Molson Coors, Miller teaming up

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 just 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. Molson Coors Brewing Co. has almost 11 percent and Anheuser-Busch has just under half the market.

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

Few analysts expect the government to try to block the deal, however, despite close scrutiny by regulators.

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

But the emergence of many smaller brewers has made the industry more competitive than it was a decade ago, said William MacLeod, an attorney at Kelley Drye Collier Shannon and former antitrust official at the Department of Justice. That makes the transaction “much more feasible” now, he said.

Regulators might even see the pairing as helping offset Anheuser-Busch’s dominance, Stifel Nicolaus analyst Mark Swartzberg 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 will own 42 percent. But they will have equal voting interests.

Precise financial terms of the deal were not disclosed.

The move positions the two brewers to better compete against market-leader Anheuser-Busch, brewer of brands including Budweiser, Michelob and Bud Light, executives said.

“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.

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 1,487 pence ($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.

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

Such pairings deliver huge cost savings, she said, and a deal with InBev, known for beers like Stella Artois, would certainly help Anheuser-Busch.

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 of their U.S. business exclusively through the venture. They project MillerCoors will sell 69 million barrels in the U.S. and reach revenue of about $6.6 billion.

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