Molson, Coors confirm merger
with the merger of Canada's Molson group with its US counterpart
Coors - a 'merger of equals' to create a company with sales in
excess of 60 million litres.
The two companies confirmed in this month that they were holding merger talks earlier, reacting to the need to increase their scale to better compete with the global market leaders like Interbrew Ambev, Anheuser-Busch, SABMiller and Heineken.
The new Molson Coors Brewing Company will have net sales of $6.0 billion and operating profits of around $1 billion, and is also expected to generate around $175 million in annual synergies by 2007, making it an altogether leaner and more efficient business than either of its constituent parts.
The transaction brings together Coors, the third-largest brewer in the US with an 11 per cent market share, and the second-largest brewer in the UK with a market share of 21 percent, with Molson, Canada's leading brewer with a 43 per cent market share, and the third-largest brewer in Brazil, where it has an 11 per cent market share.
The combined company's portfolio will include Coors Light, (the seventh biggest beer brand worldwide, according to the company), Molson Canadian (the leading brand in Canada) and Carling (the top standard lager brand in the UK). It will also have a number of import bands: Coors Original, Keystone, Aspen Edge, Zima XXX, Worthington's, Molson Ultra, Export, Molson Dry, Rickard's and Kaiser.
The companies will also maintain, for the time being at least, their various licensing agreements with rival brewers Heineken, Modelo, Grolsch, FEMSA, Foster's and SABMiller.
The principal reason for the merger is to allow the two medium-sized companies to play a more important role in the global consolidation of the beer market - especially as neither group on its own had much hope of participating in this movement, either as a buyer or as a target. But just in case another major player did decide on a last minute bid to try and scupper the deal, the two companies have included a $75 million break-up fee which would be payable to either party if the other dropped out.
Shaving $175 million off its annual cost base will certainly help the company improve its chances of competing with the bigger players, with additional clout in procuring raw materials and better brewery capacity usage the most likely to generate savings.
Coors also reported an increase in both sales and operating profits for the second quarter of the year, but lower net income as a result of higher tax rates.
Net sales of $1.15 billion were a 4.6 per cent increase on the second quarter of 2003, despite a 3.4 per cent drop in volumes to 10.4 million hectolitres - reflecting a shift towards higher-margin beers. This also helped lift operating profits by income 6.9 per cent to $125.6 million.
Leo Kiely, president and chief executive officer, said: "Overall, second quarter results for Coors Brewing Company showed improving trends in several key areas of the business, but a few, largely temporary, factors negatively impacted our overall results.
"Improved pricing in our major markets, solid margin and profit growth in the UK, continued strong performance of our Coors Light business in Canada, and favourable foreign exchange rates drove higher operating income in the quarter. These positive factors were partially offset by the negative impacts of US distributor inventory dynamics and higher logistics-related costs in our Americas business."
Kiely highlighted the low-carb beer Aspen Edge and the upmarket Zima XXX brand as the main drivers of sales and profit growth in the US, while Carling in the UK continued to improve despite deep discounting by retailers.
