Coors, Miller to Combine U.S. Operations

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Coors, Miller to Combine U.S. Operations

DENVER -- The No. 2 and 3 brewing companies in the U.S. -- SABMiller PLC and Molson Coors Brewing Co. -- announced yesterday that they will combine their U.S. efforts in a joint venture called MillerCoors, which will help the two companies compete more effectively, The Associated Press reported.

By joining the companies -- makers of Miller Lite and Coors Light -- they will better compete with beer industry leader, Anheuser-Busch Cos., maker of Budweiser, Michelob and Bud Light, the report stated.

"Distributors will benefit from a robust brand portfolio; strengthened marketing investments; reduced complexity and costs; and enhanced relationships and coverage with large chain retailers," Tom Long, Miller's chief executive and president, said in a statement. "Retail customers will have an even stronger partner to drive consumer demand through product and packaging innovation, space optimization and enhanced retail execution."

More specifically, "the combined entity will be much more efficient and a strong competitor; distributors and retailers can see significant synergies and cost savings as a result," Pete Marino, spokesman for Miller, told CSNews Online, adding that retailers can expect changes to begin within six to nine months.

Meanwhile, Coors spokeswoman Kabira Hatland was a bit more reserved. "We don't have an agreement yet, and after that there is a regulatory clearance process, which is expected to close around mid-2008," she told CSNews Online. "For now, there will be no changes. Miller and Coors will continue to be two separate competitors in the marketplace. We will be vigorously competitive in the marketplace."

She added: "The MillerCoors joint venture will create a strong, more competitive U.S. brewer. Benefits will include more choices to consumers and retailers, greater efficiencies to distributors, and more resources to invest in the brands. For retailers, we anticipate more strong brand choices in more places."

A Times Online report stated that the combined businesses will be worth $10 billion, will generate $500 million in cost savings and hold a combined U.S. market share of about 30 percent, still below the 50 percent held by Anheuser-Busch.

The $500 million in savings will primarily come from distribution and sales, SAB Miller chief executive Graham Mackay said in a Reuters report, adding that there will be no closures for the eight breweries operated between the two companies.

As part of the agreement, SABMiller will gain a 58 percent economic interest in the venture, while Molson Coors will own 42 percent. However, both will have equal voting interest, and both companies will have five representatives on the new company's board of directors, according to reports. Financial terms were not disclosed, and the companies expect the agreement to add to their earnings in the second year of combined operations, They are anticipating final approval by the end of 2007, the AP reported.

With the agreement, the companies will conduct all U.S. business exclusively through this venture. The companies expect MillerCoors to have combined annual beer sales of 69 million U.S. barrels, with revenue of about $6.6 billion, the report stated.

By combining U.S. operations, the companies' venture can invest more in marketing brands to consumers, as well as compete more effectively with brewers, such as Anheuser-Busch and InBev NV S.A., an importer of global beers into the U.S. and the world's largest brewer by volume, the AP reported.

"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," Pete Coors, vice chairman of Molson Coors, said in a written statement. "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," added Coors, who will assume the position of chairman.

Molson Coors chief executive, Leo Kiely, will be the new venture's CEO, while Miller CEO Long will be appointed president and chief commercial officer, the AP reported.

By giving the chairman and chief executive roles to Molson Coors' executives, analysts said it was a sign that SABMiller was willing to step back from a market that proved more difficult than expected, when it bought Miller for $5.6 billion five years ago, the report stated. However, Mackay denied such claims. "It's not a withdrawal at all," he told the Times Online. "The returns to shareholders of both companies will be substantially enhanced."

The similarities between the two companies will create value for all shareholders, Mackay noted in a written statement. "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," he said.
Citi analyst Bonnie Herzog told Reuters the deal will change the U.S. beer market into a duopoly, be positive for Molson Coors, and could accelerate Anheuser-Busch's eventual combination with the world's largest brewer, Belgium-based InBev.