Lakeport bought by Labatt

[Jaimoe]

I've had my fair share of cheap Lakeport over the last year or two. It's ok, but the price is right. I hope that doesn't change:

Labatt to swallow Lakeport

Discounter agrees to $201.4-million takeover offer

KEITH MCARTHUR

FOOD AND BEVERAGE REPORTER; With files from reporter Boyd Erman

Lakeport Brewing Income Fund, the scrappy Ontario discounter that helped shatter Canada's duopolistic beer market, has agreed to a takeover offer from one of the very giants it took on.

Labatt Brewing Co. Ltd. says it will continue to participate "aggressively" in the discount beer market if its $201.4-million offer to buy Lakeport gets the required approval from the federal Competition Bureau.

But some industry observers say a Lakeport takeover would allow Labatt and Molson Coors Brewing Co. to regain some of the pricing power that, in the past, made Canada's beer market among the most profitable in the world.

"This looks quite a bit like an attempt to take out a low-cost competitor," said Peter Holden, an analyst at Veritas Investment Research. "For the past number of years, the value beer segment has been stealing share away from the mainstream brands where Labatt and Molson make all their money. "This is almost certainly an attempt to stop the bleeding," he added.

"I would expect that Lakeport will become much less aggressive in expanding their market share under the new owners."

Lakeport has grabbed 12 per cent of the Ontario beer market, making it the No. 3 brewer behind Labatt and Molson.

Between them, Molson and Labatt own 80 to 90 per cent of the Canadian beer market.

That includes global brands on which they hold Canadian sales and marketing rights.

Lakeport's chairwoman and chief executive officer Teresa Cascioli, who has become the public face of the company and owns 21.6 per cent of the fund's units, stands to pocket $43.5-million if the deal goes through.

Lakeport units closed the day at $27.92 yesterday, just below the Labatt offer of $28, indicating some doubt about whether a richer bid will surface.

The offer represents a 36-per-cent premium from Lakeport's Wednesday close.

Industry observers said a richer bid from Molson is unlikely because that company also stands to gain if Lakeport's pricing becomes less aggressive under Labatt's ownership.

"This [news] is the most wonderful of all for Molson. They don't have to lay out the $200-million and they get all the same benefits," Mr. Holden said.

Labatt is a division of beer giant InBev SA, whose other brands include Stella Artois, Hoegaarden and Beck's.

Ms. Cascioli, who has cultivated a public persona as a champion for the consumer, said she did not seek assurances from Labatt that it would keep offering some Lakeport brands at $1 a bottle, plus deposit. But she said Labatt's willingness to spend $201.4-million shows the brewery believes in the brands.

"Given their appreciation for the Lakeport brand equity, I believe that . . . Labatt is convinced the value category is here to stay and is truly a consumer preference and an area they wish to partake in."

According to the Beer Store, there are 78 brands in Ontario operating in the discount segment, offered by Labatt, Molson, Lakeport and other smaller players such as Brick Brewing Co. Ltd.

While no one expects Labatt to get out of the discount segment, the brewer will likely do fewer price promotions and use the Lakeport brands as "price flankers" to stop the discount category from growing, said Alan Middleton, a marketing professor at York University's Schulich School of Business.

The companies say they don't know how long it will take to get approval for the deal from the Competition Bureau.

Labatt says it would be willing to close the deal under an arm's-length "hold-separate" arrangement while the bureau conducts its review.

While there is precedent for such an arrangement, the competition watchdog said yesterday that it doesn't typically allow them because they make it more difficult for the bureau to negotiate remedies if it feels a merger would lessen competition.

"We generally do not find hold-separate agreements acceptable," said Melanie Aitken, the bureau's acting deputy commissioner for mergers.

Dany Assaf, a lawyer specializing in competition law at Ogilvy Renault LLP, said it is unlikely that the bureau would require Labatt to maintain buck-a-beer pricing for the Lakeport brands. He said that if the bureau has concerns about a lessening of competition in the discount segment, it is more likely that Labatt would have to divest some of its own discount brands, or some of the brands it is acquiring from Lakeport.

Ms. Cascioli said Labatt's bid, which requires the approval of two-thirds of the fund's units to succeed, was unsolicited. RBC Dominion Securities Inc. acted for Lakeport, while Credit Suisse Group acted for Labatt.

*****

The bid

Target: Buck-a-beer upstart Lakeport Brewing Income Fund

Bidder: Labatt Brewing Co. Ltd., owned by InBev SA

Price: $28 a share, which is 36 per cent higher than yesterday's close and values the company at $201.4-million.

Allure: "Lakeport has had great success growing their brands in the value segment of the highly competitive Ontario beer market," Miguel Patricio, president of Labatt's North American operations, said.

The pay day

According to Thomson Financial, Lakeport CEO Teresa Cascioli holds about 25 per cent in the company, which means she could gain about $40-million from the deal at current stock prices.

*****

A matter of taste

As far as beer snobs are concerned, there's not much difference between InBev/Labatt's and Lakeport's brews. Here's a selection of rankings from the website ratebeer.com.

Beer Maker Ranking

Lakeport Pilsner Lakeport *½

Lakeport Wee Willy Lakeport **½

Lakeport Honey Lager Lakeport *½

Stella Artois InBev **½

Leffe Blond InBev ***½

Brahma InBev *½

Beck's InBev **½

Labatt Blue Labatt **½

Labatt 50 Labatt **½

Kokanee Labatt **½

Alexander Keith's Labatt **½

Tennents InBev **½

Budweiser Labatt *½

Edited February 2, 2007 by Guest

[Esau.]

Yeah, this was the front page of the spec today. Too bad its going possibly cost 200 people their jobs.

[edger]

yeah, the news bummed me out too and I don't think I've ever even tried a sip of Lakeport

[Jaimoe]

It is bad for the workers. If anyone wants a good cheap beer, PC Genuine Lager and PC Pilsner are both quite good.

[Kanada Kev]

Lakeport was an amazing story. To grab such a large chunk of the market freaked out the big guns. For us consumers, it shows how the mainstream breweries are over-charging us for their products. Lakeport was completely viable at their pricing ... there is NO reason that the big breweries shouldn't do the same for their generics.

Money Greed!

I just want a beer now ... my beer fridge is lonely at home

[Esau.]

What is really going hurt the lakeport workers is that Labatt's will give (rumored anyway) workers from their other breweries senority over Lakeport workers with less time in. My neighbour just got hired about two years back and is figuring he's gonna get the boot.

It was a good place to work, well back in the early ninties anyway. I spent about 6 months there working for Lakeport while I was laid off from my trade and was also contracted in 94 through my union to work there doing electrical for about a year or so. Loved the free beer every week deal. I'd bet alot of folks (especially in Quebec) would be surprised at some of the beer they bottle there.

[Davey Boy 2.0]

It is bad for the workers. If anyone wants a good cheap beer, PC Genuine Lager and PC Pilsner are both quite good.

Muskoka lager- less than a buck a beer and was priced @ about $40/case a few short months ago

[PS- I think Jenny Franchi is married to the owner ta boot, jaimeo]

[AD]

Muskoka lager- less than a buck a beer and was priced @ about $40/case a few short months ago

how is it less than a buck a beer and $40 a case? or am i misunderstanding?

[Davey Boy 2.0]

it used to be $40/case

not anymore (but it only comes in 24s)

[\/\/illy]

Yup. They made the board. The top-selling beers board in the beer stores that is. Story goes that if you make the board you're going to be assimilated. Creemore was the same thing. It's very sad really. Sad for beer drinkers. Sad for the workers. Sad for Hamilton. I fuckin' hate Labatt and Molson. Cocksuckers.

[Jaimoe]

Back to PC, it should stay cheap because it is already a big corporation. It'll be pretty hard to buy them out.

[AD]

[Esau.]

Back to PC, it should stay cheap because it is already a big corporation. It'll be pretty hard to buy them out.

Never cared for any of the PC beers other then the bavarian, which even then was a last resort sunday beer, before beer stores were open sundays that is. When I buy beer from lakeport (only when the beer/liqour stores are closed) its usually their pilsner.