Adolph Coors Co. and Canada’s Molson Inc. agreed to a merger that would create the world’s fifth largest brewer by volume in a bid to better compete with larger rivals, the companies said Thursday.
The agreement is structured as a share exchange were Molson shareholders can either convert their stock to shares in the new company or receive exchangeable shares on a tax deferred basis, the companies said.
But the deal may be threatened by an up to $4 billion bid for the Canadian brewer from former Molson Deputy Chairman Ian Molson, the Wall Street Journal reported. Ian Molson, who has been feuding with his cousin, company Chairman Eric Molson, quit the company in June.
Coors and Molson, Canada’s oldest brewer, did not return calls seeking comment on a potential rival bid but the companies said they agreed not to solicit other offers. Ian Molson could not immediately be reached.
The deal solves expansion issues for both companies, which have watched larger rivals such as Anheuser-Busch Cos. Inc. and SABMiller Plc snatch up competitors around the globe over the past few years.
The combined company, which Coors and Molson say will produce $175 million in annual savings by 2007, is expected to be accretive to shareholders of both companies within the first year.
Molson Chairman Eric Molson will hold the same position in the combined company, which will be called Molson Coors Brewing Company, while Coors’ Chief Executive W. Leo Kiely III will be CEO.
The new company would have reported $6 billion in annual sales and volume of 51 million barrels for the 12 months ended March 31.
Wall Street analysts have been skeptical about how a deal would benefit the companies, which already have distribution deals with each other.
“Given that Coors and Molson are already a combined entity since they operate two joint ventures, one in Canada and one in the United States, we question, where is the value and/or cost savings/synergies?,” Smith Barney analyst Bonnie Herzog said in a research note.
Both Coors and Molson are struggling to boost profit growth.
Coors, which has seen its lower-calorie products lose market share in an increasingly competitive market in recent years, is set to issue its quarterly earnings report on Thursday morning.
Montreal-based Molson has been searching for ways to gain a leg up on rival Labatt, owned by Interbrew. The company bought Brazil’s Kaiser brewery in 2002 to expand its reach into South America, but the venture has proved to be a drain on its profits.
Molson said Thursday it earned C$68.3 million, or 54 Canadian cents a share for the period ended June 30, up from earnings of C$54.7 million, or 43 Canadian cents a share for the same period last year.
