Frederick Brewing Co., the largest craft brewer in the mid-Atlantic region, said yesterday it is negotiating with a privately held rival for a cash infusion that would allow it to compete better in the crowded field of microbrews by reducing its debt.
The Frederick-based company has given Snyder International Brewing Group LLC the exclusive right to hammer out an agreement for an undisclosed sum by July 25. Under the proposed deal, Snyder would purchase a majority interest in Frederick Brewing.
The talks between Frederick and Snyder come at a time when similar transactions and mergers are taking place among craft brewers that are competing for beer drinkers whose loyalties lie with major players like Sam Adams and Anchor Steam, said Skip Carpenter, an analyst with New York-based Donaldson Lufkin and Jenrette.
"It was very trendy to start your own brewery, and so we had an emergence in the market," Carpenter said. "But now we're seeing that U.S. consumers aren't really experimenting and are going back to their core brands and maybe just one or two special brands."
C. David Snyder, chairman of Snyder International, said a potential merger of his two Ohio breweries and Frederick could allow his firm to become a publicly traded company.
"We're very optimistic that this will come together. We're just very excited about this industry," Snyder said.
Frederick said it would use the money from Snyder to refinance its bank debt and purchase the brewery building it now leases, said Marjorie McGinnis, Frederick's president and chief operating officer.
"We view this as a positive move because it would inject cash into our company, the number of employees would increase, and so would productivity as we expand," she said.
Since entering the beer business last August, Snyder has acquired two Ohio breweries and several brands which are expected to ship as many as 70,000 barrels this year. The company posted $8 million in revenue last year, Snyder said.
Frederick, which generated $5.5 million in revenue last year, expects its brewery would be able to add 5,000 to 35,000 barrels per year from producing some of Snyder's brands, which include Crooked River, Little Kings, Hudy Delight and Christian Moerlein. Frederick is best known for its Wild Goose brand, Hempen Ale and Hempen Gold.
Frederick suspended plans to acquire a U.S. license to produce and market another beer brand while it negotiates with Snyder, McGinnis said.
"The microbrewery industry will probably continue or remain very challenging," said Carpenter of Donaldson Lufkin and Jenrette. "We'll see lots of breweries going out of business or into consolidation."
Despite the announcement of talks, Frederick stock yesterday closed down 43 3/4 cents to $1.12 1/2 in trading on the over-the-counter market.