Canada: Sleeman Breweries Ltd. low share prices isn’t enough to help the brewer find a buyer

Share prices in Sleeman Breweries Ltd. are falling amid reports an international company isn't looking to bid on the Guelph brewer, Guelph Mercury posted June 29.

What it means for Sleeman's future is still unclear.

The Globe and Mail reported June 8 that SABMiller PLC, the British company that owns the Miller Genuine Draft and Pilsner Urquell brands, would not likely bid for the Guelph brewer. Since then, shares have dropped from CA$16.10 on the Toronto Stock Exchange to CA$14 June 28.

But the lower share prices won't likely be enough to help the company woo a buyer, according to analyst Peter Holden of Veritas Investment Research, who said Sleeman is overpriced. "I still think it's a long way from being a bargain," he said.

He noted that the Rolling Rock brewer, a Pennsylvania-based brewer slightly smaller than Sleeman, sold its brand last month for the equivalent of CA$92 million.

Holden estimated Sleeman's brands, breweries and debt would cost a buyer about CA$340 million to acquire.

"I don't think there's much chance of a sale at those prices," he said.

In addition, the fact that Sleeman uses clear bottles instead of the industry-standard brown could also make it unattractive for companies that get a financial break for using the standard bottle in Canada, Holden said.

And it wouldn't make sense to switch from Sleeman's trademark bottle.

"There's certainly some value to having Sleeman in a clear bottle," he said.

Sleeman announced last month it had hired BMO Nesbitt Burns Inc. as a financial adviser and was exploring "strategic options," including offers to acquire shares or assets of the company.

Despite the SABMiller reports, Stephen Beaumont, a beer industry watcher who writes on the topic for several publications, said it's not last call for a Sleeman sale yet.

SABMiller is currently in a legal battle with Molson Coors Brewing Co. trying to end an agreement that lets Molson distribute some of Miller's beer, he said.

"If SABMiller wins their court case with Molson, I can guarantee they'll be a lot more interested a lot faster," he said. "It's not so much the brands Sleeman has, because . . . Sleeman's brands are a real hodge-podge. But I also think their facilities are the type of thing Miller needs to have its hands on."

If Miller ended its distribution relationship with Molson Coors and decided to stay in Canada "they would need a presence there," Krista Mackay, an analyst with Vancouver-based Salman Partners, said earlier this month.

Sleeman assets that include a national distribution system might be enticing to Miller, she said.

Experts have said a takeover by that company would have the best outcome for Sleeman, because there's less chance the foreign brewer would shut down Sleeman's plants compared to companies like Molson or Labatt Brewing Co. Ltd.

In the meantime, Beaumont doesn't think Sleeman's uncertain future will affect the company's business strategy in the short term.

"It's not the right time to be trying to launch new brands or do any new initiatives now anyway," he said. "The breweries have launched their spring campaigns, and now they sit back and see what happens."

Chief executive John Sleeman wasn't available for comment, but his assistant said the company won't comment on the matter while BMO is working on it.

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