E-Malt.com News article: 3005

Canada's largest brewery, Molson Inc., has launched a price war in a bid to revive its failing brand, while company executives try to sell skeptical investors on the merits of its proposed $6 billion merger with Adolph Coors Co. The merger "road show" was to hit Bay Street July 27 after opening July 26 in Montreal, where Molson is headquartered, and was to continue for two more days in Coors' territory south of the border, according to The Star.

Meanwhile, Molson's share price took a tumble on Monday, July 26 after the debt-rating agency Standard & Poor's downgraded its outlook to "negative" based on last week's disappointing financial report. A highly publicized threat by Coors chief executive Leo Kiely to end the U.S. brewer's lucrative joint ventures with Molson if shareholders voted in favour of a rival offer also weighed on Molson stock. (The two companies sell each other's brands in their home markets.)

Though no other offer is currently on the table, dissident Molson family member Ian Molson is reportedly assembling a competitive bid for the company that could involve a rival brewer, such as Amsterdam-based Heineken S.A. or London's SABMiller PLC, or a financial backer, such as Toronto turnaround specialist, Onex Corp.

Molson class A shares closed down $1.96, or 5.5 per cent, at $33.30 on the Toronto Stock Exchange July 26. For consumers, the turmoil was good news as Molson took belated aim at the small upstart "buck-a-bottle" brewers by announcing a $5.60-a-case price cut just in time for the August Civic Holiday long weekend.

The deal brings a case of 24 Molson Canadian, Canadian Light or Export to $27.50 (plus bottle deposit) for a seven-day period ending Sunday.

Though it's not the first sale this year, it's one of the most aggressive since Molson chief executive Dan O'Neill acknowledged the company has been slow to respond to price competition in the marketplace.

But Lakeport Beverage Co. president and chief executive Teresa Cascioli said Molson's sale price still doesn't match the regular price of a case of Laker, at $24 plus deposit, and the quality of the brew is the same.

Meanwhile, Molson and Coors executives have their work cut out for them selling the merits of the $6 billion merger proposal.

The financial community has so far been critical of the deal. While acknowledging the two family-owned, mid-sized (by global standards) beer makers need fixing, financial analysts have questioned whether the so-called "merger of equals" produces the best result.

The merger team will also face questions about Ian Molson's reportedly richer offer. A Molson official confirmed the board received a last-minute appeal for a meeting from Ian last Wednesday, the day before the merger with Coors was announced. "I don't think the board has responded," said Sylvia Morin, Molson's vice-president of communications.

The beer companies' leaders will be delivering a three-part message on how the merger will create shareholder value over the short, medium and long term, Morin said.

In the short term, the merger will cut $175 million in costs, mainly by shifting some of Coors' Denver, Colo.-based production closer to its north-eastern U.S. market by using Molson's breweries in Toronto and Montreal.

In the medium term, the company will invest those cost savings and more in rebuilding Molson's and Coors' flagging sales in Canada, the United States and the United Kingdom.

And, in the long term, by leveraging their enhanced scale and financial resources to expand geographically, partner with larger brewers, and even buy other breweries.

As for rival offers, even if no other brewery is involved, a financial buyout by a turnaround specialist such as Onex could saddle Molson with excessive debt while failing to generate any cost savings from synergies, analysts noted.

But it may all be a moot point since no bid can succeed without both the approval of Eric Molson, who controls Molson's class B shares, and two-thirds of the institutional investors, who dominate the class A shares. A vote on the proposed merger is expected this fall.


28 July, 2004