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Canada: The proposed merger between Molson Inc. and Adolph Coors Co. is likely the best option for Canada's oldest brewer to broaden its brand appeal, analysts said on Wednesday, despite speculation that major shareholders may reject the deal. "I think the street is still in denial of Molson. It didn't realize how much trouble Molson is in," said Michael Palmer, an analyst and the president of Veritas Investment Research.
"Once it dawns on them that Molson is experiencing significant volume declines and profit declines in Canada, which will be reflected in the next couple of quarters, then I think they'll begin to say this is not such a bad deal."
Eric Molson, the company's chairman and controlling shareholder, backs the merger plan, but chief executive Dan O'Neill is reported to be unsure whether Molson's class A nonvoting shareholders will approve it, Reuters revealed. "At this point in time, he's not sure that all class A shareholders are on side," said Molson spokeswoman Sylvia Morin. O'Neill was traveling and not available for comment. The merger must have the approval of two-thirds of both Molson's class A nonvoting and class B voting shareholders.
Eric Molson controls more than 50 percent of the class B voting shares, which means his main task is to persuade the institutional and retail investors who hold the A shares that the merger has merit.
There has been speculation that Ian Molson, Eric Molson's cousin and former deputy chairman of the company, will step in with a higher offer that would include a takeover premium. Reached in London, Ian Molson declined to say whether he was close to putting together a bid for the 218-year-old brewer. "I'm not in a position to comment," he told Reuters.
Molson and Coors are both struggling to gain market share in a mature industry. In 2002, Molson bought Brazil's Kaiser brewery to expand its reach into South America, but the venture quickly became a drain on profit.
The Molson-Coors merger, announced July 22, would create the world's fifth-largest brewer by volume. The two companies said it would allow them to compete against larger rivals, including Anheuser-Busch Cos Inc. and SABMiller Plc, while keeping the Molson and Coors families in control.
"The merger won't solve all their problems but it will certainly help in some ways and it will provide some synergies that will allow them to reinvest in their brands," said Michael Van Aelst, an analyst with CIBC World Markets. Under the terms of the deal, the shares of both companies would be exchanged for shares in the new, combined company.
Molson shares jumped after the merger announcement to their highest level since January, but the stock has since declined about 9 percent. Molson's class A shares closed 13 Canadian cents higher at C$32.51 on Wednesday in Toronto.
Canadian brewer Molson Inc.'s proposed merger with Adolph Coors Co. may lack sufficient shareholder support because there soon may be another offer to consider, Molson's chief executive was quoted Wednesday in a newspaper interview. CEO Dan O'Neill told The Globe and Mail, a Toronto-baed newspaper, that the proposed deal is the best for shareholders, but wavered on whether enough of the company's class-A nonvoting shareholders were convinced, according to Associated Press.
"I don't know at this point. I don't know. I think the overall feeling that we have is there's still a lot of skepticism for the principal reason that people feel there will be another offer coming," said O'Neill. Under the proposed agreement with Coors, Molson shareholders would receive 0.36 shares of a new Molson Coors, or roughly $24.36 a share at Tuesday's closing prices, for each Molson share. Coors shareholders would trade their stock one for one. O'Neill said many of his colleagues doubt whether a rival bid, from a group led by former vice chairman Ian Molson, will ever surface. But he said he has not ruled out the possibility.
The anticipated Ian Molson bid, which is believed to involve Toronto-based Onex Corp. and possibly another brewery, is expected to be in the $3.8 billion range, which would put a value of about $30 on each Molson share. O'Neill said other investors would have to overcome the threat of Coors abandoning its valuable partnership with Molson if the deal does not go ahead.
Molson and Coors brew each other's beers and share the profits, which account for about 20 per cent of Molson's share price. "If anyone comes in and gives us an offer for the company, certainly we'll evaluate it because legally you have to and it's the right thing to do. And the board will openly consider it," O'Neill said.
The CEO was traveling Wednesday and could not be reached for comment, his office said. A company spokeswoman had not returned calls to The Associated Press by midday. The Molson-Coors proposal needs approval by two-thirds of the holders of each class of shares, voting and nonvoting. The voting shares are controlled by chairman Eric Molson, who could block a rival bid.
But the nonvoting shares are believed to be in the hands of funds and retail investors who aren't thrilled by the prospects of the Molson-Coors merger. The proposed merger has been criticized because it does not deliver a takeover premium to shareholders, and because some analysts and investors doubt whether the two family breweries will be able to realize their goal of achieving cost savings from the deal worth $133 million a year.
10 September, 2004