Molson Coors has launched legal action against SAB Miller in response to the UK company's move to terminate a licensing agreement granting the US-Canada brewer rights to license SAB products in the country, with the latter blaming low volume sales.
In its Annual Report, filed last Friday with the US Securities & Exchange Commission (SEC) Molson Coors said that SAB Miller (Miller Brewing Company) informed it orally of its intention to terminate the deal, alleging that Molson failed to meet volume sales targets under the terms of the licensing agreement.
In a statement sent to BeverageDaily.com today, SAB Miller Canada confirmed its intention to exit the agreement and "explore other options for Canadian import and distribution". It said it gave Molson Coors Canada the necessary six months' notice of termination on January 18, meaning that the agreement will end on July 22.
"Although Molson Coors Canada has filed a lawsuit in Ontario seeking to prevent termination of the License Agreement, Miller is vigorously defending that action and maintains its right to terminate," SAB added.
“While Miller brands make up only a small percentage of Molson Coors’ Canadian sales, this decision reflects our belief that there exists the opportunity to grow Miller’s brands in Canada,” said SAB's MD for Canada, Paul Gurr.
“We see Canada as a country with a rich tradition of beer appreciation and believe we can better serve Canadians’ needs through this transition. SABMiller remains committed to the Canadian market, and Miller trademark brands will continue to be available within Canada," he added.
Via its JV with SAB Miller formed in 2008 that brought together the US and Puerto Rican operations of both groups, Molson Coors created Chicago-headquartered MillerCoors as the second largest brewer in the USA, that also exports brands such as Miller Lite and Milwaukee's Best to Mexico, The Americas and Canada.
But announcing the launch of its suit last Friday in response to SAB's move, Molson Coors said in its SEC filing: "We do not believe Miller has any right under the license agreement or otherwise to terminate the license agreement.
"Following this communication, we filed a lawsuit in Ontario, Canada (Molson Canada 2005 v. Miller Brewing Company, Sup. Ct. of Justice-Ontario, CV-12-470589) seeking an injunction preventing Miller from terminating the License Agreement and ordering Miller to abide by its contractual terms."
On January 18 2013, Molson Coors said that SAB Miller sent it a further written notice purporting to terminate the license agreement.
"In our lawsuit, we also assert that Miller breached the license agreement by attempting to terminate the license agreement," Miller Coors said.
"We intend to vigorously assert and defend our rights in this lawsuit.
"At this time we are unable to predict the outcome of this litigation or the impact, if any, of an adverse outcome on our business and results of operations, including any possible future asset impairment."
Discussing its FY and Q4 2012 results with analysts last week on an earnings call - where the litigation against SAB Miller was not mentioned - US-Canadian brewer of Carling and Blue Moon, Molson Coors reported underlying tax earnings down 65.1% to $60.1m in Q4, with management blaming weak economic conditions and challenging prior year comparisons.
Discussing the impact of a 20% excise tax increase implemented in November in Quebec, Molson Coors Canada CEO Stewart Glendinning said that it hit Q4 sales (-13%) as did a National Hockey League lockout that only ended in January that hit the firm’s marketing exposure.
Moreover, a competitive dynamic in Western Canada meant that smaller brewers had continued to extend in the value space (which had grown quite dramatically) and the craft space, he added.