Sunday, March 9, 2014
By Michael Shepherd email@example.com
State House Bureau
AUGUSTA – The state's wholesale liquor distributor offered the state a guaranteed $320 million to extend its contract without a bid process, but Gov. Paul LePage quickly rejected the deal, saying the contract is worth more than the offer.
Gov. Paul LePage
In a letter released Wednesday evening, LePage declined the offer from Maine Beverage Co. within hours of its pitch to the governor's office and legislators. The governor said he hopes the company will still put in a competitive bid for the contract.
D. Dean Williams, Maine Beverage's president and CEO, declined to comment on LePage's rejection, saying he hadn't seen the letter by early Wednesday evening.
The company, owned by Massachusetts-based Martignetti Cos. and the New York private equity firm Lindsay Goldberg & Bessemer, guaranteed the state $320 million over 10 years, plus more in revenue sharing, if it's allowed to keep the state's contract after the current one expires in mid-2014.
Under the contract awarded in 2004, Maine Beverage took charge of warehousing and distribution of liquor in exchange for a $125 million up-front payment and profit sharing.
In documents presented to the Legislature's Veterans and Legal Affairs Committee earlier this week, Gerry Reid, director of the Maine Bureau of Alcoholic Beverages and Lottery Operations, said if the current contract was disbursed over time, it would see about $12.5 million per year in operating income, along with $8 million in revenue sharing.
In the next contract, the administration hopes for more than $36 million per year and $8 million in revenue sharing.
A letter from Maine Beverage to the executive branch and legislators cited the company's record of success and the promise of money to meet the LePage administration's borrowing plans.
The company pitched its proposal as a potential alternative to issuing a bond to pay the state's $186 million share of hospital debt. LePage has proposed paying the bond back with money that would be realized in the renegotiated liquor contract.
But Maine Beverage said its deal could allow the state to choose how to receive the money, either as an annual revenue stream to amortize debt or as an up-front payment.
Terry Brann, the state controller, recently told the Press Herald that interest rates would range from 5 percent to 6 percent annually on a 10- or 20-year bond. The state's $186 million in payments to hospitals would be matched by $298 million in federal funds.
On Wednesday afternoon before LePage's letter went out, Williams said the company would be willing to disburse the $320 million over the life of the contract or make a front-loaded payment.
"We are not purporting for one second to tell the state how to do it," Williams said. "We're saying that there are many options available and we are sincerely interested in discussing any of those they may have an interest in."
In its letter, Maine Beverage said it would pay the state an average of $32 million annually, plus $4 million to $6 million per year in revenue sharing to "financially reward agency liquor stores and bolster efforts to diminish cross-border sales," a reference to cheaper alcohol prices in New Hampshire.
But in LePage's letter, the governor said the administration firmly believes "there is more value for the state in the wholesale liquor operation" than the proposal outlines.
In a statement issued around the same time as LePage's letter, Ford Reiche, owner of Dirigo Spirit, which also plans to bid on the contract, said Maine Beverage "should not be reluctant to submit (their bid) in an open and competitive bidding process."
Pending legislative approval, the state will seek bids in April or May for the liquor contract, which will be structured without an up-front fee. The state has said it will seek a greater portion of the revenue than it receives now, and will not guarantee a minimum profit margin for the contractor.
Maine Beverage's proposal initially appeared to throw a wrench in the LePage administration's plans for putting the liquor contract out for bid. It came close -- but not close enough -- to the dollar value the governor's team has said it wants.
The LePage administration said earlier this month that the state has made $185 million on liquor sales in the past decade. In 2009, the
financial firm Deloitte & Touche pegged the fair market value of the contract at $378 million.
The last liquor deal has been roundly criticized for taking $125 million in up-front revenue to fill a budget hole that Gov. John Baldacci was facing in 2004. Maine Beverage now gets a guaranteed gross profit of 36.8 percent of annual sales.
On Wednesday, Senate Minority Leader Michael Thibodeau, R-Winterport, described that deal as a "fire sale," and Sen. John Patrick, D-Rumford, a member of the Veterans and Legal Affairs Committee, said he was "hollering and screaming" when the state made the deal.
Thibodeau said that although Maine Beverage made a "serious proposal," the state should continue with a bid process in order to get the best deal.
"I know there are other companies that have expressed an interest in the contract," Thibodeau said. "I think it's important that we have an open and competitive bid process."
Patrick said Maine Beverage has done a good job of managing the state's liquor business, and although he wouldn't have trouble backing Maine Beverage's proposal as written, pending more details, he still wanted the new contract to go out to bid.
After LePage rejected the offer, Patrick said he wasn't surprised.
"I think he may have his mind made up," Patrick said. "I hope he utilizes what was in the letter in the (request for proposal) to encompass what's best for the people of Maine."
State House Bureau Writer Steve Mistler contributed to this report.
Michael Shepherd can be reached at 370-7652 or at: