When The Beer Goes Sour: The BROO Boardroom Stoush

Did you happen to know that most of the well known beer brands in Australia are now foreign owned? Japanese to be most precise. Kirin have long owned the portfolio of beers held mostly under the Tooheys umbrella, and Asahi have sometime in the past decade ended up as owners of what used to be known as Fosters Group (commonly known to us beer lovers as Carlton & United Breweries).

I will proudly admit that in late 2011, I was one of the few people to show up to the Fosters Group EGM to vote against the agreement to allow its takeover by SAB Miller (which has since been taken over by Asahi).

Coopers, in South Australia, is the only major Australian beer company which remains Australian owned – completely in the hands of the Cooper Family.

Even most of the micro-breweries around the place are owned by one or other of the two big companies – Tooheys or CUB, which means that they are either Kirin or Asahi. Little Creatures and James Squire are both Kirin, as is Furphy’s.

I forget who it is who now owns Mountain Goat, but I can assure you that Japanese beer interests bought it out quite a few years ago.

This is not to say that there are not heaps of micro-breweries out there which remain in private local ownership. The bar Mrs Parmas in Little Bourke Street will only serve beers from Victorian locally owned micro-breweries, and I think that most of the beers on tap in the various hipster bars around Footscray (eg Mr West’s & Bar Josephine) are from similar locally owned operations.

One person who has made a career out of the issue of foreign ownership of beer brands is Kent ‘Groges’ Grogan. Over a decade ago, he founded a micro-brewery brand named Broo, and promoted it on the premise that it should always be owned by Australian residents rather than foreign interests.

Whilst it was a private company, this was not too difficult. In early 2011, he offered beer drinkers a chance, for each slab they bought online from him, to acquire 10 shares in Broo. I bought 2 slabs, and became the proud owner of 20 shares.

I still have the share certificate I printed out, and am thinking I might frame it and hang it in a particular room in my home prone to be frequently visited by beer drinkers.

Groges did want to list on a stock exchange, but listing rules do not normally create the sorts of foreign ownership preclusions that he wanted, and extensive lobbying of MPs did not yield fruit in the form of laws particular to his company. Nor did the National (aka Newcastle) Stock Exchange turn out to be a viable option.

So in the end, the company did a five for one split (that takes me to 100 shares, yay!) and floated on the ASX in October 2016. I did look at the prospectus, which offered me a chance to acquire more shares at 20 cents each. I am not an accountant, but I did do some quick counting on my fingers and guesstimated that fair value for the shares was probably around 2 cents at that time.

They did go up as high as about 40 cents briefly (at which time I should have sold and used the proceeds to buy a couple of beers), but since then, they have gradually eased downward, to the point where my guesstimate now looks optimistic (1 cent is the current price on the ASX website).

In late 2020, there was a need to seek more working capital, and so shareholders had the chance to buy one additional share for every five shares held, at 1.8 cents. I transferred my 36 cents on the Bpay number, and got another 20 shares. Now I have 120 shares in Broo.

You can probably surmise that whilst I have an active interest in following this company more than that of the more boring but larger shareholdings I possess, I am not exactly counting on this to fund my long desired country property. But because it is a beer company, I have fun reading their company announcements.

What the company currently has, aside from its brands, can be summarised as the following:

. contracted brewing of Broo by CUB (from memory)

. a pub in Mildura which serves as company HQ (I am not sure whether they also brew Broo there)

. some land in Ballarat where they wanted to build a brewery to brew Broo – made redundant by the above decision to get the brewing of Broo outsourced. They are trying to sell this land for $7,500,000, but there are some snags on the sale.

From the revised 2021 annual report released on 28 February 2022, I learn several interesting things about the shareholding.

. There are 8098 shareholders. 7374 of those (yours truly included), do not hold a marketable parcel. Presumably we are the ones who went out and bought at least a slab each in January 2011 in response to Groges’s cry for greater Australian ownership of Australian beer.

. There are about 945,800,000 shares held – which at a value of about one cent (it does tend to fluctuate) each makes this company worth between $9-9.5 million

. The top 20 shareholders own 67.98% of the shares

. Groges himself now owns 38.23% of the shares

. Amongst the largest other shareholders, I am particularly interested in three on the list – Knight 61 Investments (5.52%), CE61 Investments (3.24%), and 61 Financial Information Technology (0.88%).

The use of the number 61 intrigues me as it does not appear to be a coincidence. The revised annual report also advises us that a long standing director of Broo resigned in late 2021, and that a new director, David Zhu, was appointed in October 2021. David Zhu is described on the report as a director of ’61 Financial’.

[As an aside, I suspect that 61 as a company name is inspired by Chinese numerology – 6 is considered a lucky number, and 1 usually signifies winning (rather than loneliness).]

Why today I am reading so much into the shareholder information on this annual report is not so much to see how many other people have non-marketable parcels in this company (something which does occasionally intrigue me), as to the stoush that seems to be playing out in the 3 man boardroom of Broo this month.

The following notices on the ASX website are most interesting:

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02497960-3A589592?access_token=83ff96335c2d45a094df02a206a39ff4

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02500632-3A590038?access_token=83ff96335c2d45a094df02a206a39ff4

Basically, what has happened is that very recently appointed director David Zhu earlier this month sought to call a general meeting to remove Groges and the other director of Broo from the Board. In response, Groges has sought a resolution to remove Zhu from the Board.

I do not know what is happening, but I can guess. Most of the small shareholders like myself are happy to watch Groges ‘live the dream’ of trying to build a micro-brewery business which is not going to give in to the temptation of selling out to foreign investors. After all, Groges seems to be a good bloke and he is patriotic.

But there are other people out there who might see arbitrage opportunities – the land in Ballarat and the pub in Mildura are tangible assets, as are the beer brands, which might be worth more if sold off rather than maintained as part of an ongoing business.

And even where a company itself is loss making, lowly capitalised and trading infrequently, its very status as a publicly listed company on the ASX has a certain cash value. It is far cheaper to do a reverse takeover of an inactive company already listed on the ASX than it is to do an IPO – you can save tens of thousands, if not hundreds of thousands. [For an example, look at ZMM, the current manifestation of a company first listed in 2007, or BNL, at least the third version of a company listed in 1994 – both of the latter have predecessor companies I took a punt in once.]

I do wish Groges luck in his boardroom stoush. I hope, if I do get to Mildura later this year, that I might go and visit him in the pub Broo owns. But sadly, it appears that some shareholders are not interested in ‘living the dream’ his way.

Published by Ernest Zanatta

Narrow minded Italian Catholic Conservative Peasant from Footscray.

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