Shares of Molson Inc., Canada's biggest beermaker, and No. 3 U.S. brewer Adolph Coors Co. rose after the Wall Street Journal reported the two companies are discussing a possible merger.
Coors, based in Golden, Colo., gained $2.54, or 2.5 percent, to $75.56 at 4:01 p.m. in New York Stock Exchange composite trading, lifting its market value to about $2.83 billion. Montreal-based Molson's Class A shares climbed 85 cents to C$33.45 on the Toronto Stock Exchange.
Merging the two family-controlled companies may help each cut costs and regain the marketing muscle they lost as rivals such as Annheuser-Busch Cos. and Interbrew SA got bigger. Molson is losing sales in Brazil to Cia. de Bebidas das Americas, which in March agreed to merge with Interbrew. Coors may require an acquisition to increase its 10 percent U.S. market share, said Harry Schuhmacher, editor and publisher of Beer Business Daily.
"The industry is consolidating and everyone, especially after the Interbrew and AmBev deal, is looking over their shoulders," said Fred Pynn, who holds more than 1 million Molson shares among the equivalent of $4.6 billion he helps manage at Calgary-based Bissett Investment Management.
Molson and Coors would have about $5.9 billion in combined revenue. In Canada, Molson controls 44 percent of the beer market and pays Coors royalties to brew brands such as Coors Light. In the U.S., where Molson has only 0.4 percent of the beer market, the two companies are partners in Molson USA, a beer distributor.
Coors spokeswoman Laura Sankey declined to comment. Molson spokeswoman Sylvia Morin didn't return calls.
The Journal reported Monday that talks between Molson and Coors are at a sensitive stage and could collapse, citing people familiar with the situation. The newspaper said that in one scenario under discussion, Molson Chairman Eric Molson, 66, would become chairman of the combined company and Coors Chief Executive Leo Kiely, 57, would remain CEO.
The report didn't say which company may end up being the acquirer and cited a feud between Eric Molson and his cousin Ian Molson as the chief obstacle.
According to Sean Egan, a debt analyst and managing director of EJR Research in Haverford, Pennsylvania, Coors probably would be the buyer. He said the combination, while improving Molson's U.S. distribution, would do little to shake up the North American beer market.
"It's not going to change Molson's position in the Canadian market nor will it change Coors in the U.S.," Bill Chisholm, an analyst with Dundee Securities Corp. in Toronto, said in a telephone interview. "They'd get some economies of scale, and if they want to branch out from North America, they'd have a bigger base to operate from."
North American and European brewers have turned to markets such as Brazil and China, where beer consumption is rising, to counter flat or declining sales at home.
Last month, Anheuser-Busch offered to buy the stock it doesn't own in China's Harbin Brewery Group Ltd. for $444 million and Interbrew bought a majority stake in Zhejiang Shiliang Brewery Co. Ltd. Canadean, a beverage research company based in Basingstoke, U.K., estimates that China's beer market will expand as much as 5 percent a year until 2008, compared with growth of 0.7 for the U.S. and 2.5 for Europe through 2005.
Interbrew's purchase of Brazil's AmBev will allow it to leapfrog South Africa's SABMiller Plc and become the world's second-largest brewer. Anheuser-Busch Cos. is No. 1, with 2003 sales of $14.1 billion.
Recently, Molson has been riven by a succession dispute. At the company's annual meeting last month, William Molson demanded to know why Ian Molson, his younger brother, wasn't in line to replace Eric Molson as chairman.
Ian Molson, who controls 10 percent of the voting stock, quit as deputy chairman. Eric Molson said he left for "personal reasons."
The rift prompted some investors to speculate that Eric Molson may put the company, which his family has controlled for almost 220 years, up for sale. Molson family members own two-thirds of the company's Class B shares. Molson Class A shares have no voting rights.
Eric Molson, speaking at the annual meeting, told investors that his family plans to keep its stake and expand the company. His most recent foray, into Brazil, has been a bust. Since buying Cervejarias Kaiser in March 2002 for $765 million to improve sales, the company has ceded market share to AmBev in Brazil.
At the same time, Molson has been losing sales in Canada to Interbrew's imported brands and smaller brewers. The company's profit has dropped in the past year, and before yesterday its shares had dropped 7.6 percent in the past 12 months.
By comparison, Coors stock has gained more than 50 percent during the same period. It reported average sales increases of 16 percent in each of the past five years, compared with 4.7 percent for Anheuser-Busch.
Under Kiely, who become CEO in 2002, Coors has reported higher profit for four straight quarters, boosted by a new low-carbohydrate beer and stronger sales of Carling Extra Cold beer. Still, Molson and Coors lack the marketing clout needed to compete against its larger rivals.
"It's real tough for them to make any inroads against Anheuser-Busch or Miller," said Beer Business Daily's Schuhmacher. "You have to spend a lot to advertise, and advertising costs are the same at Coors as they are at Anheuser."
In addition, Coors Chairman Peter Coors, 57, is running for the U.S. Senate. His family owns about one-third of the company Class B shares. The Class A shares aren't publicly traded.
