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Coors, Miller To Team Up, Battle Busch

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By EMILY FREDRIX, The Associated Press

Published: October 10, 2007

Updated: 10/09/2007 08:55 pm

MILWAUKEE - The nation's second and third-largest brewers, Miller and Coors, are planning to blend their U.S. operations to help them compete in a struggling U.S. industry and against its leader, Anheuser-Busch.

The deal, announced Tuesday, will place almost 80 percent of the U.S. beer market in the hands of two companies, the new MillerCoors and Anheuser-Busch, making it a likely target for a tough antitrust review.

Miller Brewing Co., owned by SABMiller PLC, has about 18 percent of the market as of last year, according to the trade publication Beer Marketer's Insights. Molson Coors Brewing Co. has almost 11 percent, and Anheuser-Busch Cos. has just under half of the market.

The companies said that the combination will have to pass an antitrust review by either the Federal Trade Commission or the Department of Justice.

However, few analysts expect the government to try to block the deal despite close scrutiny by regulators.

Supermarkets and restaurants - two large buyers of beer - will play a large role in the review, said Veronica Kayne, a lawyer at Haynes & Boone and former FTC antitrust official.

Deal 'More Feasible' Now

The emergence of many smaller brewers has made the industry more competitive than it was a decade ago, said William MacLeod, a lawyer at Kelley Drye Collier Shannon and former antitrust official at the Department of Justice. That makes the deal 'much more feasible' now, he said.

Regulators might see the pairing as helping offset Anheuser-Busch's dominance, Mark Swartzberg, a Stifel Nicolaus analyst wrote in a research note.

Milwaukee-based Miller and Denver-based Molson Coors executives said in a conference call approval could take six months for the joint venture. A final agreement is expected by the end of the year, with the deal closing in mid-2008.

SABMiller, which brews Miller Lite and Miller Genuine Draft, will have a 58 percent economic interest in the venture and Molson Coors, maker of Coors and Coors Light, will own 42 percent. But they will have equal voting interests.

Precise financial terms of the deal were not disclosed.

Anheuser-Busch makes brands such as Budweiser, Michelob and Bud Light.

'It is clear Miller and Coors will be a stronger, more competitive U.S. brewer than either company can be on its own,' said Molson Coors Chief Executive Leo Kiely, who will be the new CEO of MillerCoors.

Anheuser-Busch officials declined to comment publicly about the deal.

Shares of Molson Coors Brewing Co. hit a 52-week high of $57.68 on the news Tuesday. The stock rose $5.32, or 10.5 percent, to $56.15. SABMiller shares rose 1.43 percent to close at $30.33 in London. Anheuser-Busch shares fell 46 cents to $51.57.

The move could prompt a long-rumored deal between Anheuser-Busch and InBev NV S.A., the world's largest brewer by volume, said Juli Niemann, an analyst with Smith Moore & Co. in St. Louis.

'They're going in the inevitable direction, and I think that's the InBev direction,' she said.

She said that such pairings deliver huge cost savings, and a deal with InBev, known for beers such as Stella Artois, would help Anheuser-Busch.

SABMiller and Molson Coors said the joint venture will result in cost savings of $500 million over three years, mainly from reducing shipping distances, optimizing production and eliminating overlapping corporate and marketing services. But the companies will have to make a one-time cash outlay of $450 million to achieve those savings.

London-based SABMiller, which also brews European beers such as Peroni, and Denver-based Molson Coors, also known for craft beer Blue Moon, will each have five members on the new company's board of directors.

Pete Coors, vice chairman of Molson Coors, will serve as chairman of the new company with Kiely as CEO. Tom Long, CEO of Miller, will be president and chief commercial officer.

Under the agreement, the companies said they will conduct all U.S. business exclusively through the venture. They project MillerCoors will sell 69 million barrels in the United States and reach revenue of about $6.6 billion.

Anheuser-Busch sold 102.3 million barrels in the United States last year and had net revenue of $15.7 billion.

Beer Sales, Profits Dwindling

Kiely said beer sales and profits industrywide are dwindling because of sales of wine, spirits and craft beers.

Beer Marketer's Insights reports total beer sales rose just more than 1 percent last year. Crafts rose 11 percent to 12 percent, imports 7 percent to 8 percent and lights in the low single digits. Dragging the industry down, said Eric Shepard, executive editor, are mainstream, nonlight beers, such as Bud, Miller and Coors.

Consumers won't notice much difference after the merger, but probably can expect to see more national marketing campaigns.

The company will decide on a location for the new headquarters as integration moves forward, executives said. They promised to keep a presence in Miller's hometown of Milwaukee and Coors' headquarters in Golden, Colo. Miller has 6,000 employees and eight breweries and Coors has 4,000 employees and two breweries. Executives on the call estimated the new company would have 10,000 employees and said they do not expect brewery closings.

They said the deal will add to both of their earnings in the second full year of combined operations.

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