By IAN ROSS
When Bill Sharpe got set to resurrect an Amstel brewery in Hamilton in the early 1990s, he walked in with a clean balance sheet and a solid financial backer in place to grow the business into what became Lakeport Brewing.
Unlike his latest venture in Northern Ontario, he wasn’t saddled with a $7-million debt back then. He didn’t envision investor and consumer confidence suddenly drying up. And he didn’t foresee being branded as a fallen “White Knight” with nervous suppliers asking for “cash up front.”
The embattled president and CEO of the once-again struggling Northern Breweries admits it’s been tough slogging to find an equity partner willing to help the regional brewer climb out of its financial hole.
After returning from business meetings in Europe, Sharpe told Sault Ste. Marie politicians in June that the 100-year-old company could “tip over” into bankruptcy if a fresh injection of private investment isn’t found.
In an interview with Northern Ontario Business, Sharpe estimates he’s talked with a minimum of 25 companies – investment groups, pension funds, corporations and beverage industry people – in North America and Europe in the last 20 months.
“There’s people out there that want to get into Northern Breweries, no question about it. But they’re not willing to take on the debt,” says Sharpe. “Northern is struggling right now.”
He arrived as CEO in December 2004 with an impressive 40-year career in the beverage industry and a reputation for being a co-packing whiz with a particular knack for reviving moribund breweries. “We’re getting to the point where we’re running lower in inventory and I’ve got to find more funds somewhere to keep the company going.”
While the order book is healthy, beer production at their 39-employee Sault headquarters is on a “stop-start” basis as funds become available to brew, bottle and sell. In Sudbury, only seven employees remain at their mothballed Lorne Street site in retail, sales, administration and truck driver positions.
Sharpe and Northern were riding pretty high in mid-2005 when they re-launched one of Ontario’s oldest breweries with reformulated, new brands, a shiny advertising campaign and high hopes.
But the wheels fell off last summer, when the company’s 88-per-cent shareholder, Leo Schotte, a Toronto stainless steel tank manufacturer, failed to secure new investment to pay down the debt.
Sharpe pitched in to find new investors but admittedly at the expense of other duties.
“You can’t sell a lot of beer when you spend half your time putting out fires.”
His big plans to pour millions into a Sudbury plant modernization, including the construction of a 30,000-square-foot warehouse and the installation of a high-speed canning and bottling line are on hold. Sharpe says he sourced some late-model production equipment in the U.S. last year but didn’t have the cash to make a payment on it.
“We couldn’t raise the money by Dec. 1 (2005), so the machinery went elsewhere.”
Money ‘s been tight, leaving the company unable to pay employee benefits and into pension funds. Sharpe says it didn’t help that they were being squeezed by their former insurance company on their benefits plan, to the tune of $25,000 per month. The supplier terminated benefits when Northern fell behind on its premium payments.
Sharpe says he also didn’t count on an actuary’s accounting error that turned a $750,000 credit on the books into a $1-million liability.
When his earlier promise to have the Sudbury plant operational by April passed with no word from the CEO, media inquiries flooded in. But Sharpe claims he was advised by Schotte not to give interviews and to concentrate on his duties.
Contrary to some media reports, Sharpe says there was never any conditional deal with the City of Greater Sudbury promising 80 jobs in return for the City waiving $640,000 in municipal back taxes.
“The taxes were already written off. If we hadn’t come in the City would have owned the brewery.”
In the Sault, Sharpe says the City’s economic development corporation advanced the funds to pay off $430,000 owned from the previous owners. Taxes were cleared on the condition the brewery would create 40 jobs over four years. Now in his second year, Sharpe says based on his financial projections, the operation will be profitable or at break-even status within two to three years.
Neither Sudbury’s economic development manager Doug Nadorozny nor any officials with the Sault Ste. Marie Economic Development Corporation returned inquiries from Northern Ontario Business.
Sharpe says he still has faith in the brewery’s potential, but Northerners need to support the product. “In Northern Ontario, I’ve asked the question, What’s in your ‘fridge?’”
Of the estimated 11 million cases of beer sold in Northern Ontario and as far south as Barrie, Northern Breweries accounted for only 150,000 cases. Surprisingly, Sharpe says, Northern sells better in southern Ontario than its own backyard.
Some have advised him to seek protection under the Companies’ Creditors Arrangement Act, but he considers that option too risky and expensive to entertain.
“The only way is to find an investor willing to come and look at it as a long-term thing, instead of a quick dollar.”
A straight bankruptcy, he says, could eventually break up the company.
Sharpe has also held discussions to secure government loans through FedNor and the Northern Ontario Heritage Fund Corporation, but he doubts any money would be available if the private equity isn’t there.
He flatly denies a published report that he had spoken with Steelback Brewery owner Frank D’Angelo “on several occasions” to discuss investment opportunities, saying he had only spoken with D’Angelo once last winter and “very briefly.”
D’Angelo’s fast-growing Tiverton, Ont. brewery recently secured the naming and beer concession rights for the Sault’s new downtown arena for $1.35 million, just blocks away from Northern’s Bay Street brewery.
In an interview, D’Angelo concurs his conversation with Sharpe never got beyond an “informal talk” over 10 to 15 minutes.
“Nothing was pursued by him and I have never heard from him again.”
But D’Angelo didn’t appear to rule out doing a deal with Northern if “it made sense.
“We’ve made a big financial committee to Sault Ste. Marie in the (arena) naming rights and I’m quite proud of that and we’d love to be part of Sudbury, but I think it’s a little premature for us to talk about any expansion right now.
“Would we want to be a part of Northern Ontario in a more decisive way rather than trucking our product in from Tiverton? Absolutely, but it has to make sense.”
D’Angelo says although he was raised in Toronto, he admires the community pride in the two cities and sympathizes with Northern Breweries’ financial woes.
“Let me part it this way. If there’s an opportunity that’s presented to us, that we can make sure it’s viable and it doesn’t jeopardize what we already have, then yes, I’m 150-per-cent behind and I would do it.
“If we made a $1.3 million commitment to the Sault, it would be in our best interest to pursue anything that would make us stronger in Northern Ontario.”
