Molson Coors to double in size after big beer deal

Molson Coors will nearly double its size once it completes a $12-billion US purchase that secures full ownership of its U.S. beer business and gains worldwide control of the Miller brand name.

Canada's share of total Molson Coors revenue will drop to 15 per cent, from 24 per cent, while the U.S. share will grow by 20 percentage points to 64 per cent. Europe will account for 18 per cent and other markets will be three per cent.

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Molson Coors CEO Mark Hunter said the "game-changing" transaction to acquire full ownership of Miller Coors — formerly a partnership with SAB Miller — will allow the company to invest more in its brands and increase consumer choice.

"This is a compelling strategic and financial opportunity that catapults Molson Coors to the next level," Hunter said during a conference call.

'Evolving industry'

"It creates a leading North American brewer with a unique portfolio of iconic brands. This is a rapidly evolving industry and this transaction gives us opportunity to materially strengthen our U.S. business."

The Molson Coors purchase of SABMiller's 58 per cent stake in a U.S. joint venture, formed in 2008, is separate but related to an even bigger deal that will combine the world's two biggest brewing companies.

SABMiller has agreed to a $107-billion US takeover by industry leader Anheuser-Busch InBev, maker of Budweiser beers, and agreed to sell its share of Miller Coors to reduce regulatory concern that one company would control the U.S. market.

Molson Coors is also buying the global rights to the Miller brand, giving the company greater access to established markets in Canada and Britain, emerging high growth markets like Panama and new countries such as Argentina.

The transaction effectively reverses last year's termination of a longstanding agreement to distribute Miller products in Canada, and also gives Molson Coors full control on how to produce, market and sell those brands. Canada is part of the $70 million US in earnings and $200 million US in annual revenues derived from the Miller international brands.

Expects cost savings

In Canada, the beer market has long been dominated by Molson Coors and AB InBev, through its ownership of Labatt, although the two beer giants have increasingly been challenged by the popularity of smaller local craft brewers.

In addition to the Miller brands, the deal gives Molson Coors perpetual royalty-free U.S. licences for SABMiller import and license brands including Peroni, Pilsner Urquell, Fosters and Redd's.

Much of the deal's financial contribution is tied to US$250 million in tax benefits over 15 years and at least US$200 million in annual cost savings, although analysts expect cost savings could reach US$300 million to US$400 million.

Brittany Weissman of Edward Jones said the deal likely won't change much for Canadian consumers.

"Most of the way that that landscape changes is going to be behind the scenes in terms of cost savings," she said in an interview.

Molson Coors will become a stronger player to withstand further market consolidation or lead the acquisition of another brewer, she said.

But John Colley, professor at Britain's Warwick Business School, says brewers will need to beef up to spend more on advertising to compete with the big brands.

"Molson Coors may not be independent for long," Colley said in a report.