasn’t been in the works long—Koch said it mostly happened over the past six weeks. It seems fear- rather than opportunity-based.
Last year, as AT&T prepared to acquire Time Warner. AOL had been peeled off by 2009; it turned out Time Warner’s assets were far more well-positioned to address the future landscape than creaky old AOL. The author of the original merger, Steve Case, reflected on the 2000 deal.
AOL and Time Warner had issues with "culture" and too much "short-term orientation," he said, adding there were people in the combined company that were not as enthusiastic about its digital path.
"They tended to play defense, trying to protect what already existed as opposed to playing offense and try to create what the future would be," he said.
Personality and culture matters. Sam and Jim are longtime comrades in the battle against big beer, but their companies have radically different identities and approaches to beer. I can’t see how these gears will fit together. AOL and Time Warner were both media companies, but they were so different they never meshed. Boston Beer and Dogfish Head aren’t as different as those two, but the challenges will be the same. How will a legacy brewery with an old flagship, one increasingly focused on non-beer products, integrate with a company that has for two decades defined experimentation and reinvention for American beer? I guess we’re about to find out.