Case #3: The Boston Beer Company, 2000

Brief Introduction
Case #3: “The Boston Beer Company (A) (2002)” [Product Number: BAB026]

Analysis and valuation of Boston Beer's IPO. Set in Boston in 1995, Jim Koch, the founder of
Boston Beer, must determine the appropriate price for his firm's stock in its IPO. The risks,
potential, competitive advantage, strategic issues related to Boston Beer, and the beverage
industry, will be analyzed.

Suggestions:
Here are some general suggestions to help you in analyzing cases:

1. Determine the major problems and/or opportunities in the case. Critically evaluate the
information provided in the case.

2. Having identified the relevant issues, list the alternative courses of action. If needed, consult
general texts and references pertinent to the problem. Critically evaluate, and if necessary,
supplement the statistical data and legal issues provided in the case. Confine your analysis to
facts known at the time of the case. Avoid reading up on the case by browsing on the internet etc
since this tends to cause biases in your analyses.

3. Analyze the strengths and weaknesses of each alternative, considering both the strengths and
weaknesses of each and their relation to the firm’s strategy, its environment and its competitive
situation.

4. Determine a specific recommendation and fully develop the logic supporting it. In general this
is the most important phase of your analysis, and the part of the report that we will primarily
focus on.

Case Questions:
(1) What is Boston Beer’s strategy? What are the sources of its competitive advantage? How
sustainable is its competitive advantage? What does your analysis imply for Boston Beer’s
valuation?
(2) A dual class stock structure can consist of stocks such as Class A and Class B shares, and
where the different classes have distinct voting rights and dividend payments. The class offered
to the general public has limited voting rights, while the class available to founders and
executives has more voting power and often provides a majority control of the company.

Why has Boston Beer chosen a dual-class structure for its IPO? What are the implications of a
dual-class structure for outside investors?

(3) Identify and analyze the risks of investing in Boston Beer.

(4) What does Boston Beer plan to do with the cash raised in its IPO? Is it possible for a
company to be “over-capitalized”? (Note: An overcapitalized company has more capital than can
profitably be employed.)

(5) How much would you be willing to pay for a share of Boston Beer if you think that the
growth rate from 1996-1999 will be 30%, declining to 5% in perpetuity thereafter?
Outline all your assumptions in valuing the stock. Assume a discount rate of 10%.

(6) Briefly summarize your opinion on the short-term and long-term current outlook for
America’s brewing industry, especially with respect to its international competitors.
(Note: Current outlook in this question refers to as of the date of the case discussion in class.)