Sam Adams maker opts for Pennsylvania brewery over Massachusetts location

The company that makes Samuel Adams beers has opted to buy a brewery in Pennsylvania, far from its home city of Boston, instead of building a brewery here in Massachusetts.

The Boston Beer Co. said on Thursday that it signed a purchase-and-sale agreement to buy a brewery more than 60 miles northwest of Philadelphia from British spirits company Diageo's North American subsidiary for $55 million. If that deal is completed, Boston Beer will abandon its plans to build a brewery off Route 24 in Freetown.

Officials at the South Boston-based company said the construction of a new brewery was simply too expensive compared with buying an existing one. In mid-2006, the company projected that the Freetown project could cost between $70 million and $90 million. But now, the company says such a project could exceed $200 million.

Rising steel and copper costs played a role in the increase, as well as the rising cost of European brewing equipment because of the reduced value of the U.S. dollar, company officials said.

Boston Beer will need to undertake extensive renovations to the Breinigsville, Pa., plant, which hasn't been used to make beer since 2001 when Diageo bought the former Pabst brewery. But the total cost of the project would remain significantly below the estimated price tag of the Freetown brewery, Boston Beer spokeswoman Michelle Sullivan said.

"The cost is certainly a major factor in this decision," Sullivan said. "We're getting twice the capacity for less than half the cost."

Diageo North America currently uses the Pennsylvania plant to make two of its flavored malt beverages, Smirnoff Ice and Captain Morgan Parrot Bay. If it moves forward to buy the plant, Boston Beer plans to hire the nearly 200 people who currently work there. Boston Beer said the plant would be ready to brew Sam Adams beers by the end of next year.

Nyree Pinto, communications director for Norwalk, Conn.-based Diageo North America, said the 883,850-square-foot plant sits on a 63-acre property with freight rail access. Diageo would contract with Boston Beer to continue to make its drinks at the plant after the deal closes.

Some of Boston Beer's products had been brewed under contract at the property before the 2001 sale to Diageo.

"Many of the long-term, experienced brewers who worked on brewing our beers there before are still at the facility," Sullivan said. "It has terrific potential once we upgrade and restore the brewery."

Sullivan said Boston Beer paid $1 million as a deposit and signed the purchase-and-sale agreement on Wednesday night. The brewery, once fully outfitted, would provide a huge boost to the company's brewing capacity. Boston Beer officials said they expect the brewery would be able to make at least 1.6 million barrels a year. The entire company shipped a similar number of barrels in 2006, and is expected to see a rise in sales this year.

Sullivan said Boston Beer hasn't ruled out the Freetown site, and will seek to extend its option to purchase land there until company officials are sure that they will buy the Pennsylvania brewery instead.

"If we go through the due diligence (to review the Pennsylvania site) and we find something that's unsatisfactory there, then we go back to considering a variety of options, including construction (in Freetown)," she said.

Boston Beer was recently awarded a $2.5 million state grant for the Freetown project; the company would lose that money if it moves forward with the Diageo deal.

Although Boston Beer currently makes the majority of its beer at a corporate-owned plant in Cincinnati, the company also relies on contractors for a significant portion of its production needs.

The brewery acquisition would represent a major step toward its goal of significantly decreasing its reliance on outside contractors. However, Boston Beer signed a contract with City Brewing Co. earlier this year to make beer at a former Rolling Rock plant in Latrobe, Pa., and agreed to invest several million dollars into the plant.

Boston Beer also owns a small brewery in Jamaica Plain that is used for making draft beer to serve the Greater Boston market and to test recipes. "Boston's still the most important brewery," Sullivan said. "It's the headquarters brewery. It's where everything is researched, developed and perfected."