SABMiller and Molson Coors to combine U.S. operations

LONDON (Reuters) - Brewers SABMiller and Molson Coors Brewing have agreed to combine their U.S. operations to create a business that will have annual sales of $6.6 billion and be the second-biggest market player behind Anheuser-Busch.

A Molson employee stacks cases of Coors Light at the Molson brewery retail store in Toronto in this January 18, 2005 file photo. Brewing groups SABMiller Plc and Molson Coors Brewing Co on Tuesday agreed to combine their operations in the United States to create a strong number two player in the U.S. beer market. REUTERS/J.P. Moczulski/File

The venture, MillerCoors, will generate around $500 million of annual cost savings by the third year after completion of the deal, which is subject to the approval of the U.S. competition authorities, the two groups said on Tuesday.

“We are confident of clearance. We believe this is a pro-competitive transaction,” Molson Coors Chief Executive Leo Kiely, who will become chief executive of the venture, told a news briefing after the deal was announced.

The deal brings together the second-largest U.S. brewer with beer brands such as Miller Lite, Miller Genuine Draft and Milwaukee’s Best and the third-largest, Molson Coors, which brews Coors Light, Molson Canadian and Molson Dry beers.

Citi analyst Bonnie Herzog said the deal will transform the U.S. beer market into a duopoly, be positive for Molson Coors, and could accelerate Anheuser-Busch’s eventual combination with the world’s biggest brewer, Belgium-based InBev.

SABMiller chief executive Graham Mackay said the venture would have almost a 30 percent share of the U.S. beer market, adding SABMiller’s 19 percent share to Molson Coors’ 11 percent, whereas Budweiser-brewer Anheuser-Busch has 50 percent.

Mackay said the “high” synergies of $500 million from the deal will come from savings made largely in distribution and sales, while there will be no closures among SABMiller’s six U.S. breweries and Molson Coors’ two in the country.

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The companies, who have been talking together for around a year, said final agreement for the deal is expected by the end of 2007, while analysts added that regulatory approval is expected about six to nine months after that date.

SABMiller shares were up 1.8 percent at 14.93 pounds by 1430 GMT, while Molson Coors were up 10.2 percent at $56.01.

In the deal, Molson Coors Vice Chairman Pete Coors will be chairman of MillerCoors while Mackay becomes vice chairman. Kiely will be chief executive and Miller Chief Executive Tom Long becomes president and chief commercial officer.

Analysts see a high likelihood of the deal going through as the Molson and Coors families, which control Molson Coors, support the deal, and as a precedent was set from a regulatory standpoint by the creation of Reynolds American.

Reynolds American brought together the second- and third-largest U.S. cigarette companies in 2004 to compete against Marlboro-maker Altria.

“We expect this approval to be forthcoming ... The combination will create a strong number-two player in the U.S. beer market with 30 percent market share,” said analyst Matthew Webb at Cazenove.

Each brewer will have a 50 percent voting interest in the joint venture, with SABMiller having a 58 percent economic interest and Molson Coors 42 percent.

London-based SABMiller, the world’s second-largest brewer, bought Miller in 2002 but has struggled to make headway in the United States against Anheuser-Busch, especially in its attempts to push up prices, and its market share has slipped below 20 percent.

Canada’s Molson combined with U.S. group Coors in 2005 and despite the success of Coors Light has also struggled to gain market share. Its other major operations in Canada and Britain are unaffected by the U.S. deal.