Megafusão can benefit Molson Coors

The combination of Anheuser-Busch Inbev and SABMiller will create a Mastodon able to shake up the sector and holder of 50% of the worldwide profits generated by the beer. But, for an infinitely smaller competitor, the agreement may represent a valuable opportunity.
Since 2008, the American Group-Canadian Molson Coors is a junior partner of MillerCoors, a joint venture with SABMiller responsible for selling brands like Miller Lite, Coors Light and Blue Moon Belgian White.
According to most analysts, the success of AB Inbev's offer by SABMiller will raise a sufficient number of competitive issues in the United States to require the sale of participation of 58% owned by SABMiller in MillerCoors.
The purchase of this dimension and to obtain full control over the MillerCoors would be a radical change factor for Molson Coors, said Robert Ottenstein, Director of the sector of beverage research firm Evercore ISI.
The Molson Coors seem in the best position to carry out an agreement to that effect, not only due to its current role in the joint venture. The conditions of its agreement with SABMiller gives the right of the first and last refusal on the participation of his partner, who, according to the analysts, the AB Inbev will want it to be sold quickly to avoid delaying the larger business.
"It's hard to imagine any other [company] entering it. Just doesn't make sense, "said Ottenstein investors. "[The AB Inbev] will want certainty and [the Molson Coors], obviously, have it in vista for years. Your degree of anxiety will be high. "
AB Inbev has not yet made a firm offer by SABMiller, which left the MillerCoors ratings in the air. it is estimated that the participation of Ottenstein 58% could get about $ 9.65 billion, the equivalent of ten times the earnings before interest, taxes, depreciation and amortization (Ebitda) of joint-venture in 2014.
Adam Fleck, an analyst in the investment advisory drinks Morningstar estimates that Molson Coors could afford nothing less than $ 13.5 billion, or 13.5 times estimated Ebitda to 2017. This multiple would be under existing on other recent deals in the sector of beers, which reflects the advantageous position of the Canadian-American Group in any negotiations, he says.
The Molson Coors, whose shares have risen more than 20% in the seven days since it became known in the interest of the AB Inbev by SABMiller, declined to comment.
The mammoth transaction under discussion draws attention to a backdrop of changing consumer tastes, at a time when smaller brands of craft beers or systematically erode the local market shares of the larger competitors and younger consumers prefer wine and distilled beverages.
The new pressures exerted by the slowdown of demand in emerging markets have contributed to the formation of an environment that requires cost cuts and increased performance.
Full control of the MillerCoors may enable the Molson Coors a savings of $ 300 million to $ 500 million in annual costs, estimate analysts. It could also reduce the overlap in administrative areas such as human resources, finance and management, at the same time that would explore the advantages of scale in terms of distribution and purchasing.
The Molson Coors would have to go through a two-stage process to take full control of the company. First, a control of SABMiller for AB Inbev would validate the right of Molson Coors to increase its share of 42% on 50% and MillerCoors to indicate the company's Chief Executive. The Molson Coors could then start talks to take control of the remaining 50% of MillerCoors, which would give you the first and the last offer for her.
While taking full control of the MillerCoors by Molson Coors can make a lot of sense, the strategic point of view, it is likely that financial considerations may weigh in the decision. The credit rating agency Fitch warned that a purchase will result in a lowering of your grade BBB brand, for "low investment grade", assuming a cost of about $ 9 billion for the transaction and depending on the volume of debt employed.
But Fitch also sees the benefits of conducting a business, which qualified the "unique opportunity" for the company, citing the paltry scale of Molson Coors when compared to an enlarged AB Inbev.
Ottenstein, Evercore says that Molson Coors already has the funding and that there is evidence that the company would be willing to give up its investment-grade status to do business.
The MillerCoors accounts for approximately 50% of the total volume of Molson, but if I could consolidate all the company for their benefit, would represent about 70%, according to estimates from Fleck, of Morningstar.
The prospect of a monumental deal between Inbev and SABMiller triggered speculation about new transactions in the sector, but the family-controlled structure of some of the larger breweries frustrated past attempts of consolidation.
New business "are a possibility, but there seems to be no appetite [for it] at the moment," said Fleck.
The Board of Directors of Molson Coors is chaired jointly by Geoff Molson and Pete Coors. The two families hold 16 percent of the company. If they can agree a deal by MillerCoors, the operation may be one of the few control the outlets if they follow the ambitious initiative of the AB Inbev.