Associated Press: Molson Coors, SABMiller combine U.S. ops

NEW YORK – The makers of Coors and Miller Lite plan to combine their U.S. brewing operations in an effort to compete better against industry leader Anheuser-Busch.

The joint venture announced [today] will be known as MillerCoors and will have responsibility for selling brands including Miller Lite, Miller Genuine Draft, Coors, Coors Light and Molson Canadian in the U.S.

Anheuser-Busch Cos. accounts for about half of the U.S. market with brands such as Budweiser, Michelob and Bud Light.

SABMiller PLC will have a 58 percent economic interest in the venture and MolsonCoors Brewing Co. will own 42 percent of the new company. They will have equal voting interests, however.

Precise financial terms of the deal were not disclosed.

Shares of MolsonCoors climbed $6.17, or 12.1 percent, to $57 in morning trading Tuesday. SABMiller shares rose 2.3 percent to 1,499 pence ($30.57) in midday trading in London.

The joint venture will also result in cost savings of $500 million, the companies said. That savings will mainly come from reducing shipping distances, finding economies of scale in brewing operations, optimizing production and eliminating duplicate corporate and marketing services.

London-based SABMiller, which brews Miller Lite as well as a slew of European beers, and Denver-based Molson Coors, the brewer of Coors Light and the craft beer Blue Moon, will each have five representatives on its board of directors.

Pete Coors, vice chairman of Molson Coors, will serve as chairman of the new company and Molson Coors Chief Executive Leo Kiely will be the new CEO of the joint venture. Tom Long, CEO of Miller, will be appointed president and chief commercial officer.

Under the terms of the agreement, the companies said they will conduct all of their U.S. business exclusively through the venture.

The companies project MillerCoors will have combined annual beer sales of 69 million U.S. barrels with revenue of about $6.6 billion.

Coors said the joint venture will allow both companies to compete for U.S. consumers who are “looking for greater choice and differentiation,” as wine and spirits continue to entice beer drinkers and imports and craft beers garner a larger share of the market.

The companies said by combining their U.S. operations, the venture will be able to invest more in marketing its brands to consumers and compete more effectively with larger brewers like Anheuser-Busch and InBev NV S.A., which imports a large number of global beers into the U.S. and is the world’s largest brewer by volume.

“Given the highly complementary nature of our U.S. assets, operations and geographic footprint, this is a logical and compelling combination that we expect will create significant value for shareholders while benefiting distributors, consumers, retailers and the market overall,” said SABMiller Chief Executive Graham Mackay.

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

The companies said $50 million of the total cost savings will be recorded in the first full financial year after the two companies combine. Another $350 million will be saved in the second year and the last $100 million will come in year three.

The companies added they will have to make a one-time cash outlay of $450 million to achieve those savings.

A final agreement is expected to be signed by the end of 2007 with the deal closing in mid-2008, the companies said.

Rumors of this were circulating back in June.

I guess Mackay’s comments that “Craft Beer Will Fade” really make sense in this context. Wishful thinking indeed. I guess he doesn’t believe that A-B will fade instead.

I can’t see how this is good for beer drinkers. Good for investors, of course, but offering new and better products to consumers is an afterthought.