Tuesday 21 November 2017

Molson's acquisition was a 'game changer' for brewer

Following Molson's recent acquisition of the Miller Brewing Company, Molson is now the largest US brewer, third biggest globally (after Anheuser Busch and Heineken) and has a market value of $19bn (€16bn). Stock picture
Following Molson's recent acquisition of the Miller Brewing Company, Molson is now the largest US brewer, third biggest globally (after Anheuser Busch and Heineken) and has a market value of $19bn (€16bn). Stock picture

John Lynch

More than 250 years ago an ambitious entrepreneur from Leixlip could take the chance on signing a 9,000-year lease on a plot of land at St James's Gate in order to set up a brewery. Arthur Guinness's gamble paid off, but could any of us imagine him taking a chance like that these days? Not likely!

In recent years the global brewing industry has been shaken up beyond recognition. A winner amidst all this activity is US/Canadian outfit Molson Coors. Following its recent acquisition of the Miller Brewing Company, Molson is now the largest US brewer, third biggest globally (after Anheuser Busch and Heineken) and has a market value of $19bn (€16bn).

In the past decade the appetite for mega-mergers in the industry has surprised everyone. Nine years ago Molson Coors and SAB (South African Breweries) formed a joint venture to develop the Miller brand. But soon the financial engineers and the industry re-shapers arrived. Rival brewer AB AmBev threw lustful glances at SAB Miller, but the combination of the two largest global breweries brought the regulators' disapproval and forced the merged group to forfeit its part-ownership of Miller, which Molson immediately snapped up for $12bn (€10bn).

All three companies - Molson, Miller and Coors - have an interesting heritage. Molson, Canada's oldest brewery, was founded more than 230 years ago in Montreal. The company thrived and by 1945 was floated on the Toronto Stock Exchange. Two centuries after its formation Molson became Canada's largest beer company following the acquisition of its rival Carling O'Keefe. In 2005 it merged with US brewer Coors Inc.

The two US concerns had a more difficult time than its counterpart across the border. Both Miller and Coors were founded by German immigrants and survived prohibition and other catastrophes. Miller brewery was set up in Milwaukee for $2,300 in the mid 19th century. It remained under family control until 1966 when it was sold to W R Grace. Within three years Grace sold to Philip Morris, who held it for 40 years before selling to SAB. Coors is the youngest of the three brewers, but allowing for the setting up of its brewery in Colorado later than Miller, the Coors family has become one of the great (and richest) beer families in the US. Despite globalisation, mergers, even a 1975 floatation; the Coors family still own 10pc, 144 years after Adolph Coors started his brewery.

The amalgamation of the three has resulted in a very diverse portfolio of owned and partner brands. It brews and sells its 'core' brands like Coors Light, Molson Canadian, Miller Lite, and Carling, and also Amstel, Heineken, Murphy's and Newcastle brown ale under licence from Heineken. It also markets brands like Molson Canadian cider, Becks, Staropramen, and Carling Black Label, and has a contract to produce Asahi Select and Peroni for the US.

The acquisition of Miller, Molson's largest ever, is a 'game changer' according to chief execuitve Mark Hunter. It gives Molson full ownership of Miller, access to its international portfolio, doubles its revenue, adds $1bn (€843m) in earnings and has the potential to cut costs by $200m (€168m) within the next three years. It also gives Molson scale, buying power and more efficient production in a market where mainstream brands are being seriously threatened by craft beers. The purchase also plays into Molson's strategy of international expansion by adding another well-known brand to its considerable portfolio.

Presently the company is going through challenging times, recording a fall in sales volume last year. Following indications costs and capital expenditure will rise this year; investors gave the group a chilly reception, driving shares to $89 (€75), close to its yearly low and way off its high of $111 (€94). However, the group explained that 2017 is a 'transition year' as it completes the Miller acquisition. Now may be the time to jump on board.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent

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