Gage Roads to buy back Woolworths shares
By Andy Young
Gage Roads Brewing is looking to raise $10.1m in order to buy back and cancel Woolworths’ 23.5 per cent share in the Western Australia brewer.
Gage Roads managing director John Hoedemaker said that the proposed deal will enable the brewer to get back to its origins as an independent craft brewer and lessen its reliance on contract brewing for Woolworths.
“The proposed transaction gives our shareholders, and the Gage Roads management team, the opportunity to buy back the brewery and return Gage Roads to its founding ethos and heritage of being an independent brewer of high quality craft beer,” Hoedemaker said.
“We launched the new five-year operational strategy earlier this year, underpinned by the rapidly growing demand for high quality craft beer in Australia. The final piece in rolling-out the strategy was achieving independence and the proposed transaction, we announced today, gives Gage Roads that flexibility and capacity.”
Gage Roads has lodged a prospectus with the ASX for a “fully underwritten non-refundable entitlement issue and an institutional placement to raise $10.1m (before costs)”.
In its statement to the ASX, Gage Roads said: “Under the proposed transaction, eligible shareholders will be able to apply for four shares for every five Shares held by those shareholders registered at the record date at an issue price of $0.025 per Share.
“The Offer will be complemented by a placement to institutions of 63,900,000 shares, also at the issue price of $0.025 per share, under the Company’s current 15 per cent placement capacity to raise approximately $1.6 million.
Funds raised will be applied to buying back and cancelling, subject to shareholder approval, Woolworths Limited’s 23.5 per cent stake in the Company at an agreed price of $0.015625 per share. This will provide the Company the independence necessary to pursue its five-year operational strategy, ‘Returning to Craft’.
“The balance of the funds will be used to pay down $4.7 million of existing debt, materially de-leveraging the Gage Roads balance sheet, and providing the required working capital and financial flexibility to successfully deliver on the Company’s strategy. Refinancing of the remaining $5 million of debt facilitates the removal of Woolworths as guarantor of the Company’s remaining debt.”
Woolworths has been a major shareholder of Gage Roads since 2009, providing production, supply and distribution support to the brewer, as well as access to up to 25 per cent of the total beer market.
Gage Roads added: “Gage Roads will retain the continued support of Woolworths via the recently executed three-year extension, with a further two-year option, of its supply and distribution agreement with Pinnacle Liquor Group Pty Ltd, a subsidiary of Endeavour Drinks Group (formerly Woolworths Liquor Group), as announced in May 2016.
“Over time, the supply agreement with Pinnacle sees the Company slowly un-wind the volume of contract production as we aim to replace that volume with growth of our proprietary brands.”
The deal will see Gage Roads become Australia’s second-largest independent brewer, behind Coopers.