Sink or Swim: Last Shot at Saving America’s Oldest Craft Brewer Could Be an Employee Buyout

San Francisco’s Anchor Brewing Company (“Anchor”, “Anchor Brewing”), the oldest craft brewer in the United States, has withstood many hardships, and until now, has been a survivor. (Ansari and Otis, The Wall Street Journal). Over the past 127 years, the brewery has survived catastrophic earthquakes, the national prohibition of alcohol, two world wars, and competition from mass-produced beers. (Albeck-Ripka, The New York Times; Anchor Brewing). Despite a history of resilience, Anchor Brewing recently announced ‘last call’ on July 12, 2023. Due to its inability to recover from the consequences of the pandemic and the failure on its parent company, Japan’s Sapporo, to profitably run the craft brewer, Anchor Brewing Company has been forced to close its doors. (Albeck-Ripka, The New York Times).

“Closing time, every new beginning comes from some other beginning’s end.” This is the final verse of Semisonic’s 1998 hit song ‘Closing Time’, and it is possible that this is a prophetic prediction of Anchor Brewing’s future. On July 19, 2023, a group of Anchor’s unionized employees sent the president of Sapporo USA an employee buyout proposal, and four days later a spokesperson for the brewer told a local news station that it would “gladly consider a bona-fide offer from its [employees] to purchase the brewery.” (The Wall Street Journal; Gaines, KRON4). If Anchor employees can pull off the impossible and buy the brewery, the question then becomes whether Anchor Brewing can be a profitable business as an employee-owned brewery.

How did Anchor Brewing hit rock bottom? The answer is a bit ironic: “big beer”. Over the past twenty years, the market share of mass-produced beers like Budweiser has been in decline as America’s preference for craft beers has consistently grown. (Gunju, Harvard Business School: Digital Initiative; Sealover, Denver Business Journal). As an example, from 2010 to 2016, sales of Budweiser fell 17% (Id.), meanwhile from 2013 to 2022, craft beers share of beer production volume in the United States went from 7.8% to 13.2%. (Brewers Association). When big companies lose market share, they often have a tough time innovating, so instead, many companies will innovate through acquisition. (Harvard Business School: Digital Initiative; Clayton Christensen). Over the past twenty years, the ‘big beer’ companies like Anheuser-Busch, MolsonCoors, and Boston Beer Company, have acquired (and sometimes have sold) independent craft breweries such as Breckenridge Brewery, Goose Island Brewery, Dogfish Head Brewery, Terrapin Beer Company, and 10 Barrel Brewing. (Anheuser-Busch; Boston Beer Company; MolsonCoors). Japan’s Sapporo wanted to get in on the American craft brewer action and acquired Anchor Brewing Company in 2017 for $85 million. (The New York Times). Unfortunately, it seems that Sapporo’s inexperience in operating a craft brewer was a contributing factor to Anchor’s failure.

Most corporations have a duty to maximize shareholder value. (Palladino & Karlsson, Harvard Law School Forum on Corporate Governance; Strine, Wake Forest Law Review). As a publicly-traded corporation, Sapporo owed this duty to its shareholders. Id. In an effort to maximize shareholder value from its acquisition of Anchor Brewing, Sapporo made sweeping changes to Anchor Brewing, which, according to some with insider knowledge of Anchor Brewing, included replacing upper management, cutting staff, rebranding, and modernizing production equipment. (Lander, San Francisco Chronicle). According to those same insiders, Sapporo’s changes killed the Anchor culture, decreased production capacity, and resulted in declining sales. Id. The pandemic exacerbated these problems, and to Sapporo, Anchor Brewing had become a sunken ship and Sapporo needed to cut the line so as to not further harm shareholders. Id. Which brings us to today. On August 2, 2023, Sapporo started the process of liquidating Anchor Brewing’s assets to the highest bidders. (Hauser, The New York Times). Anchor Brewing employees want to save their brewery by buying it, here’s how and why it could work. Id.

Over the past decade, several employee-owned breweries have found success with the business model, including several in Colorado and one with a connection to Anchor Brewing. (Schuette, CraftBeer.com; Odell Brewing Co.). Moreover, proponents of employee-owned businesses argue that employee-owned businesses are more productive, they bring significant value to their communities, and they provide a sustainable framework for recruiting, retaining, and developing employees. (Project Equity). As an example, in consideration of succession planning and wanting to lay the foundation for the brewery to be enduring, the Odell family founders of Fort Collin’s Odell Brewing Company sold the majority of the company to its employees in a combined management buyout and an Employee Stock Ownership Program (“ESOP”); the company is now 100% employee-owned. (CraftBeer.com; Odell Brewing Co.). Odell Brewing is not alone; Boston’s Harpoon Brewery and Bend, Oregon’s Deschutes Brewery have also had success as employee-owned breweries. (Sealover, Denver Business Journal). The motivations for craft brewers to become employee-owned are far-ranging, but themes of pride, culture, and community seem to be prominent factors, and the very factors insiders claim Sapporo killed when it acquired Anchor. (CraftBeer.com; Denver Business Journal; San Francisco Chronicle).

If Anchor Brewing employees can pull off the impossible and find the money to buy Anchor Brewing’s assets, they will have to make important decisions about how to structure the transition. Anchor Brewing employees will have four options to choose from: a worker cooperative (“COOP”), equity grants, an employee ownership trust (“EOT”), or an ESOP. (National Center for Employee Ownership). All four structures have pros and cons, but the most common model amongst craft brewers is the ESOP. (Id.; CraftBeer.com). One of the main drivers for sellers to elect for an ESOP structure is that the sellers may defer capital gains on the sale indefinitely, unless the seller is publicly traded, in which case the seller is not entitled to the tax benefits. (The Menke Group; Oringer & Segal, Practical Law Practice Note 7-525-4818). Since Sapporo is publicly traded, and now that the business is in liquidation, it would not receive any tax benefits from an ESOP structure. Id. Without the tax advantages for Sapporo under an ESOP it’s possible that the most viable path to restructuring Anchor Brewing for an employee buyout would be as an EOT. An EOT is relatively new employee ownership model imported from the United Kingdom that is gaining traction in the United States. (National Center for Employee Ownership; National Center for Employee Ownership). As a trust, the trustees have broad control over the governance of the entity, making it less incumbered by statutory rules that apply to the other employee-owned structures. Id. Less rules means that the group of Anchor Brewing employees that wish to purchase Anchor Brewing’s assets and make it an employee-owned business will have a better shot at competing against other buyers. Structuring the new entity as an ESOP subjects it to the Employee Retirement Income Security Act (“ERISA”), structuring employee ownership in the form of equity grants generally means that employees do not have a role in the company’s governance, and a worker cooperative structure is what could be best described as pure democratic governance, which could prevent the nimbleness needed to actually get the asset purchase done. Id. Accordingly, forming an EOT might be Anchor employee’s best shot at buying the brewery’s assets in what will likely be a competitive bid liquidation. Every new beginning comes from some other beginning’s end.