MONTREAL Molson Inc., Canada's largest brewer, has agreed to merge with Adolph Coors Co. in a $6 billion (U.S.) deal that creates a new beer behemoth and ends the independence of two of North America's biggest family-run brewing icons.
This transaction allows us to create a stronger company in a consolidating global industry while preserving Molson's rich heritage as North America's oldest beer company and Canada's leading brewer, Eric Molson, chairman of Molson, said in a combined statement with Coors early today.
The agreement would create the world?s fifth biggest brewer to be called Molson Coors Brewing Co. (TSX: MOL.A) as measured by volume of beer sold and the third-biggest brewer in the United States.
This historic transaction combines 350 years of brewing excellence and will create a dynamic and competitive organization able to deliver long-term value to shareholders while continuing to be an important contributor to the communities in which we operate, Coors chairman Peter Coors said from Golden, Colo.
The Montreal company revealed the structure of the deal when it reported financial results early today.
The transaction is structured as a share exchange whereby Molson Inc. shareholders can either convert their shares to shares of the new entity or can elect to receive exchangeable shares on a tax deferred basis, Molson said.
Today's merger continues a wave of consolidation in the global beer industry that has seen U.S. and European brewers get bigger to grow more rapidly in an increasingly competitive international market.
It also means that Canada's two major brewers, which account for nearly nine in 10 bottles of beer sold in this country will effectively be foreign owned. Molson's chief rival, Toronto-based Labatt Brewing, is controlled by Belgian beer giant Interbrew.
For Molson, the merger with Coors (NYSE: RKY) should expand its markets in the United States and help improve the company's financial fortunes, which have been hurt by an ill-fated 2002 expansion into Brazil and flat beer sales in Canada.
Molson reported today that excluding special charges for restructuring and gains, net profits fell 19.3 per cent to $68.3 million in the three months ended June 30, the first quarter of the company's 2005 fiscal year. That was down from profits of $84.6 million last year.
Meanwhile, total Molson beer sales volume fell 3.4 per cent, including 2.8 per cent in Canada and 4.2 per cent in Brazil.
Quarterly revenues rose to $675 million from $661.8 million, the company reported.
"New management was put in place in both Canada and Brazil as part of the `regaining the momentum strategy outlined in the annual report, president and chief executive Dan O'Neill said in a release. Although still early, we have seen encouraging signs with new advertising, new packaging, new promotional design, which have resulted in consecutive weekly share gains over the last several weeks.
Officials with the companies could not be reached for comment early today.
Executives close to the negotiations said they expected the merged company would save as much as $175 million a year as it struggles against larger competitors.
As part of the transaction, Molson chairman Eric Molson would become chairman of the combined company, while Leo Kiely, chief executive of Coors, would become the new company?s chief.
O'Neill was named vice-chairman of synergies and integration, and Timothy Wolf, currently chief financial officer of Coors, will be the chief financial officer of the combined company.
The company will have executive headquarters in Denver and Montreal, with its Canadian operations managed from Toronto and its U.S. operations from Golden, Colo.
The transaction comes after days of speculation among investors that an interloper like Heineken would emerge to break up the deal and try to steal Molson.
Reports also suggested that Ian Molson, the company's former deputy chairman who resigned as part of a family feud with Eric Molson, had been canvassing for another possible buyer.
Shares of Adolph Coors Co. and Molson Inc. fell yesterday after media reports predicted today's merger announcement.
Shares of Molson closed down 30 cents to $34.70 on the Toronto stock market, after the Wall Street Journal reported that people familiar with the matter said the deal will contain little or no premium for Molson shareholders and it will be structured as much as possible as a classic merger of equals.
Coors shares were down $1.77 to $74.73 (U.S.) on the New York Stock Exchange.
Most analysts have questioned the value of the deal, noting the companies already have agreements to sell each other's products in their respective countries.
Sales of Coors through Molson account for nearly a quarter of the company's earnings.
They'll come up with some synergies. Whether the market believes they are attainable or achievable is another thing, said CIBC World Markets analyst Michael Van Aelst.
I don?t see any long-term strategic benefits to this transaction at all.?
By combining, Coors and Molson would still remain a distant No. 5 in market share, and it is unclear whether the transaction would give the combined company enough heft to stave off increasing competition, analysts told the New York Times.
Anheuser-Busch (NYsE: US.BUD) , the maker of Budweiser, is No. 1, with nearly 50 per cent of the American beer market and SABMiller, the maker of Miller beer, is second, with 18.4 per cent. Coors has 10.8 per cent, while Molson has less than half of one per cent.
The deal appears to be motivated, in part, by the interests of both the Coors and Molson families to retain important roles in the combined company rather than sell out to a bigger brewery like Anheuser-Busch.
It also comes amidst internal strife within each company.
Former deputy chairman Ian Molson and several other directors resigned earlier this year while Peter Coors, the fourth generation of the Coors family to head the company, said in April he was taking a leave as chairman to seek the Republican nomination for the Senate in Colorado.
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