BROO resolve their boardroom stoush

As the holder of a microscopic small share holding in the ASX listed craft brewer Broo Ltd, I have been quite interested in following the recent developments in the company, particularly the apparent falling out between the founder, Kent “Groges” Grogan and the recently appointed new board member.

In the past couple of days, a compromise has been reached and announced to the ASX. Namely, Groges and the other member of the board will step down and be replaced by new directors aligned with the chap who was challenging Groges for control of the company. Groges will remain an employee of the company with the same remuneration package that he previously enjoyed.

So all seems rosy and kiss & make up etc.

Whilst my 120 shares in Broo are now worth less than a total of a dollar, and do not really warrant me studying this company in any great detail, the 11 years in which I have been a share holder of it and the general fascination I have with investing in the alcohol producing sector means that I still feel a grossly distorted interest in studying the company.

So in the past week or so, I have been reading through the various company announcements and news articles (try reading BrewNews for such interesting stories) on Broo to get a better idea of the business than I had when I wrote my last post about it over a week ago.

It turns out that Groges has been selling down his shareholding over the past couple of years (good on him for cashing out some of the effort he has put into the business over the past 12-13 years), and doing off-market share issues to ‘sophisticated investors’ to raise funds to keep the business going. As a result, he is down to about 25% of the voting rights in the business (I estimate my voting rights at about 0.00001% of the total), which probably means that the investor block challenging his control does have the numbers to take over from him.

I feel increasingly glad, from what I have read over the past week, that I did not participate in the IPO at the ASX float 6 years ago. Lots of things have not gone all that well lately.

The proposed sale of the Ballarat site where Broo was proposing to set up a state of the art brewing facility (an idea that they abandoned in favour of getting CUB to brew the BROO) remains tied up in red tape. This site, which was probably paid for by capital raised in the IPO, is the largest asset owned by the company.

The brew-pub in Mildura, which now doubles as company HQ, and which probably also got paid for by the IPO, is also up for sale, and last year narrowly avoided being sold up to pay debts owed by the company to AGL (not something I discovered til this past week – because I have not been following announcements and news about the company too closely).

The current distribution deal in QLD, where most of Broo is currently consumed, appears not to be converting Queenslanders into Broo drinkers. A large amount of packaged beer is now being sold at deep discounts as it approaches its best before dates. That does not bode well for further sales in QLD. Nor have I seen Broo for sale in bottle shops around Melbourne in quite a long time (and believe me, I have looked).

A distribution deal to sell Broo in Communist China fell through over a year ago. This does not surprise me however – doing deals involving Communist China on anything except iron ore and coal are truly fraught with peril (I learned this the hard way almost a decade ago when a future former friend persuaded me to invest in a chancer’s business venture which was trying to get a deal for something in China).

So what do I see as the future for Broo?

The two main tangible assets are the Mildura brew-pub and the Ballarat land. Both are for sale and might fetch a total of up to about $9 million (although there are a lot of ‘ifs’ about the Ballarat sale, which could result in it selling for a whole lot less).

After those sales, the main other asset is the Broo brand, along with the various related beer recipes, which is currently being brewed on contract by CUB. The value of this brand is rather intangible – it does not seem to be widely available anymore, or to be very popular where it is available.

Without the other assets, I suppose Broo can continue to operate as a contract brewed beer brand, but it probably would make more sense for someone like CUB to buy the brand and then see if it could relaunch it within its own distribution networks. This would be an end to the raison d’être for Broo’s existence (ie an entirely Australian owned beer company), but I fear that the writing has been on the wall for quite some time.

And the last asset is the ASX listing of Broo Ltd (ASX code BEE). Left as a shell company on the ASX, it could be then repurposed for a ‘backdoor’ ASX listing by some other business, who would ‘sell’ their existing business to Broo in exchange for an issue of a very large number of shares, diluting the holdings of existing shareholders considerably more. Doing this is a much cheaper way of listing on the ASX than by floating a new company directly.

Indeed, if I were advising the new directors as to what to do with Broo Ltd, I think that the above four paragraphs summarise the course of action that I would recommend, and also what I think is most likely to happen to Broo Ltd as a company and Broo as a beer brand.

Of course, selling my $1 worth of shares would cost about $20 in brokerage fees, so I am going to hold onto them and see what happens next….

Published by Ernest Zanatta

Narrow minded Italian Catholic Conservative Peasant from Footscray.

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