E-Malt.com News article: 2978

Canada: In response to reports published on July 19 in the public media, Molson Inc. and Adolph Coors Company confirmed that they are in advanced discussions concerning a possible merger of equals between the two companies, the terms of which are still being discussed and are subject to final Board approvals.

The parties confirmed that the terms being discussed include Eric Molson (currently Molson's Chairman) becoming Chairman of the Board; Leo Kiely (currently Coors' Chief Executive Officer) becoming Chief Executive Officer; and Daniel J. O'Neill (currently Molson's President and Chief Executive Officer) becoming Vice Chairman, Synergies and Integration, of the combined company.

“An announcement could be made in the near future. There can be no assurance that a transaction will take place. The parties do not intend to make any further comment prior to entering into a combination agreement or the termination of negotiations.”

The deal, if completed, would likely offer little or no premium to shareholders of either company and split the executive jobs among the two companies. The terms being discussed include naming Molson Chairman Eric Molson the combined company's chairman, while Coors Chief Executive Officer Leo Kiely would be CEO, the companies said in a joint statement.

The deal would solve expansion issues for both companies, which have watched larger rivals snatch up competitors around the globe over the past few years, Reuters commented on July 19. "Global beer is consolidating at a fairly healthy clip," said Raymond Lai, analyst with Raymond James Ltd. "And certainly from a purchasing power point of view, a bigger beer company would benefit from purchasing advantage as they do much more global sourcing of their raw materials, which is a large component of cost structuring."

But other analysts questioned the logic behind the deal, which would combine two similar sized companies but offer little in the way of new growth opportunities. "There would be some short-term cost synergies but long term strategic benefit I don't see a lot of change from the status quo," said Michael Van Aelst, analyst with CIBC World Markets. "They both already have significant relationships with each other in North America. I don't see strategic benefit to this type of a merger."

Denver-based Coors has struggled of late to overcome a health-conscious shift away from beer to wine and distilled spirits. Unlike other brands, Coors has yet to introduce a successful low-carbohydrate beer, and the company's Coors Light brand is losing share to SABMiller's Miller Lite and Anheuser-Busch's Bud Light.

Montreal-based Molson, Canada's oldest brewer, has been searching for ways to gain a leg up on rival Labatt, owned by Interbrew. The company bought Brazil's Kaiser brewery in 2002 to expand its reach into South America, but the venture has proved to be a drain on its profits. That venture could prove valuable to Coors, which thus far has little presence in the area, analysts said.

Coors and Molson already have joint ventures to distribute each other's products in the United States and Canada so it is hard to see how a combination would benefit them, said Benj Steinman, editor of industry trade newsletter Beer Marketer's Insights. "It makes them bigger on the global scene," Steinman said. "But no major synergies are immediately apparent."

Sources close to the talks said the issue of who would run the combined company had been a significant snag in negotiations thus far.

Coors' founding family controls about one-third of the company's voting stock. But after four generations of being family run, the chain was disrupted recently by Chairman Peter Coors' declaration that he would take an unpaid leave of absence to run for a U.S. Senate seat.

Molson's leadership status is equally in flux. The 218-year old company saw deputy chairman Ian Molson quit in June after a dispute with the company's chairman and his cousin, Eric Molson, splitting the Molson family in two.

Eric and Ian Molson control about 55 percent of the company's total voting power, with Ian controlling about 10.3 percent of family vote.

Coors shares climbed as much as 9 percent on Monday before closing up $2.54, or 3.5 percent, at $75.56 on the New York Stock Exchange on word of the talks. Molson shares climbed 85 cents to close at C$33.45 on the Toronto Stock Exchange.

Molson Inc. is one of the world's largest brewers of quality beer with operations in Canada, Brazil and the United States. A global brewer with $3.5 billion in gross annual sales, Molson traces its roots back to 1786 making it North America's oldest beer brand. Committed to brewing excellence, Molson combines the finest natural ingredients with the highest standards of quality to produce an award-winning portfolio of beers including Molson Canadian, Molson Export, Molson Dry, Rickard's, Marca Bavaria, Kaiser and Bavaria.


21 July, 2004