Will Molson Coors take 100 percent of MillerCoors?
Shareholders in Molson Coors certainly think so. The brewer’s stock has risen since news of a possible tie-up between AB-InBev and SABMiller broke in mid-September 2015.
The reason why Molson Coors’ shareholders are so optimistic is the performance of Constellation Brands, which was the recipient of U.S. and Mexican assets that AB-InBev was forced to offload when it took over Mexican brewer Modelo in 2013.
Observers believe that MegaBrew will offer Molson Coors the prospect to grab a sizeable market share in the U.S. at a discount. Once the U.S. antitrust body vetoes MegaBrew, Molson Coors will have the right to buy out SABMiller’s stake in its U.S. joint venture MillerCoors.
Molson Coors’ opportunity is similar to the one Constellation seized when AB-InBev in 2013 completed its acquisition of Mexican brewer Grupo Modelo in a deal valued at USD 20.1 billion. To gain regulatory clearance, AB-InBev was forced to sell assets, including Grupo Modelo’s 50 percent interest in its U.S. distributor Crown Imports and the U.S. rights to distribute beer brands like Corona and Modelo Especial. Constellation had the other 50 percent of the Crown Imports joint venture and had the chance to purchase those assets at a reasonable price (a multiple of 9 times EBITDA).
Thanks to the regulators putting their foot in, Constellation suddenly became the number three brewer in the U.S. by volume, and Constellation’s success with Corona and Modelo Especial has cut into sales of AB-InBev’s beers. What is more, shares of Constellation have more than doubled in the past two years.
With the AB-InBev-SABMiller deal, observers say that Molson Coors will have the chance immediately to buy 8 percent of SABMiller’s stake in their U.S. joint venture: Molson Coors currently owns a 42 percent stake in MillerCoors. Molson Coors has a right of first refusal for the other half and an opportunity to top another buyer.
That option could be “transformational” for Molson Coors in North America. Molson Coors should see its profitability increase by owning all of MillerCoors in the U.S. as it will have the potential to cut costs and enhance how it executes this business.
Analysts estimate that Molson Coors could be saving roughly USD 300 million by 2017 by owning the other 58 percent of MillerCoors.
SABMiller and Molson Coors formed the joint venture in 2008 when they combined their U.S. operations. The joint venture owns major beer brands including Miller Lite, Coors Light, Blue Moon, Keystone, Killian’s as well as several small labels.