Brazil: Molson Coors may sell Cervejarias Kaiser, analysts said

Molson Coors Brewing Co., the world's fifth beer maker, might sell Cervejarias Kaiser, its money-losing Brazil unit, according to some analysts’ comments posted by Bloomberg on September 15. The Netherlands' Heineken NV and Mexico's FEMSA are rumoured to be involved in the deal, an analyst at Legg Mason Wood Walker Inc. said. The figure attached to the rumoured sale is U$150-million, which translates into as much as $7 a share for Molson Coors.

UBS analyst Nik Modi wrote in a report Sept. 13 that Brazilian business magazine Exame, citing unidentified people close to Cervejarias Kaiser, expects the transaction to be completed next month. Legg Mason analyst Mark Swartzberg cited the same report in a note to clients. “Where there's smoke, there's fire,'' Swartzberg, who rates Molson Coors shares “hold,'' said in a telephone interview. “Heineken and Femsa are the most logical buyers.''

If the sale goes through at the rumoured price, Molson's enterprise value could increase between $502-million and $619-million, Mr. Swartzberg calculated. That scenario assumes that Molson Coors retains offsetting contingent tax liabilities of at least $264-million. But he thinks that $150-million "looks excessive for the right to own a loss-making, share-losing business." Moreover, he said "we believe an expected sale is largely priced into TAP shares." Accordingly he expects that the upside to Molson Coors stock if the sale goes through is likely no more than $1 to $2 a share.

Molson Coors said May 18 it wouldn't invest any more in the Brazilian business and may sell all or part of it. The business posted a loss of $66.3 million in the second quarter on rising taxes and declining sales. In May Molson Coors president Leo Kiely said the company was unwilling to put any more money into Kaiser "without greater certainty that it is a viable, long-term platform to compete effectively in Brazil." Mr. Kiely elaborated, saying that the first priority for Molson Coors with Kaiser was to operate it on "at least a cash break-even pace" and the second was to "explore a full range of options" for Kaiser's future. "We want to be in the Brazilian market, but only on a winning basis, and not at the current risk level," he added.

Modi wrote in his report that Molson Coors Chief Financial Officer Tim Wolf told him in August that “resolving the Kaiser situation by Brazil's peak selling season (which starts in October) would be ideal.'' There's a 70 percent chance Molson Coors will announce the sale before or during the third-quarter conference call in October, Modi said.

Kaiser hasn't been sold and the company continues to review options for the business, Molson Coors spokeswoman Sylvia Morin said in an e-mail.

Heineken, the world's fourth-largest brewer, has a 20 percent stake in the Brazilian beermaker. The Amsterdam-based brewer recorded costs of $242 million in November from writing off the value of its stake. Femsa is Fomento Economico Mexicano SA, Mexico's largest beverage company and the maker of Sol beer. Femsa brews Coors Light in Mexico and distributes Kaiser beer in Brazil, Swartzberg said.

Heineken spokeswoman Veronique Schyns declined to comment. A Femsa spokeswoman who refused to be identified declined to comment.

Molson Inc., Canada's biggest brewer, bought n 80-per-cent stake in Kaiser in March 2002 for $765 million to counter stalled growth in Canada. Sales volume in Brazil declined 12 percent from a year earlier to 1.92 million hectoliters, the company said on Aug. 2. Molson merged with Adolph Coors Co. February.

Shares of Molson Coors rose 48 cents to $67.08 at 4:03 p.m. in New York Stock Exchange composite trading.

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