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It’s Miller time

11 November 2015 By Kevin Allison

Molson Coors Brewing is getting a tasty chaser from its rivals’ mega beer deal. The Canadian-American brewer is paying SABMiller $12 billion in cash for its 58 percent stake in the companies’ U.S. joint venture. By helping to ease antitrust pressure on Anheuser-Busch InBev’s $105 billion purchase of SAB, Molson is avoiding a premium. It’s also pouring out pure gold in the form of around $450 million of annual savings.

The Coors and Blue Moon owner is paying its business partner the equivalent of just over 12 times SAB’s share of MillerCoors’ 2014 earnings before interest, tax, depreciation and amortisation to take full control. That’s roughly in line with the average EBITDA multiple commanded by other large brewers, according to Thomson Reuters data.

Usually the exiting party in a joint venture would expect a modest premium. But Molson is in an ideal position. SABMiller is effectively a forced seller: its deal with AB InBev would almost certainly be blocked by trustbusters if it held onto its stake. Moreover, a long-standing change-of-control agreement gives Molson right of first refusal on the assets and entitles it to a 50 percent of the JV – and management control – regardless of who buys the rest. That probably deterred other bidders.

The expected $200 million of cost savings ought to be worth around $1 billion, once taxed, capitalised and adjusted for the four years it will take to realise them. At 2.5 percent of the joint venture’s 2014 sales the proposed savings are modest compared to recent brewing mergers. AB InBev and SAB are gunning for synergies worth 7 percent of SAB’s last full-year sales in their merger, excluding MillerCoors revenue. Molson’s expected tax benefits, with a net present value of $2.4 billion according to Molson, boosts the total.

Molson plans to finance the purchase with cash on hand and new debt – but also new equity. That should leave its balance sheet with some room to invest in the hyper-competitive U.S. market, where independent craft brewers have been stealing market share from established mass-market brands. In the meantime, it’s an easy deal for the brewer’s investors to swallow.


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