Mighty Craft has conceded that divesting most of its brands will not be enough to cover its debts and it is now exploring a merger with Better Beer to salvage the company.

Mighty Craft went into a trading halt this morning, before informing the ASX that Better Beer “remains an asset of significant strategic value and the company confirms a shift in its strategic direction, now focussing on restructuring the business in a way that allows the value of this asset to be maximised.”

The company is holding preliminary discussions with Better Beer to explore the possibility of a transaction under which the company would acquire the remaining shares in Better Beer not already owned by the company in exchange for the issue of shares in the company to the Better Beer shareholders and a subsequent capital raise.

The company has signed a nonbinding letter of intent with Better Beer to explore the feasibility of this option and is in preliminary discussions with the relevant stakeholders, around the terms, the valuation of Better Beer relative to the divestment program and the overall viability of the transaction.

The Board notef that while discussions are ongoing, it has not entered into any binding agreement with Better Beer’s shareholders to implement a transaction and there is no certainty that any transaction will eventuate.

Mighty Craft admitted that in the event it is unable to formalise an agreement with Better Beer and its senior lender, Pure Asset Management (PURE), within the coming months, the Board considered that it would likely be difficult to secure the additional debt or equity funding that would be required to allow the company to continue its operations.

Mighty Craft Chair Grant Peck said: “The focus and priority of the Board remains very clear – deleverage the company and
continue to reduce operational costs.

“The deleveraging process has started with a $2.3 million debt reduction in the quarter and the divestment of 78 Degrees and
Mismatch.

“The company’s debt levels, however, will remain unsustainable and divestments of the non-Better Beer assets alone will not be sufficient to restructure the balance sheet to the extent required.

“While the Board continues to assess all available options, the company’s strategic focus has shifted towards seeking a
potential merger with Better Beer. Discussions with the relevant stakeholders are at a very early stage, and there is no certainty of any transaction eventuating. The Board is committed to finding a path that balances the interests of all stakeholders.”