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Canada: Adolph Coors Co. is reminding shareholders that under its proposed merger with Molson Inc., each of the company's controlling shareholders would have the power to block proposals they didn't like, even if the board, management and other shareholders were all in favour. It's just one of the potential risks outlined over six pages in a prospectus filed by Coors this week, as it prepares to issue 48 million shares in Molson Coors Brewing Co. if the merger goes ahead, The Global Mail posted on November 27.

Other risks include the possibility that Molson Coors will not realize its anticipated $175-million (U.S.) in cost savings and the fact that the brewery could be forced to assume control of the Montreal Canadiens if the National Hockey League labour dispute drags on for too long.

Detailed lists of potential risks are routine in prospectuses, as companies spell out worst-case scenarios in an attempt to limit their legal liability if things don't go as planned.

But the "risk factors" section in the Coors prospectus may receive particular attention from Molson shareholders, some of whom are skeptical about the potential cost savings and upset about the dual-class share structure under which the merged company will be governed.

"The governance of Molson has never been very good. It has been controlled by Eric Molson and Coors has been controlled by the Coors family. Nothing's really changed here," said Michael Palmer, president of Veritas Investment Research Corp. and a veteran beer industry analyst.

As the prospectus bluntly points out, most shareholders will have little say in votes before them.

The merged company will be controlled by Pentland Securities (1981) Inc. (which in turn is controlled by Molson chairman Eric Molson) and the Adolph Coors Jr. Trust, (controlled by members of the Coors family).

Pentland and the Coors trust have agreed to vote their shares together. That means that if either disagrees with an issue presented to shareholders, they can block it "even if beneficial to the company" or favoured by the "board, management or other stockholders."

That means that either Eric Molson or the Coors family would have the power to block a takeover bid favoured by other shareholders -- no matter how rich.

There are also the usual litany of warnings about potential profit pitfalls. Chief among them: Molson Coors may not be able to realize its $175-million in anticipated synergies because of the "challenges associated with integrating the operations, technologies, sales and other aspects of the businesses." And Molson's Brazilian operations may continue to incur losses and further writedowns.

Mr. Palmer points out that what he sees as the biggest risk to Molson Coors -- the impact of discount-priced beers in Canada -- is not explicitly mentioned in the prospectus.

Instead, there's a general reference to the fact that the merged company will continue to face "intense competition," which could cause it to reduce prices, raise costs or lose market share.

The prospectus also points out that the Canadiens could be adversely affected by the NHL lockout, which could result in Molson Coors being forced to exercise control over the team, "which could have a material adverse effect on our liquidity position and our combined results of operations."

In 2001, Molson sold an 80.1-per-cent stake in the Canadiens and the Molson Centre arena to Colorado businessman George Gillett Jr. As part of that transaction, Molson agreed to guarantee the 99-year lease on the Molson Centre and lend $92-million (Canadian) to Mr. Gillett.

Molson shareholders are expected to vote on the merger proposal in late December or early January.

Molson needs two-thirds approval from the holders of both classes of shares, voting and non-voting.


28 November, 2004