Ed Dowd and John Comerford Represent Gannon International in Suit Against International Private Equity Firm and Former CEO of Gannon’s Vietnamese Subsidiary
Bill Franke’s Vietnam brewery stalls
by Rob Hurtt, St. Louis Business Journal
Date: Friday, December 31, 2010, 5:00am CST
When Anheuser-Busch returned to Vietnam in 2008, it tapped Vietnam War veteran William Franke, founder and CEO of Gannon International, to lead the charge.
Franke’s business, one of St. Louis’ largest private companies, became the brewer’s exclusive distributor in the country and planned to build a $90 million Budweiser brewery outside Ho Chi Minh City.
Now, a complex lawsuit between Gannon, the former CEO of its Vietnam operations and a Seattle-based private equity firm has led A-B to drop Gannon as its distributor and put those brewery plans on hold. The delay could allow A-B InBev’s competitors to gain a stronger foothold in one of Southeast Asia’s fastest-growing markets.
Gannon filed its lawsuit May 6 in the U.S. District Court for the Eastern District of Missouri. According to court documents, the dispute traces back to November 2009, when Walter Blocker, CEO of Gannon Vietnam, went looking for additional financial backing.
Blocker reached out to private equity firm Ignition Capital, based in Seattle. Ignition signed a non-binding letter of intent with Gannon Hong Kong, a Gannon International subsidiary that owns Gannon Vietnam.
The proposed deal called for an investment of up to $25 million, and Ignition would receive a 33 percent ownership stake in exchange. On March 1, two Ignition-affiliated funds extended a $1.6 million bridge loan to Gannon Hong Kong.
Blocker’s duties also included serving as chairman of Gannon Brewery Joint Stock Company, which owned the Vietnamese brewing license.
In a letter dated March 23, Blocker contacted Ignition about investing directly in that entity. According to the court filing, Blocker wrote that if the Joint Stock Company did not immediately receive money to make overdue payments, it risked losing its land lease and investment license.
In the meantime, Gannon Hong Kong defaulted on its bridge loan, according to documents Ignition filed with the court. Ignition then terminated its letter of intent.
On April 19, Sandalwood, a Hong Kong corporation affiliated with Ignition, agreed to pay about $1.4 million for 1,093 unpaid founding shares of the Brewery Joint Stock Company, and it gained more than 65 percent of the total ownership interest.
Ten days later, Blocker resigned from his position as chairman of Gannon Vietnam, where he had been since 2000. He remained on the board of the Brewery Joint Stock Company, now owned by Sandalwood.
Shortly thereafter, Gannon International and its subsidiaries filed suit against Blocker, Ignition and Sandalwood. The lawsuit claims, among other things, that Blocker breached his fiduciary duties, misappropriated $415,000 of company funds and is attempting to take Gannon’s investment in the Brewery Joint Stock Company.
“The allegations are completely baseless,” said James O’Brien, an attorney with Lewis, Rice & Fingersh who is representing Blocker. “Unfortunately for us, there have been so many motions in this case that we’ve not gotten to the merits yet. If the case goes on here, it’ll become clear that they’ve taken some real liberties. We look forward to complete vindication.”
Franke was unavailable for comment.
Judge Jean Hamilton has set a Jan. 26 scheduling conference between the parties to establish a trial date.
Armstrong Teasdale’s Dan Nelson, Stephen Limbaugh Sr. and Daniel Sakaguchi are serving as local attorneys for Ignition and Sandalwood. Sakaguchi said the law firm would not comment on the pending suit.
Lewis Rice’s Barry Short and Andrew Buchanan are working with O’Brien on Blocker’s representation.
While its Vietnam brewery remains on hold, A-B InBev continues to distribute beer, brewed in Los Angeles, throughout Vietnam. However, according to the Financial Times, its distributor now is Redwood Holdings US, a Delaware-based LLC incorporated in April.
A-B’s competitors continue to battle for position in the nation’s booming market for beer.
From 2004 to 2009, beer sales volume at Vietnam restaurants, cafes and other outlets grew 56 percent to 1.6 billion liters, according to market research firm Euromonitor International. Sales are expected to continue to grow as the nation’s special consumption tax on beer declines from 75 percent in 2009 to 30 percent in 2012.
The country estimates it produced about 2.6 billion liters of beer in 2010, and it anticipates production to reach 4 billion liters by 2015.
Although cheap local beer currently dominates in Vietnam, the high-end market is growing as Vietnamese incomes rise.
Last year, competitor SABMiller bought out its local partner in a joint venture and launched Miller High Life there. Analysts expect the South African brewer to rapidly increase its investment in the country over the next couple years.
Also within the past year, Danish brewer Carlsberg upped its share in Habeco, Vietnam’s second-largest brewer, and Japanese brewer Sapporo signed a $25.4 million deal to acquire a 65 percent interest in Kronenbourg Vietnam. Sapporo said constructing a new brewery will be one of its first pieces of business.
In August, a joint venture led by Singapore-based Asia Pacific Breweries Ltd. opened a new factory in central Vietnam, and it will spend $100 million to grow its capacity over the next two years.
“Vietnam is one of the largest beer markets in Asia Pacific and of the highest growth potential,” said Christopher Kidd, regional director of APB.
Copyright 2010 American City Business Journals, Inc.