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New owner to keep Labatt USA in Buffalo KPS Capital also buys brewer in Rochester

The new owner of Labatt USA says the business headquarters will stay in Buffalo, and it could add local jobs.

KPS Capital Partners, a New York City-based private equity firm, has agreed to buy Labatt USA from Anheuser-Busch InBev for an undisclosed amount. The deal needs the approval of the U.S. Justice Department.

KPS is also buying High Falls Brewing Co. of Rochester, maker of Genesee and Dundee brands.

Raquel Vargas Palmer, a partner with KPS, said the firm intends to maintain Labatt USA's Buffalo operations as well as its local sponsorship activity.

"If anything, we seek to grow employment in Buffalo," Palmer said.

Labatt USA imports, markets and distributes Labatt Blue and other products to wholesalers in the United States. The sale does not impact Labatt's operations in Canada.

Questions about the future of the Buffalo offices arose last fall when a buyer was sought for Labatt USA, since it was not known if the next owner would keep those offices. InBev moved Labatt USA's headquarters to Buffalo, a U.S. stronghold for the brand, in early 2007 from Connecticut. Labatt USA presently has 55 employees, about 20 of whom work in Key Tower.

The Justice Department required the divestiture as part of InBev's acquisition of Anheuser-Busch, out of concern that the merger could drive up beer prices in upstate New York by eliminating competition.

KPS formed a new entity, called North American Breweries, for its beer and malt beverage interests. Along with Labatt USA and High Falls, KPS acquired a license for the Seagram's Cooler Escapes and Smooth brands from Penrod Ricard USA.

The Labatt and Anheuser-Busch families of brands are the two biggest sellers in Buffalo, Rochester and Syracuse. About half of the sales of Labatt-brand beers in the United States are to customers in those three upstate markets.

InBev previously agreed to brew and supply Labatt products to the licensee which acquired Labatt USA for up to three years. Although High Falls has excess production capacity, KPS has not yet decided whether to brew Labatt products there, Palmer said.

Palmer said KPS will consider options for brewing Labatt products in either Canada or the United States, acknowledging Labatt's status as an import brand.

"It has a long heritage and legacy of being a Canadian brand," she said.

Daniel Fulham, a supermarket industry veteran who is now part of a private equity firm, said where the beer is brewed is no small issue.

"The whole Canadian theme is wrapped around the Labatt brand," he said. But if it can no longer boast being 'imported daily from Canada,' it could risk losing brand equity and market share, he said.

Paul Vukelic, president and chief operating officer of Try-It Distributing, said he was pleased to hear from KPS in a Monday conference call that it would keep intact its wholesaler network. He said he also appreciated that the new owner was sensitive to the issue of where the beer would be brewed and the potential impact on brand equity.

"I think they're going to explore all possibilities," he said.

Labatt's local employment is relatively small, but its presence has had other benefits. Local officials have played up Labatt USA's relocation. Labels on Labatt bottles sold in the United States mention the Buffalo connection. And the business unit has been active in sponsoring events such as the recent pond hockey tournament.

Such sponsorship activity will continue, Palmer said. And she sees potential for job growth in part because some of Labatt USA's services are provided by Anheuser-Busch InBev, a relationship that will gradually wind down. KPS also wants to develop expanded sales opportunities for Labatt products, she said.

"Labatt will be a focused brand for us," Palmer said.

Sen. Charles E. Schumer applauded KPS's decision to keep the Buffalo headquarters.

"This is great news that comes at a time when we need the jobs the most," the New York Democrat said in a statement. "Labatt USA is a prime corporate citizen that helps boost local economic development and prestige in Western New York -- I am glad that KPS has decided to keep it that way."

KPS is the manager of KPS Special Situations Funds, a family of private equity funds with more than $1.8 billion of capital. It has a number of manufacturing holdings with ties to the automotive industry, but this is its first foray into the beer industry.

KPS was previously majority owner of Republic Engineered Products, an Ohio-based company with a plant in Lackawanna.


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