Molson Coors, SABMiller To Combine U.S. Operations

Molson Coors, SABMiller
To Combine U.S. Operations

SABMiller PLC and Molson Coors Brewing Co. said they plan to combine their U.S. operations, creating a juggernaut that could threaten the decades-long dominance of Anheuser-Busch Cos. in the American beer industry.

The joint venture, to be called MillerCoors, would have annual revenue of about $6.6 billion and yield about $500 million in annual cost savings. The combination would bring together Miller Brewing Co., the second-largest U.S. brewer by sales with about 20% market share and Coors Brewing co., the No. 3 player with about 11% market share. Anheuser-Busch controls nearly half the U.S. beer market.

SABMILLER TOP U.S. BRANDS

� Hamm's

� Icehouse

� Leinenkugel's

� Mickey's

� Miller Genuine Draft

� Miller Genuine Draft Light

� Miller High Life

� Miller High Life Light

� Miller Lite

� Milwaukee's Best

� Red Dog

� Olde English 800

The move comes as the beer giants wrestle with slower growth amid shifting consumer tastes. The mass-market brewers have been losing market share to wine and spirits companies, as well as small-batch "craft" brewers.

Analysts have long speculated that Miller and Coors would need to combine their businesses as the U.S. beer industry matures. Their combination would put heightened pressure on Anheuser-Busch to seek a merger partner itself. Anheuser, once the world's largest brewer, has fallen to No. 3 while other companies, including SABMiller, have expanded internationally through acquisitions.

A wave of mergers among the spirits companies over the last decade has raised the pressure on the beer giants, as liquor companies began to churn out sexy new products and sweet cocktails, luring lure younger drinkers away from beer. For instance, pre-mixed bottled drinks such as Smirnoff Ice have stolen share from beer over the last decade, with sales of such products topping 300 million nine-liter cases currently, triple the level of 1997, according to Merrill Lynch.

MOLSON COORS TOP U.S. BRANDS

� Blue Moon

� Caffrey's

� Carling

� Coors

� Coors Light

� George Killian's

� Grolsch

� Keystone

� Mexicali

� Rickard's Red Ale

� Zima

The two companies will share control of the venture, but because of the economic value of their respective units SABMiller will have a 58% economic interest to Molson Coors' 42% interest. Miller's top selling U.S. beer is Miller Lite, while Coors's is Coors Light.

The deal is expected to close by the middle of 2008. Both companies' business will be conducted separately until the deal completes.

"This transaction is driven by the profound changes in the U.S. alcohol beverage industry that are confronting both of our companies with new challenges," said Pete Coors, vice chairman of Molson Coors.

"As a result of this combination, Miller and Coors will be able to provide more focused support for our flagship brands, while taking full advantage of consumers' demand for imported and craft brands and innovative products," said Molson Coors Chief Executive Leo Kiely.

Mr. Coors will serve as chairman of the venture, while Mr. Kiely will be CEO.

The deal could mean that the era of large mergers in beer are starting to draw to a close, according to analysts, with only a few big multinational targets still available. Carlsberg and Heineken have ownership structures that preclude a hostile bid. Instead, Scottish & Newcastle is vulnerable to a takeover, possibly by Carlsberg or Anheuser-Busch, whish might be interested in S&N's Russian business in particular, says Rob Mann, analyst with Collins Stewart in London.

"We are approaching the final round of consolidation," says Mr. Mann. "Most markets have been consolidated at a local level by now."

The deal could, however, push Anheuser Busch to seek more acquisitions outside the U.S. than it has been willing or able to do so far. With the exception of stakes in China, India and Mexico, Anheuser has largely stuck to its model of focusing on the U.S.

"Anheuser's strategy has been wrong in that it has done almost nothing in terms of international consolidation," says Mr. Mann. "Now Coors and SAB have the opportunity to challenge the Anheuser model at home, which hasn't been possible before. Anheuser would like to return to the halcyon days of double digit growth, but it won't do that in a market that is under pressure."

As a wild card, spirits maker Diageo could seek to snap up a beer company. It is one of the only companies to have significant shares in beer and spirits as well as wine, but its beer business largely consists of Guinness. Diageo Chief Executive Paul Walsh has said that he could be interested in a beer takeover, but has said deal prices have been too high. There has long been speculation that Diageo would like to take over Heineken, but that the family that controls the beer company has been uninterested in selling. It is unlikely other spirits companies, such as Pernod Ricard or Bacardi, would be interested in acquiring beer makers, given that they are still small enough to buy other spirits brands. Diageo, by contrast, is now too large in spirits to make any significant liquor acquisitions.