Rumor has it...

[mozilla]

If HH wants a bourbon like Willetts or BMH...they only have to decide which of their thousands of labels they would like to put on it.....and watch it go. They will have to support any brand or label they put out, with marketing and sales support. Why spend all the money for what is in all purposes a non-producing facility. At full capacity KBD will be a blip on the radar of almost every other distillery.

HH has tons of labels. They have the juice. They have already started a limited production line of products. The KBD sales are nothing when compared to Evan Williams. I just don't see why they would bother with KBD. I will have to get some more info before I will understand this one.

[smokinjoe]

Instead of a buyout, it could be a merger. All kinds of interesting possibilities.

[mozilla]

I was just begining to think about that.

The reuniting of some of the original Willett labels to their home site. HH pays while KBD plays. Could work out for everyone. Good call Joe.

[OscarV]

Right, HH has tons of labels.

But none are as glamorus to the young whiskey drinker, BTW there will always be young people and/or consumers.

But with all their labels what do they push?

Evan Williams Black Label and Single Barrel, 12 and 18yo Elijah Craig, Henry McKenna, Fighting Cock and Old Fitzgerald.

These are their flagship brands.

None are competition to Willett or other KBD brands. They are in a different catagory, so their will be no canabalization of brands.

Remember Evan Williams is the #2 bourbon selling label in the USA and HH created it from the ground up, the image, the story etc. They know what can happen with good marketing.

[Joeluka]

You've never heard of one company buying another for their brand name? Beam with National and MM. Why did Beam buy Makers Mark?? They have plenty of older brands they could sell. Was it for the extra distilling they could do at MM, no , they expanded. I'm betting it was for the Makers Mark name. KBD doesn't even employ a staff in their distillery. Nobody would be even fired.

In business buying an established name brand is quite common. Even if the buyer has other labels in their portfolio.

[craigthom]

I like the tour idea, too. They could make a little showplace distillery, like Woodford Reserve. It would be a really short shuttle bus ride from the Bourbon Heritage Center, and they could even stop by the old distillery.

If they rebuilt the old distillery it would be pretty much all new except for the exterior walls. I don't know if that would be as attractive a tourist attraction.

[ThomasH]

I think it is a matter of an oppurtunity presenting itself. The same thing basically happened in 2002 when Van Winkle joined forces with Buffalo trace. HH has the money behind them to promote the KBD brands even further. Who's to say they don't restore the old HH distilery anyway and send its output to age specifically for use in KBD brands. They could continue to run the potstill at KBD and use it for some other project similar to Woodford Reserve. Lets face it, many companies market their products under multiple names!

Thomas

[mozilla]

You've never heard of one company buying another for their brand name? Beam with National and MM. Why did Beam buy Makers Mark?? They have plenty of older brands they could sell. Was it for the extra distilling they could do at MM, no , they expanded. I'm betting it was for the Makers Mark name. KBD doesn't even employ a staff in their distillery. Nobody would be even fired.

In business buying an established name brand is quite common. Even if the buyer has other labels in their portfolio.

One thing is different with this one....KBD has not produced a drop of distillate in 30 years. Their ability to produce any bourbon is not even on the map yet.

If HH wanted to make a small run bourbon...they have plenty of labels that sell the same amount as Willetts. They could put the same juice in it and jack up the price.

Why would KBD go to all the trouble to hand make a distillery and bring it back to "almost life" and then just give up all your hard work?

Either Drew has given up....or HH has guarenteed he will get to do it his way.

BTW, if HH really wanted Willetts...they would just cut off their supply of bourbon. Willetts would eventually run out of the good stuff and slump into nothingness.

[OscarV]

Yep the tour idea thrown in with the new labels etc. makes the whole package look like a winner.

HH could really do a number on the small KBD distillery, you know give it a look of a quaint small hand crafted kind of bourbon making process.

In France the champagne makers still turn the bottles a quarter turn for the carbonation process. But they have big machine rotating storage bins that do this.

But for their tours they have a little ole man in an old small aging area that puts chalk marks on the bottom of the bottles and turns them by hand for the public to see and get impressed by.

[cowdery]

All of the speculation here has been very good, in that it could be any and all of those explanations.

As for the implications, KBD is very small. It has filled a niche for quite a few years. The problem may be that it can't get enough whiskey to fill its orders. I don't doubt that HH has become their only reliable source, which must be cramping their style.

KBD and HH are in the same business in a lot of ways, KBD is just in it on a much smaller scale. Bettye Jo can confirm this, but unless they've upgraded it a lot, KBD's bottling operation is junk compared to HH's. Their business is more than their own brands, because they produce so many products for other people, but generally they have their customers because those customers are too small for HH to service.

KBD probably does have a supply problem. It's possible that without access to distressed whiskey, which was always at the heart of their business, the business no longer makes sense.

KBD probably has a long-term contract with Heaven Hill. It could even be that the contract gives KBD a price that's too good for HH to swallow with the current market, so HH is buying KBD mainly to buy its own contracts back. The opposite possibility is that the contract is up and HH has them over a barrel. :)

I don't really know how far along the KBD actual distilling operation is, but the Kulsveens always planned for it to be part tourist attraction, so maybe that's part of the equation too.

As for a merger, the Shapiras have only in a couple of very special situations, and in very small ways, allowed anyone outside of the family to own a piece of the business, but they do allow people to carve out their own little corner of the business, separate from HH itself but completely integrated with HH's operations, such as when the Homels had the sales operation, or the trucking operation owned by Parker and Craig Beam.

I don't know what that carve-out would be, because I'm just speculating too.

[shoshani]

HH already ownes a non-working distillery. Why would they want another less than a mile away?

I think it would be nice if they rebuilt the old #31. That would be sweet.

I'd love to see them get their hands on Stitzel-Weller. If the stills, etc, are still operable, maybe just maybe the wheat recipe bourbon can be brought back in the all-copper stills, and maybe they could quietly introduce new wheat recipe brands. (Or even push some old ones; doesn't HH own Cabin Still? Is that being made to the Weller wheat recipe?)

Of course, I sort of beg the question of why HH would need to purchase a second distillery anyway; do they have that much production work in their schedule? (So far as I know HH still leases Early Times for production of rye whiskey; that can't be from scheduling conflicts at HH, because the Beams go over to ET to make it. If they had a full dance card at HH, they'd not be able to take a day off to make whiskey somewhere else...)

[TNbourbon]

Important to remember that Heaven Hill is not corporate -- in the sense of "publicly-owned" -- but a family-run business. There is still a place for sentiment in such a business.

KBD is literally "up the hill" from the location of the former, burnt-out DSP-KY-31. The latter operated on that site for 60+ years. If KBD is getting near to producing -- and given HH's already-signficant role in KBD products -- it might just be too much to bear for the Shapiras, Beams, et al, for someone else to start distilling so near that property.

Pretty to think so, anyway...

[barturtle]

(So far as I know HH still leases Early Times for production of rye whiskey; that can't be from scheduling conflicts at HH, because the Beams go over to ET to make it. If they had a full dance card at HH, they'd not be able to take a day off to make whiskey somewhere else...)

By using this logic, every time the Beams travel to promote HH brands, HH produces no whiskey. The Beams may be the Master Distillers, but I'm quite sure they have others who are also quite capable of manning the stills when they aren't available.

From what I understand they are operating flat out and trying to find ways to add capacity to meet the projected future demands.

The distilleries in KY have tended to be very cautious in adding capacity and most now seem to have reached the point that expansion is required. But having had this tendency to be hesitant to go overboard, I doubt most are going to try to reopen or build a plant that is capable of producing on a full bore commercial scale.

In this way, a purchase of Willett makes a lot of sense, as it may only increase their capacity by 10% or so. This would fit in the typical "incremental increases" that have been the standard operating procedure of the industry.

[shoshani]

By using this logic, every time the Beams travel to promote HH brands, HH produces no whiskey. The Beams may be the Master Distillers, but I'm quite sure they have others who are also quite capable of manning the stills when they aren't available.

Hm...good point. Guess I'm a bit too caught up in the image of the Master Distiller as the only one who really knows what's going on.

[cowdery]

One thing I have learned in talking to all of these companies about increasing production and increasing capacity is that it's complicated, there are so many factors. For most, the first thing they have to do is build more warehouses, because if you're going to produce more whiskey you need some place to put it.

Maker's Mark has to solve its water supply and slop disposal issues before it can make more whiskey. Jack Daniel's wants to replace one of its five stills with a bigger one, but before they can, they need a bigger boiler. Wild Turkey has 800 acres at Tyrone and they still have warehouses at two remote locations.

At Bernheim, Heaven Hill doesn't have enough real estate to expand beyond the expansion that's underway now. It already has crazy huge fermenters. They're adding a couple more but there's not much more they can do there.

KBD has some warehouses but I doubt they're sitting empty, though maybe they are. All of a sudden, that's worth something.

Another thing KBD has is real estate, adjacent to the biggest chunk of real estate HH already owns, and HH only bought that land a few years ago, it had been leased. The most desirable thing KBD has may be that land.

It's possible, but a little far-fetched, that HH feels their tourism potential is hampered by the lack of any actual whiskey making on their tour. What if they had sort of a cross between what Woodford has and what BT has with their in-house micro distillery? That's sort of what KBD has, but if HH wants that, they can buy a still and set that up, presumably, for less than they can buy a company, but maybe not.

But they're not buying KBD for distilling capacity, because KBD doesn't have any distilling capacity. If HH is buying KBD, they're buying it for the business or the land, not for the distilling capacity.

[barturtle]

Here's my thoughts on the issue of capacity.

Let's say a distiller wants to increase capacity, and they don't have room to do it where they are at. That leaves either building a new distillery or restarting an old one. How many of the old ones still have most of their equipment intact? Where are they? Who owns them now? How many wouldn't need serious rehab like S-W needs? How long would it take to set either one of those in motion?

Okay, what about DSP-31? What kind of condition is it in structurally after the fire? Does it need to be razed and rebuilt from the ground up? How long would that take to set in motion?

What about Willett? With a serious infusion of capital, which I would assume HH is capable of, how long would it take to get it running? What would it take to increase production levels from the fairly small amounts that had been planned to more substantial levels? Is the size of the still the limiting factor, or is it fermenter capacity?

While capacity may not be the reason they may be buying KBD, though it could be, if I wanted to add capacity as soon as possible, I don't know of a quicker way to do it.

[pepcycle]

My opinion coincides with Chuck's.

I think its about land, resources and the future.

I dare say that Makers, Four Roses and Woodford are the most spectacular visitor sites.

Heaven Hill can't show fermentation, distillation, warehousing and bottling at the same location. Neither can Four Roses.

I'm thinking that KBD is to HH as WR is to BF.

[mozilla]

Other than warehouses....there is just not that much at KBD. For what HH would have to sink into the site...they could do the same on their own proporty. Without the expense of buying up all of the KBD assests.

As I stated earlier...the warehouses could be what they are really after. Depending on their capacity and total barrel numbers...there could be enough distillate to really make a difference.

Without any further information.....it will be very difficult to narrow down an answere.

As far as WR and MM...the size of the project at both sites is way past the scope of the KBD site. KBD is only set up for two small fermeters. So, to expand that....they would have to start building new buildings. I can't stress enough...how small KBD is.

[barturtle]

It may well be a land issue, it could be the showplace for tours, it could be capacity, it could be to buy back their own contracts...thing is, I don't think any one of these by itself would have been a compelling enough reason for HH to shell out the kind of dough that would be needed. I would think "all of the above" might be what would tip the scales far enough for HH to take the plunge, if indeed they are.

[mozilla]

Your are probably right about the all of the above.

I would think that Drew would put a real high price on the family aspect of the sale. It seems real valuable to him...with all the hard work he has put in. I bet HH had to shell out a pretty penny for the whole works.

ps. if it has not been said already....HH has started upgrading their distillery in Louisville for more capacity.

[cowdery]

I very much doubt that any of this is up to Drew.

[BourbonJoe]

According to Drew, none of this is true. In fact, he heard that HH was buying Barton. Who knows? We'll wait and see.

Joe :usflag:

[pepcycle]

In response to how much would they have to sink into KBD to rebuild it, I'd like to remind folks that there were no usable stills, fermenters or storage at L&G when BF started the project.

Every building was in total disrepair.

The site is way smaller than KBD.

90% of the Woodford Reserve you've bought was distilled in Louisville, so its not about capacity.

Its about image.

[craigthom]

For those not familiar with the geography involved, you can stand in the parking lot of Heaven Hill's Bourbon Heritage Center and see KBD warehouses.

I may be misremembering, but I drove by DSP-KY 31 a couple of weeks ago, and my impression is that the building is completely gutted. It's a shell.

The stills at Stizler-Weller are silent and may be gone, but the warehouses are being used. Diageo has their own whiskey there, and I think we are agreed that there's a lot of Maker's Mark in there.

The satellite imagery for Bardstown in Google Maps isn't very good, but this shows the relative locations.

In the middle, just southeast of the "Town Creek" text, is Heaven Hill. Those white and black rectangles are their warehouses. The eight little black rectangles to the south, on the east side of Loretto Road, are KBD.

Also in the picture to the northwest is an orange building surrounded by white rectangles. That's Barton.

[Dramiel McHinson]

I was really hoping KBD would get their pot still going. I understand they have been providing a lot of services to the bourbon industry other than just bottling their own brands. I can't imagine Even Kulsveen and family selling the distillery and walking away from it so I would guess they would keep their identity and have the benefit of some deeper pockets. Kind of like Jack Daniels and Brown Forman. Wholly owned subsidiary comes to mind. If Drew says it ain't so then it's just a rumor until KBD and HH announce thier wedding plans and the invitations go out.