E-Malt.com News article: 2888

Canada, Toronto: For generations, members of Montreal's upper-crust Molson family have been brought up to believe, according to a biographer, that their names should appear in print three times during their lives: at birth, marriage and death. So it is a safe bet that Eric H. Molson, the current patriarch, is not looking forward to today's annual meeting of the Molson Cos., the Canadian brewer that his family has controlled for 218 years and of which Molson is chairman, Omaha World-Herald posted on July 6.

The company, and Eric Molson personally, are under unusually intense public scrutiny. "Their dirty laundry is getting out in public," said Benj Steinman, editor of Beer Marketers Insights, an industry newsletter based in West Nyack, N.Y. "It's just a lot all at once. They can't be happy about that." Interest in today's meeting has been heightened by a fallout between Eric Molson, 66, and a distant cousin, R. Ian Molson, 49, who has been the company's deputy chairman for five years.

The two men have clashed over their respective roles in the company, with Ian Molson and his allies seeking to diminish Eric Molson's influence on the board, though few details of the dispute have emerged.

The spat comes in the context of net earnings that fell 23 percent in the recently ended fiscal year, and the poor performance of a Brazilian brewery that Molson acquired two years ago. "There seems to be a palace revolt," said Stephen Jarislowsky, chairman of Jarislowsky Fraser, a money manager in Montreal. Jarislowsky, who knows Eric Molson well, described Ian Molson as "very able but very ambitious."

Eric Molson has been on the board for 30 years and chairman since 1986. He controls almost 45 percent of Molson's voting stock. Ian Molson, a former head of European investment banking at Credit Suisse First Boston, joined the board in 1996 and controls 10 percent of the votes.

For the time being, Eric Molson appears to have the upper hand. Ian Molson is one of five directors who is not up for re-election at today's meeting and will be leaving the board. A Molson spokeswoman, Sylvia Morin, explained that a reduction in the number of directors to 10 from 15, to be approved at today's meeting, was the result of an independent study commissioned by the board.

"Eric controls 45 percent of the votes. You can't force him to do anything," one Toronto analyst, who asked to remain anonymous, said of the reduction in directors. Separately, several of Molson's biggest outside shareholders have given notice that they will vote against a slate of three directors nominated to represent the interests of holders of nonvoting stock. (These shareholders are entitled to vote on only the three directors.)

The immediate target of the outside shareholders is Daniel W. Colson, a former vice chairman of Hollinger International, the newspaper publisher based in Chicago that is controlled by Conrad M. Black. Hollinger is under investigation for accounting and other irregularities, and Colson is among those named in a recent lawsuit filed by Hollinger against several former directors and managers.

"Our primary objection is to Mr. Colson," said Keith Graham, a portfolio manager at AGF Funds of Toronto, a mutual funds group that owns about 1 percent of Molson's nonvoting stock. But, Graham said, his company also had "broader concerns of overall governance issues."

He cited the recent turmoil on the Molson board, as well as the company's two-tier share structure, a device used to entrench family control at several of Canada's most prominent companies. Furthermore, said Graham, echoing a widely held view, "the company has had significant operational and strategic issues over the past years."

Molson's net earnings shrank 23 percent, to 237 million Canadian dollars ($174 million), in the fiscal year ended March 31. Sales were virtually unchanged at 2.5 billion Canadian dollars ($1.8 billion).

Molson has struggled to digest its acquisition two years ago of an 80 percent stake in Cervejarias Kaiser, a Brazilian brewer that now ships more beer than Molson's Canadian operations. Kaiser has slipped from second to third in the Brazilian beer market, with its share sagging to 12 percent in the first three months of the year, its lowest since the Molson takeover.

Compounding Molson's headaches, its share of the Canadian market slipped to 42.7 percent in the first three months, the lowest level in recent history, from 44.2 percent in the same period of 2003. An American unit, Molson USA, has posted losses for the last two years.

"It's rare to see so many things roiling one company at the same time," said Steinman. Molson's chief drawback, he said, is that it is too small to wield much power in a rapidly consolidating global industry. But Jason Bilodeau, an analyst at UBS Securities in Toronto, pointed to a series of actions that Molson had taken to improve performance in both Brazil and Canada.

In Canada, Molson is rolling out a new marketing campaign for its flagship Molson Canadian brand. Several new brands have also been introduced. The company overhauled its Brazilian sales force earlier this year and has recently installed a new chief at Kaiser.


07 July, 2004