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Auditors say Anheuser-Busch deal vital for Redhook

By Jake Batsell
Seattle Times business reporter

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Anheuser-Busch distributes Redhook beer nationwide under a 20-year agreement reached in 1994. Both companies have the option to get out of the deal at its 10-year mark this year.

Neither side has moved to terminate the agreement, which accounts for 72 percent of Redhook's sales. But auditors Ernst & Young warned in Redhook's annual report that the brewer would have trouble surviving if the deal doesn't continue.

If the agreement ends, Redhook would default on its bank loans and would be required to buy back $16.3 million worth of preferred stock owned by Anheuser-Busch.

"These matters raise substantial doubt about the company's ability to continue as a going concern," the auditors wrote.

Redhook lost $1.8 million last year and had $6.1 million in cash on hand as of Dec. 31.

A decision on the distribution agreement is due by June 30. Redhook Chief Executive Paul Shipman said talks are continuing with Anheuser-Busch, and he's confident the deal will be renewed.

"I think the relationship is an amicable one," Shipman said. "It's just that when we wrote (the agreement) 10 years ago, we said each company would have the option of not renewing it. That's what we're working through right now."

Anheuser-Busch executives could not be reached for comment.

Tom Dalldorf, editor and publisher of Celebrator Beer News in Hayward, Calif., said it's no secret that Redhook is highly dependent on Anheuser-Busch, which he called "the juggernaut of the beer-distribution business."

"It would be extremely difficult for (Redhook) to survive without the best distribution network in the country," Dalldorf said.
 
Anheuser-Busch owns about 30 percent of Redhook's common shares and accounted for 95 percent of Redhook's 2003 sales: 72 percent through the distribution agreement, and 23 percent through other Anheuser-Busch wholesalers.

"If A-B is holding the long side of the stick, they can dictate the terms," Dalldorf said.

Redhook shipped 228,800 barrels of beer last year, well below its production capacity of 375,000 barrels. The company reached a tentative agreement last month with Portland-based Widmer Brothers Brewing to form a joint sales and marketing organization for the western United States.

Jake Batsell: 206-464-2718 or jbatsell@seattletimes.com

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