MillerCoors Brews up Efficiencies

Joint venture creates stronger No. 2 brewer in U.S. beer industry

GOLDEN, Colo. & MILWAUKEE -- Noting the challenges the beer industry has faced in recent years, executives of the Molson Coors and SABMiller brewing companies are hailing yesterday's announcement that the companies will create a joint venture (JV) as an opportunity to create a stronger, brand-led U.S. brewer with the scale, resources and distribution platform to compete more effectively in the market place.

This Miller-Coors joint venture is about creating a stronger, more competitive U.S. brewer that will enable us, as well as our distributors and [image-nocss] retailers, to realize significant synergies and cost savings in order to have the ability to compete more successfully, said Pete Coors, who will serve as chairman of the new company, on a conference call with investors.

Company leaders also said the move to create the MillerCoors company will create new opportunities and advantages for distributors, consumers and retailers.

First, we'll have an enhanced ability to invest behind a wide variety of brands and innovations, and we'll be able to develop streamlined processes and systems for distributors and national accounts, said Leo Kiely of Molson Coors, who will be CEO of the new company. This will benefit consumers and retailers by giving them more choices and access to a wider range of strong brands in more places, in other words, more ubiquitous distribution.

He continued, Second, this venture will enable us, along with our distributors, to recognize significant synergies and cost savings in order to have the ability to compete more successfully in an increasingly competitive U.S. market place. And third, of course, we'll draw from the talent and resources of these two great companies to build an even stronger team, the best of the best, and a strong culture in the U.S.

Analysts seem to concur that the historic move will reshape the beer industry.

We see the implications of a MolsonCoors/SABMiller JV as significant on the U.S. beer (and broader alcohol) industry, [including] marketing dollar effectiveness, improved wholesaler efficiency and improved voice/effectiveness at retail, wrote analyst William Pecoriello of Morgan Stanley & Co. As [Anheuser-Busch] is the largest player in the U.S. beer industry, we see this as incremental negative as we believe that this transaction will create a more able competitor with significant funds for marketplace investment. [Anheuser-Busch] has already been losing share year to date.

Analyst Mark Swartzberg of Stifel, Nicolaus & Co. agreed. We expect the combination to create a better competitor potentially vs. the market leader, Anheuser-Busch, he wrote. Accordingly, we believe this transaction is added incentive, if not a catalyst, for A-B to explore strategic alternatives.

And analyst Bonnie Herzog of Citigroup said the deal could be the catalyst A-B needs to seal a merger with or acquisition of Belgium's InBev.

The combination of Coors and Miller creates a more rational and stronger No. 2 player in the U.S. market, especially for the pricing environment, she wrote. As a result, we anticipate that this transaction should be more neutral for [A-B] and could accelerate [its] eventual combination with InBev in our view. Also, this deal further confirms our thesis that global consolidation will ramp-up in the near-term.

Regarding the joint venture overall, Kiely said, It is clear that Miller and Coors together will be a much stronger, more competitive U.S. brewer than either company could be on its own.

According to the companies, the results of the deal, reported yesterday in a CSP Daily News Flash, will include:

A combination of complementary assets that will create a stronger, more competitive U.S. brewer with an enhanced brand portfolio. Greater scale and resources that will allow additional investment in brands, product innovation and sales execution. Consumers and retailers who will benefit from greater choice and access to brands. Distributors who will benefit from a superior core brand portfolio, simplified systems, lower operating costs and improved chain account programs

The letter of intent signed by the two companies allows for the combining of the U.S. and Puerto Rico operations of their respective subsidiaries, Miller and Coors, in a joint venture to create a stronger, brand-led U.S. brewer with the scale, resources and distribution platform to compete more effectively in the increasingly competitive U.S. marketplace.

The new company will have annual pro forma combined beer sales of 69 million U.S. barrels and net revenues of approximately $6.6 billion. SABMiller and Molson Coors expect the transaction to generate approximately $500 million in annual cost synergies to be delivered in full by the third full financial year of combined operations. The transaction is expected to be earnings accretive to both companies in the second full financial year of combined operations.

Closing of the transaction is subject to reaching final agreement, obtaining clearance from U.S. competition authorities, certain other regulatory clearances and third-party consents, as required.

SABMiller and Molson Coors will each have a 50% voting interest in the joint venture and have five representatives each on its board. Based on the economic value of the contributed assets, SABMiller will have a 58% economic interest in the joint venture and Molson Coors will have a 42% economic interest.

Pete Coors, vice chairman of Molson Coors, will serve as chairman of MillerCoors. Graham Mackay, SABMiller CEO, will serve as vice chairman of MillerCoors. Leo Kiely, current CEO of Molson Coors, will be the CEO of the joint venture, and Tom Long, current CEO of Miller, will be appointed president and chief commercial officer.

Meanwhile, Molson Coors also named Peter Swinburn president and CEO of Coors Brewing Co. effective December 1. Swinburn is currently serving as CEO of Coors Brewers Ltd., Molson Coors' European and Asian unit. And Molson Coors named Mark Hunter, currently Chief Commercial Officer of Molson Canada, as CEO of Coors Brewers Ltd., replacing Swinburn.

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