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    Miller and Coors to Merge

    LONDON and DENVER - In a move challenging the primacy of the King of Beers, brewers SABMiller plc and Molson Coors Brewing Co. yesterday said they had signed a letter of intent to combine the U.S. and Puerto Rico operations of their respective subsidiaries, Miller and Coors, in a joint venture to create a stronger, brand-led U.S. brewer with "the scale, resources, and distribution platform to compete more effectively in an increasingly competitive U.S. marketplace.

    LONDON and DENVER - In a move challenging the primacy of the King of Beers, brewers SABMiller plc and Molson Coors Brewing Co. yesterday said they had signed a letter of intent to combine the U.S. and Puerto Rico operations of their respective subsidiaries, Miller and Coors, in a joint venture to create a stronger, brand-led U.S. brewer with "the scale, resources, and distribution platform to compete more effectively in an increasingly competitive U.S. marketplace."

    "Given the highly complementary nature of our U.S. assets, operations and geographic footprint, this is a logical and compelling combination that we expect will create significant value for shareholders while benefiting distributors, consumers, retailers, and the market overall," said Graham Mackay, c.e.o. of SABMiller in a conference call on the merger plan.

    The new company, which will be called MillerCoors, would have annual combined beer sales of 69 million U.S. barrels and net revenues of approximately $6.6 billion, and a combined EBITDA of approximately $842 million[1].

    SABMiller and Molson Coors said they expect the transaction to generate approximately $500 million in annual cost synergies to be delivered in full by the third full financial year of combined operations, according to the companies.

    SABMiller and Molson Coors will each have a 50 percent voting interest in the joint venture and have five representatives each on its board of directors. Based on the economic value of the contributed assets, SABMiller will have a 58 percent economic interest in the joint venture and Molson Coors will have 42 percent.

    Pete Coors, vice chairman of Molson Coors, will serve as chairman of MillerCoors, Graham Mackay, SABMiller c.e.o.; will serve as vice chairman of MillerCoors; Leo Kiely, current c.e.o. of Molson Coors, will be the c.e.o. of the joint venture, and Tom Long, current c.e.o. of Miller, will be appointed president and chief commercial officer.

    "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 Coors. "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. Creating a stronger U.S. brewer will help us meet these challenges, compete more effectively and provide U.S. consumers with more choice, greater product availability and increased innovation."

    According to Kiely, the combined companies will be able to provide more focused support for their flagship brands, while addressing consumers' demand for imported and craft brands and innovative products.

    "Both companies have a lot of momentum in their businesses today, and I am confident that this will accelerate as we adopt the best practices of both organizations," he said. "[The deal] will mesh truly great brewing traditions, management teams, employees, and cultures, while retaining both companies' commitment to social responsibility and the communities in which we operate."

    SABMiller and Molson Coors expect the enhanced brand portfolio, scale, and combined management strength of the joint venture will allow it to better compete in the following key areas:

    - Stronger brand portfolio that gives consumers more choices: The combined company will have a more complete and differentiated brand portfolio and the ability to invest more effectively in marketing its brands to consumers. MillerCoors will be better positioned to meet the increasingly diverse demands of U.S. beverage alcohol consumers through imports like Peroni, Molson, and Pilsner Urquell; craft varieties including Leinenkugel's, Blue Moon, and Henry Weinhard's; and specialty beers like Miller Chill, Killian's, and Sparks, according to the copanies. It will also have more flexibility and resources for brand-building initiatives and increased levels of innovation in taste, product attributes and packaging.

    - Leveraging synergies and improving productivity: The combination of the businesses is expected to result in annual cost synergies of $500 million, to come from optimization of production over the existing brewery network, reduced shipping distances, economies of scale in brewery operations, and the elimination of duplication in corporate and marketing services. The expected timing of the synergies is $50 million in the first full financial year of combined operations; an additional annualized $350 million in Year Two; and another annualized $100 million in Year Three for an aggregate annual total of $500 million. One-time cash outlays required to achieve these synergies are expected to amount to a net $450 million consisting of costs of approximately $230 million and net capital expenditure of approximately $220 million.

    - Creating a more effective competitor: According to the brewers, the deal will create a stronger U.S. brewer with the scale, operational efficiency, and distribution platform to compete more effectively in the U.S. against large scale brewers, both domestic and global, craft brewers, and wine and spirits producers. The joint venture will be positioned to respond more effectively to the needs of a consolidating distributor and retailer market, as well as to the cost pressures in the industry.

    - Improving the speed to market: By leveraging complementary geographic strengths and distribution systems, the joint venture will better align production with consumer location. Today, approximately 60 percent of the volume of the combined operation is estimated to go through a shared distribution system, and the companies have found that this has enhanced distributor effectiveness. MillerCoors will also have greater capacity to invest to meet the diverse product, packaging, and service requirements of consumers, distributors, and retailers. In addition, streamlined processes and systems and more effective marketing programs will enhance distributors' ability to compete and benefit retailers.

    - Optimizing organizational strength: The joint venture will focus on creating a high-performing, results and value-based culture which will incorporate the best elements of both companies to create a competitive organization, capable of the highest standards of operational and service excellence in the industry.

    The parties said they expected to close the transaction by the end of 2007, subject to obtaining clearances from the U.S. competition authorities and other regulatory clearances and third-party consents as required.

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