Coors, Molson merger slated

In a $3.4 billion deal, the third-largest U.S. brewery and Canada's largest agree to merge

July 23, 2004|By BLOOMBERG NEWS

MONTREAL - Molson Inc., Canada's biggest beer brewer, and No. 3 U.S. brewer Adolph Coors Co. agreed yesterday to merge in a $3.4 billion share swap, seeking to end a loss in market share to Anheuser-Busch Cos. and Interbrew SA.

Molson Chairman Eric H. Molson will serve as board chairman of the combined company and Coors Chief Executive Officer W. Leo Kiely III will be chief executive officer, the companies said jointly. Molson shareholders will own 55 percent of the new stock and Coors will own 45 percent.

The merger would unite two of North America's most storied companies.

Englishman John Molson founded Molson on the banks of the St. Lawrence River in 1786, going on to build Canada's first steamboat and starting a bank that grew to 125 branches by the time it was acquired in 1925.

Adolph Coors arrived in Baltimore in 1868 as a 21-year-old stowaway fleeing war in Germany. He headed west and landed in Denver, where he bought a bottling company in 1872. A year later, he co-founded the Golden Brewery in Golden, Colo., and became its sole owner in 1880. Adolph Coors Co. became the official company name in 1913.

The merger allows the Molson and Coors families to retain control and bolsters their ability to buy other brewers in a consolidating industry.

Some shareholders don't support the deal, and Ian Molson, who is feuding with family members over the merger, is threatening a counter-bid.

"I'm not in favor of the deal as it stands," said Jim Hall, who holds more than 287,000 Molson shares among the equivalent of $1.9 billion he helps manage at Calgary-based Mawer Investment Management. "It doesn't do anything for Molson shareholders. It's not a big, value-creating deal."

The transaction is subject to approval by two-thirds each of Molson's Class A and Class B shareholders. The family controls at least 55 percent of the Class B shares.

The proposed merger is expected to generate about $175 million in savings by 2007, with half of these benefits achieved within 18 months, the companies said. The saving will come through more efficient procurement, consolidated administrative functions and greater tax efficiencies.

The combined company will have more money to boost marketing and expand the Coors Light brand in the United States and Canada, where it's the fourth-best-selling beer, Kiely said during a meeting with analysts and investors.

"We see little synergistic about the combination," Legg Mason Wood Walker analyst Mark Swartzberg wrote in a research note. "With the limited exception of Canada, the combination of businesses in a given market involves one company's meaningful market position pairing up with the other company's small to nonexistent position."

Ian Molson, 49, may bid as much as $4 billion for his family's company in an effort to thwart the merger with Coors, The Wall Street Journal reported, citing unidentified people familiar with the situation. Molson didn't immediately return a call seeking comment on the report.

Ian Molson can't block the merger because Eric Molson and a family trust control a majority of the company's Class B shares, Eric Molson said. Ian Molson controls 10 percent.

If a rival bid from Ian Molson were successful, Coors would end its licensing agreement with Molson in Canada, Peter Coors said. Molson brews Coors Light in Canada and pays a royalty to the U.S. brewer.

Molson's share of the Canadian beer market has dropped to less than 44 percent from about 45 percent in 2002, and competition from Interbrew's Labatt and smaller brewers has forced it to discount top-selling brands.

The new company, to be called Molson Coors Brewing Co., is to have 15 directors, composed of five members nominated by Molson family board members, five nominated by Coors family board members and three directors elected by the company's nonvoting shareholders. Kiely and Coors CEO Dan O'Neill also are to serve.

Under the proposed plan, each Molson Class B voting share would convert into shares with the right to exchange for 0.126 voting share and 0.234 nonvoting share of Molson Coors. Each Molson Class A nonvoting share would convert into shares that have the right to exchange for 0.360 nonvoting share of Molson Coors.

Molson's widely traded Class A shares rose 66 cents, or 1.9 percent, to C$35.36 in trading on the Toronto Stock Exchange yesterday. Coors shares fell $1.95 to $72.78 on the New York Stock Exchange.

Molson Coors is to have headquarters in Denver and Montreal and revenue of about $5.9 billion. It would be the world's fifth-largest brewer, the statement said.

Anheuser-Busch has an 8.9 percent share of beer sales worldwide by volume, followed by South Africa's SABMiller PLC at 8.8 percent, according to Canadean Ltd., a beverage research company based in Basingstoke, England. Coors is tied for sixth with 2.8 percent.

In the United States, Anheuser-Busch had 53 percent of the beer market in the 12 weeks that ended June 12, according to ACNielsen figures distributed by Prudential Equity Group LLC. The St. Louis-based company has boosted its share from 45 percent in 1997, spending more than $800 million a year on advertising. SABMiller ranks No. 2 in the United States with 23 percent and Coors has 12 percent.

Molson's shares have dropped 1.6 percent in the past year, including a 3.7 percent gain in the two days since the company disclosed that it was in merger talks with Coors.

Coors stock gained more than 50 percent over the same period. The company has reported average sales increases of 16 percent in each of the past five years, compared with 4.7 percent for Anheuser-Busch.

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