Going Public Doesn't Pay for Pyramid Brewing

(MoneyWatch)  Yesterday's announcement that Burlington, Vermont's Magic Hat Brewing Company plans to acquire Seattle's Pyramid Breweries, Inc. may help the West Coast brewer turn a profit for the first time since 2002. Saddled by almost $1 million in annual costs associated with being public, Pyramid reported a $1.8 million loss in its fourth quarter and $488,000 loss overall in 2007. Magic Hat CEO Martin Kelly is well familiar with the burden on the company's bottom line: he was Pyramid's CEO from 1999 to 2004. According to Beer Marketer's Insights, as reported on the Brew Blog, the combined company could be the sixth- or seventh-largest craft brewery.

Besides combining complementary portfolios, the deal could expand each brand's distribution to the opposite coast. Magic Hat plans to double its brewing capacity to 300,000 bottles per year this year, leaving open the possibility that the combined company's beers will actually be brewed on both coasts. Although, as beer writer Lew Bryson points out, "it's a question whether either company really has the reach to meet in the middle."

The rising costs of barley and grain and the increase in craft beers from major breweries (see Miller's forthcoming national launch of a line of craft beers under the Miller Lite brand) are forcing small and mid-sized crafts to take a hard look at whether they can stay independent and stay competitive. The soon-to-be-completed Widmer-Redhook merger and Pyramid-Magic Hat mergers will likely pave the way for more consolidation within the craft brewing industry.