The sober view on Molson Coors’ heady USD 3.5 billion deal
It’s the wrong sort of emerging market and it’s the wrong sort of price. Molson Coors’ multi-billion foray into central Europe with the acquisition of Czech Republic-based StarBev, the brewer of Staropramen beer, which was announced on 3 April 2012, left investors more than underwhelmed. On the day the deal became public, the U.S.-Canadian beer group’s stock dropped 5 percent.
StarBev, the former AB-InBev unit in central Europe (13 million hl), was sold by CVC, a private equity firm, after merely holding it for three years. The purchase price represents about an 11x EBITDA multiple. That’s less than what SABMiller paid for Foster’s but still a lot, as for Molson Coors the acquisition may turn out to be light on revenue growth. Even management has already admitted that cost savings will be minimal, at best.
Through the deal, Molson Coors thinks it will get access to faster-growing economies than the U.S., Canada and Great Britain, where the company generates the bulk of its sales.
But the economic outlook for StarBev’s key markets, like the Czech Republic, Serbia, Croatia, Slovakia and Hungary, isn’t all rosy – albeit better than for the Eurozone.
What is more, StarBev’s markets have an established beer drinking tradition, compared with Asia and Latin America. Per capita consumption in several markets could have reached its glass ceiling and could continue to decline. Just consider that in 2010 and 2011, beer consumption in the Czech Republic, Hungary and Serbia fell, while Croatia posted a moderate 1.3 percent increase.
Besides, in the larger markets where it operates, StarBev only holds a number two or, more often, a number three position and those markets have seen significant increases in competitive intensity from brewers, including Heineken, Carlsberg, and SABMiller.
Which brands does Molson Coors get? It bought lots of local mainstream brands such as Borsodi, Kamenitza and Niksicko, including the much-hyped Czech lager Staropramen, which – contrary to Molson Coors’ statement – is not a premium brand, certainly not in its home market.
StarBev’s premium offerings were Stella Artois, Beck’s and Leffe – brands it distributed under license from AB-InBev. Molson Coors may not be all too happy with that arrangement but what can they offer to central European consumers instead? Carling? Coors Light? Blue Moon?
The transaction is expected to be completed in the second quarter of 2012, pending regulatory approval by European authorities.
The deal is finalised for EUR 2.65 billion (USD 3.54 billion). Molson Coors will finance it using a combination of cash in hand and debt of USD 3.0 billion, and by issuing an additional EUR 500 million (USD 667 million) of convertible debt.
