Beer giants outline US merger plan

By Neil Merrett

- Last updated on GMT

Related tags Molson coors Molson coors brewing company Management occupations Sabmiller

SABMiller and Molson Coors yesterday announced plans to combine
their US operations to improve cost efficiency in the market place.

The brewers will now operate in the country through a single entity called MillerCoors, which will have combined net sales of $6.6bn. The decision to enter into a joint venture highlights the growing financial pressures facing brewers, both as a result of increasing commodity and materials prices and a competitive global beer market. Molson Coors vice chairman Pete Coors said the move was directly related to the challenge currently facing beer production within the US, both from its rivals and in changing consumer demands. "This transaction is driven by the profound changes in theU.S.alcohol beverage industry that are confronting both of our companies with new challenges,"​ he stated. "Consumers are broadening their tastes and are increasingly looking for greater choice and differentiation; wine and spirits companies are encroaching on traditional beer occasions, and global beer importers and craft brewers are both taking a larger share of volume and profit growth."​ Both SABMiller and Molson Coors will hold equal voting rights in the partnership, though their economic interests will vary between 58 per cent and 32 per cent respectively, to reflect the individual value of the contributed assets. The venture will also include both parties' Porto Rican operations, though their other international divisions will continue to be run separately by the companies. SABMiller claims that the joint venture's combined portfolio of brands including Peroni, Miller, Molson and craft beers like Leinenkugel's can offer better returns on marketing expenses. MillerCoors will also be more flexible in brand building and product and packaging innovation, helping to compete with both domestic and global large-scale rivals, SABMiller says. Besides expanding the two companies' brand portfolios, the merger is also expected to generate $500m worth of savings in annual costs by the end of the third full year of combined operations, according to SABMiller. These savings will come from optimising production output by combining brewery networks and reducing shipping distances, while also moving to eliminate identical corporate and marketing services. The total cost of implementing these changes is expected to amount to $450m, the group added. The venture will be headed by Molson Coors vice chairman Pete Coors, while SABMiller's chief executive officer serves as vice chairman. Molson Coors chief executive officer Leo Kiely will retain the same position in joint venture with Miller's Tom Long becoming the group's president and chief commercial officer. Additional placements will be made where possible, form the existing executive members of both companies respective boards, SABMiller added. The deal also requires both brewers to enter into a "standstill"​ agreement, preventing either company from making unsolicited offers for each others shares for a decade after the transaction is completed. The two companies have also agreed to grant first offer and last refusal should either group wish to divest their interest after an initial no sale period of five years. The merger could give a boost to SABMiller's US operations in particular, with revenues in the division falling by 0.7 per cent on an organic basis for its first fiscal quarter ending 30 June.

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