Originally created 01/31/05

Coors, Molson hoping merger will foster growth



DENVER - Winning approval for their $6 billion merger might turn out to be the easy part for Adolph Coors Co. and Molson Inc.

Coors shareholders are expected to vote in favor of the deal on Tuesday, joining Molson shareholders who overwhelmingly approved it last week. But the combined Molson Coors Brewing Co., with well-known brands including Coors Light, Molson Canadian, Carling and Keystone, faces a difficult beer market as more consumers gravitate toward wine and hard liquor or cut back on carbohydrates.

Like other players in the brewing industry, Coors and Molson have decided that merging with a rival, especially one based in another country, will help them compete.

Benj Steinman of Beer Marketer's Insights Inc. called the Molson-Coors union, which will create the world's fifth-largest brewer, a "get bigger or get out kind of thing."

"This enables both companies to remain in the game and to get to be a bigger player. On the other side, it doesn't really solve the issues either company has in their own country," he said.

Coors is fighting Anheuser-Busch Cos. and SABMiller in the domestic market as its Coors Light sales have cooled. And Molson has problems at home and overseas - it's battling Inbev SA's Labatt Brewing in Canada, and last fall, Molson blamed a quarterly loss of $96.2 million on a massive writedown of its operations in Brazil.

Molson Coors would have enough financial muscle to become more efficient and look for growth opportunities in emerging markets such as China, eastern Europe and South America, analysts say.

"They'll be a much larger company with a pretty strong balance sheet," said Harry Schuhmacher, editor and publisher of the trade publication Beer Business Daily. "I think there is a lot of opportunity."

The new brewer would rank fifth globally in both revenue and barrels sold. It would have a 43 percent market share in Canada, 21 percent in Britain and 11 percent in each of the United States and Brazil, where Molson has struggled.

Coors and Molson say their union would generate $175 million a year by 2007 in cost savings by optimizing the Canadian brewery network, making material procurement more efficient, streamlining the organization and improving tax efficiencies.

The company would have dual headquarters in Montreal and Denver, with U.S. operations based at Coors' brewery complex in Golden west of Denver and the Canadian operations managed from Toronto.

The history between the two companies began in 1998 when they began selling each other's products in their respective countries. On a spring day nearly a year ago, Coors chief executive Leo Kiely called his counterpart at Molson, Dan O'Neill and suggested it was time to take their relationship to that higher level.

After the merger plan was announced in July, former Molson deputy chairman Ian Molson attempted unsuccessfully to mount a rival bid and opposition began to grow from shareholders worried they were not getting a fair deal for their holdings.

The two companies offered a special dividend to Molson shareholders to sweeten the deal but it failed to quell all the opposition. London-based SABMiller PLC then indicated it would be interested in making a bid for Molson if the merger collapsed.

A few days later, Molson and Coors increased the special dividend for Molson shareholders by 67 percent to $4.53 per share, or a total of $532 million. That raised the value of the mostly stock deal to about $3.76 billion and eased most stockholders' concerns.

The plan calls for Coors shareholders to receive one share of Molson Coors for each share of Coors. Each Molson Class B share will be exchanged for a 0.126 voting share and 0.234 nonvoting share of Molson Coors. Each Molson Class A share will be exchanged for 0.360 nonvoting share of Molson Coors.

Coors' Kiely will be CEO of the new company, Eric Molson its chairman and O'Neill its vice chairman. Coors chief financial officer Timothy Wolf will take the same position at the new company.

The new company will have a 15-member board, including five nominated by the Molson family board members, five by Coors family board members and three elected by nonvoting shareholders.