Canada: Molson Coors shares reached a record $97 after merger

Trading under $65 U.S. in October, Molson’s shares reached as high as $97 this week amid signs the merger's benefits are kicking in, Montreal Gazette published April 20.

Molson Coors chief executive Leo Kiely encountered a wall of skepticism from the investment community after completing the controversial merger of Montreal-based Molson Inc. and Denver-based Coors Brewing two years ago.

A dissident member of the Molson family was still railing publicly against the merger as recently as two months ago, and some analysts remained unconvinced of the value of an investment in the company.

It's sweet vindication for Kiely, who has been preaching patience after encountering a host of problems in the early going.

"Two months into the merger, we had a lot of challenges," Kiely said in an interview in Montreal this week. "The challenges were about the business. "The actual merger - the bringing together of two companies, which sometimes can fall apart - has gone remarkably well. But the challenges in our markets sort of coincidentally put a lot of pressure on us."

Among those issues were the impact of a price war in the United States, strong discounting in Canada and a retail consolidation in Britain.

There was also continuing fallout from the company's holdings in Brazil, which were sold at a big loss.

But a plan to find merger-related cost savings has been more successful than expected and the tough sledding appears to be over. Operating improvements began to show up in the second quarter of last year, and the fourth quarter was surprisingly strong.

"We started to build credibility with our own management team, as well as the marketplace. I think we're in a good position today. "We've got momentum, we delivered on the big promises of the merger, and the markets have begun to recognize that value in our stock."

The company "has done a terrific job of generating synergies from its merger," Merrill Lynch analyst Christine Farkas wrote in a report last month.

A three-year $175-million plan to reduce expenses has been completed ahead of schedule and Molson Coors pledges another $250 million in savings over the next three years.

"These moves should ultimately make for a leaner and more efficient company," said Farkas, who has raised her profit estimates for this year and next.

The additional free cash will be used to build brands, fund high-growth projects and improve the capital structure. A stronger balance sheet should also provide more strategic options to make deals, Kiely says.
"Our reputation with both the financial community and the global beer community is coming up the scale. That's a good thing. Having emerged from the merger in the way we have puts us in a position to be a partner, to be a player, to do things with people around the world."

Kiely sees global consolidation continuing in the beer business as the industry deals with flat-to- declining consumption in many developed markets.

Molson Coors will certainly look at new acquisitions, now that its financial position has strengthened, he said.

"We would hope that over time we get to be bigger players in the beer business”.

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