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Canada: Molson Inc.'s chances of completing a $3.4 billion merger with Adolph Coors Co. may be declining, as some of the company's biggest shareholders reject its plan to give stock-option holders a say in the transaction, Bloomberg revealed on September 26, 2004. Opposition to the deal has stiffened since Sept. 17, when Canada's biggest brewer restated in a regulatory filing that it intends to give company options the same voting rights as Class A shares. The options, most of which are held by Molson executives, represent 5.3 percent of the Montreal-based company's 111.2 million Class A votes.

"I was leaning toward grudging acceptance of the merger, now I'm undecided," said Jim Hall, who oversees more than 214,000 Molson A shares at Calgary's Mawer Investment Management. "I'm uncertain about management's motivation."

Molson faces resistance from shareholders with at least 9.6 percent of the A votes, including Caisse de Depot et Placement du Quebec, Jarislowsky Fraser Ltd., Janus Capital Group Inc., Bissett Investment Management, Mawer and Ontario Teachers' Pension Plan. Ontario Teachers said it's lobbying the Canadian Coalition for Good Governance, whose members held 25 percent of the A shares on Dec. 31, to join a suit against the option plan. That could jeopardize the merger, which requires the approval of two-thirds of the A shares. "I don't believe this is in the best interests of shareholders," Ron Sachs, who holds 594,000 Molson A shares in the Janus Orion Fund, said by telephone from Denver. "They could have gotten a premium or found another buyer who might pay more." Instead, Molson and Coors made it difficult for another bidder to trump the merger before the vote.

In a Sept. 17 joint filing with the U.S. Securities and Exchange Commission, Coors said it would end a brewing agreement that generates 20 percent of Molson's profit if the Canadian company sells control or a "significant investment" to a direct or indirect competitor. The document also suggests that Molson may be forced to pay Coors $75 million if a competing bid emerges before the vote and shareholders then reject the merger.

The Globe and Mail and the Wall Street Journal reported last week that SABMiller Plc, the world's No. 4 brewer, has held preliminary talks with Ian Molson, 49, a cousin of Molson Chairman Eric Molson who wants to defeat the merger. According to the SEC filing, Ian Molson notified the company in July that he was in talks with a group of investors considering an offer of $40 Canadian a share.

"SABMiller may want an interest in Molson. Maybe they'd like to have a footprint in Canada," said Bissett's Fred Pynn, who doesn't like the merger and may sell the Calgary-based firm's 498,000 Molson shares before the vote. "They may be trying to disrupt the process because they don't want another sizable competitor that could pose problems."

Shares of SABMiller, the maker of Miller Lite, rose 6.5 pence to 716.5 pence in London, boosting this year's gain to 24 percent. Nigel Fairbrass, a spokesman for the British brewer, declined to comment on any takeover talks the London-based company may have held.

On July 22, the day after Ian Molson's last approach, Molson and Coors unveiled a merger proposal that would allow the families of Eric Molson and Coors Chairman Peter Coors to retain control of the combined company. Molson Chief Executive Officer Daniel O'Neill stands to pocket at least $3 million Canadian ($2.3 million) in incentives if the transaction goes through.

Together, Molson and Coors said they would be the world's fifth-biggest beermaker by volume, dominating the Canadian market and ranking No. 3 in the United States and second in Brazil behind InBev. Jarislowsky Fraser CEO Stephen Jarislowsky, whose firm holds 4.5 million Molson shares, said he opposes the deal partly because it doesn't give either company enough scale to compete with brands like Heineken and InBev's Stella Artois. "In order to survive as a larger brand, you need to become far more international than before," Jarislowsky said "All this does is perpetuate two brands that in the long term would lose market share against the Heinekens."

Ontario Teachers, with more than 1.7 million shares, and Jarislowsky Fraser said in a joint statement that they'll sue Molson over the option votes and seek support for legal action from the governance coalition.

Caisse de Depot, the country's biggest pension fund with about $140 billion Canadian in assets, said it sent a letter to Eric Molson, expressing "concerns" over options votes. Caisse held 3.2 million Molson A shares and 865,000 Class B shares as of Dec. 31. "We have also noted that very advantageous bonuses will be payable to officers if the merger takes place, despite the fact that some of these officers may hold positions in the new company," Caisse Chairman Henri-Paul Rousseau said in the letter. "Such double compensation would appear to be excessive."

Amvescap Plc's AIM Trimark, which according to the Sept. 17 filing is Molson's biggest investor with 15.2 million A shares as of July 31, declined to comment on its plans, spokeswoman Aysha Mawani said. Some Class A shareholders do back the merger, saying it's better than the status quo. "Hopefully, a deal is generated from the Ian Molson side, because that will benefit the stock," said Jonathan Popper, who helps oversee more than 800,000 Molson A shares at Toronto's MFC Global Investment Management. For any such bid to succeed, it would have to clear Eric Molson, 67, who owns 45 percent of the Molson family's Class B shares and helps run a family trust with 10 percent more. Ian Molson, who resigned as vice chairman in June, holds 2.3 million, or 10 percent, of the B shares.


29 September, 2004