USA: SABMiller says it's interested in Molson-Coors partnership

A rumored merger of MolsonCoors Brewing Co. and SABMiller could prove a financial boon for both companies, but antitrust concerns and reluctance by the Golden-based brewer present roadblocks, industry experts said last week, Denver Post reported June 4.

The speculated deal, rumored since at least September, gained steam last week when Norman Adami, a president with London-based SABMiller, said during an investor presentation that such a combination "in theory" would make financial sense.

Adami declined to comment on whether a deal with MolsonCoors was in the works, but added, "Coors is a great company with a great portfolio and a great management team," according to published reports.

MolsonCoors spokeswoman Aimee Valdez declined comment Friday, citing company policy.

Shares of MolsonCoors have soared recently, gaining 21 percent so far this year. Shares jumped by more than $3.50 apiece the day following Adami's comments, before pulling back to close at $91.52 a share on Friday.

SABMiller, with a market capitalization of $35.9 billion, is far larger than MolsonCoors, which has a market capitalization of $8.18 billion.

The cost savings that could result from a merger of the two brewing giants makes such a combination attractive to both sides, said Eric Shepard, executive editor for Beer Marketer's Insights, a trade publication based outside New York City.

"The deal makes so much sense financially that analysts can't stop talking about it," Shepard said. "This is a rumor that refuses to die."

A marriage between the two brewers would produce operational savings related to sales, manufacturing and purchasing, according to several analyst reports. The companies could also seek to shutter one or more production plants.

Bryan Spillane, an analyst with Banc of America Securities, pointed out in a recent research note that MolsonCoors last month altered its "change in control protection program," which outlines severance packages to be paid to top executives in the event of a sale or merger.

In the research note, Spillane wrote that one interpretation of the change is that MolsonCoors was "bringing its executive compensation up to code," considering the company's "lack of a plan previously."

However, Spillane wrote that "since the share structure precludes hostile advances, it does raise some questions as to timing ..."

Yet there are several clear roadblocks for doing a deal, including whether it would pass regulatory muster.

MolsonCoors, which was created in 2005 through the combination of the two venerable brewers, has about 11 percent of the U.S. beer market. SABMiller has about 18 percent of the market.

Even if the two companies merged, the combined entity would still trail Anheuser- Busch, which has about 50 percent of the U.S. beer market, according to Shepard, the trade publication editor.

Shepard said there is precedent for regulators to allow an industry's second- and third-largest players to merge. But, he said, "It's not clear how regulators would react to this."

Robert van Brugge, an analyst who covers MolsonCoors for Sanford C. Berstein & Co., wrote in a recent report that "a merger would not represent a panacea, in our view."

"The combined entity would still be much smaller than Anheuser-Busch," the report reads. "We believe that it would be necessary, and tricky, to manage both Coors Light and Miller Lite in parallel."

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