2007-02-02

Labatt Offer Worries Lakeport Employees

By Naomi Powell
The Hamilton Spectator
(Feb 2, 2007)
It was just after 2 a.m. when Teresa Cascioli's voice came crackling over the radio system at Lakeport Brewery.

Through the receiver on his belt, millwright Robert Sorrell heard the chief executive announce she was heading home.

"They work late sometimes so I didn't think anything of it," Sorrell said. "I guess I was wrong."

Just moments earlier, Lakeport's board of trustees had shot a bulletin across the newswires: Labatt, owned by Belgian beer giant InBev, had made a $201.4 million offer for the Hamilton company. The board and Cascioli have unanimously recommended the offer.

Word of the deal only spread through the brewery, however, after workers were met with television cameras during a 3 a.m. cigarette break. Even after a series of employee meetings yesterday, workers said they had no better idea of what the deal means for them.

"I'm worried," said Brent Smith, a worker at the brewery for two years. "I just don't know anything. It was so sudden."

Cascioli and Labatt officials said it was too early to comment on whether the deal will result in job losses at the Hamilton brewery. The deal still has to be cleared by the competition bureau and must also be accepted by two-thirds of the brewery's unit holders.

In an interview yesterday morning, Cascioli said investors in Lakeport would come first, then employees.

"There's no employer in the world that will guarantee job continuity forever," said Cascioli. "Certainly we all try to do everything we possibly can. I know I certainly did and I will continue to do everything I possibly can to employ people in this community."

Analysts say Labatt's offer is a clear attempt to cool the fierce competition Cascioli has thrown at mainstream brewers since buying Lakeport in 1999. She is credited with creating the value priced beer segment, using her "buck a beer" strategy to build Lakeport into Ontario's fastest growing brewery.

In the process she has gnawed away at the customer base of mainstream brewers, raking in record profits and increasing Lakeport's market share from 1 per cent in 2002 to 12 per cent today.

Molson and Labatt held a comfortable "duopoly" in Canada's beer market that lasted almost 15 years, said Peter Holden, a Toronto beer industry analyst. Prices for mainstream beers from the big brewers grew, allowing Lakeport and other discount brewers to undercut them by selling beer at $10 less per case while still making a healthy profit.

"Lakeport is a huge, huge problem for Labatt, Molson and to a lesser extent Sleeman," Holden said. "(Labatt) had two choices. It could either lower its prices to compete with Lakeport or it could buy it. It's cheaper I guess to pay $200 million to take them out than to cut prices and lose $100 million a year in profits."

Labatt's intention is to grow the Lakeport brands which have a "bunch of momentum behind them," said Neil Sweeney, vice president of corporate affairs.

Whether Labatt will continue production of Lakeport's nine brands in Hamilton or move them to its other brewery in London, Ont. remains to be seen. Labatt shut down its Toronto brewery last year, moving production to other facilities.

Closing the Hamilton plant "is a possibility" said another Toronto analyst.

"They have that big brewery in London so it depends what the synergies are for them."

Unit holders in Lakeport -- which became an income trust last summer -- have reaped the rewards of the company's rocketing success as units in the brewer, which debuted at $10 each in June 2005, tripled in value in just 18 months. Yesterday's offer from Labatt of $28 cash per unit represents a 36 per cent premium on the closing price of $20.57 per unit on Jan. 31.

npowell@thespec.com 905-526-4620

Used with permission from The Hamilton Spectator, www.thespec.com Copyright The Hamilton Spectator. All rights reserved.