USA: Securities and Exchange Commission seeks info on Molson Coors merger

Molson Coors Brewing Co. announced on June 9 that the U.S. Securities and Exchange Commission's Denver office has contacted it seeking information regarding first-quarter results and material related to the merger of Molson and Coors earlier this year.

Molson Coors, the world's fifth-largest brewer by volume, faces lawsuits by shareholders angry about an unexpected loss in the first quarter since the merger and claiming they were misled about Coors' business before the deal. The brewer said the suits are without merit, according to Reuters.

Molson Coors said it was cooperating with the request from the U.S. Securities and Exchange Commission. An SEC spokesman declined to comment on the inquiry.

Most current shareholders would not worry about the class action lawsuits but the SEC inquiry, which could take about a quarter to complete, is a bigger issue, said Charlie Georgas of Marquis Investment Research. "The concern that current shareholders might have is the SEC involvement," he said. "These class action lawsuits pop up whenever a stock moves down."

The company, whose brands include Coors Light and Molson Canadian, reported the surprise loss in the first quarter after the merger, blaming weak beer sales and charges from the deal. After releasing the disappointing results, the company had to restate its pro forma earnings due to a mistake in accounting for part of its Brazilian business.

Whether or not the lawsuits are successful, they will distract Molson Coors management from improving the business at a crucial time, said Mark Swartzberg, an analyst with Legg Mason. "We believe that defending against the suits is a potentially notable management distraction at a particularly challenging time for the company and its key beer markets," Swartzberg said in a research note to clients.

Brewers have struggled in recent years to increase beer sales in the United States as consumer tastes have shifted to cocktails and wine. The popularity of low-carbohydrate diets has also hurt beer sales.

When Molson Coors announced its quarterly results in April, its shares fell more than 18 percent. They have lost another 7 percent since then. On Thursday, shares fell initially but were up 28 cents to $58.92 in afternoon trading on the New York Stock Exchange.

Molson and Coors had to fight hard to win shareholder approval for the $4 billion merger, which closed in February. Many shareholders were skeptical that a combined company, which management claimed would achieve costs savings of $175 million per year by 2007, could be competitive.

Coors agreed to pay Molson shareholders a dividend, which was not part of the original agreement, to win support for the deal. Coors then had to increase the payout by 67 percent to guarantee success.

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