Molson, Coors say merger to cut debt, lower costs

Tue Jul 27, 2004

TORONTO, July 27 (Reuters) - Canadian brewer Molson Inc. (MOLa.TO: Quote, Profile, Research) and U.S.-based Adolph Coors Co (RKY.N: Quote, Profile, Research) lobbied investors to back their merger plan on Tuesday, arguing that the deal would cut debt levels and lower costs.

Top Molson and Coors executives rejected analyst reports that have questioned the $175 million in savings the companies have said will result from the merger. The executives said that amount would be just the beginning of cost savings.

"The $175 million in synergies are real," Molson's chief executive, Dan O'Neill, told an investors meeting.

"We are in the midst of creating $40 million to $50 million above the $175 million, which will allow us to invest in key brands."

If the deal goes through, savings are expected to come from optimizing brewery networks and purchasing power and cutting administrative and transportation costs.

Trying to prevent the deal going through is Molson minority shareholder Ian Molson, a cousin of board chairman Eric Molson. Ian Molson has been talking to several possible backers as he tries to find the money for an alternative bid.

Canadian media have said Onex Corp. (OCX.TO: Quote, Profile, Research) could be a potential backer and the Toronto-based company is rumored to have offered $1 billion to help fund Ian Molson's bid. But that is only a portion of the funds he would need to fund a serious counter offer.

The Molson-Coors merger, announced last week, would create the world's fifth-largest brewer by volume. It is designed to allow the companies to compete against larger rivals, including Anheuser-Busch Cos Inc (BUD.N: Quote, Profile, Research) and SABMiller Pl (SAB.L: Quote, Profile, Research) , while keeping the Molson and Coors families in control.

The merger must have the approval of two-thirds of both Molson's class A nonvoting and class B voting shareholders.

Likewise, any competing takeover deal would need the majority of both class A and class B shareholders to tender their shares -- a doubtful proposition with Eric Molson holding more than 50 percent of Molson's voting power and adamantly against selling his stake.

Molson and Coors executives thumbed their noses at the possibility of a takeover on Tuesday, saying the resulting debt load would be a huge burden.

"We foresee a company that's burdened with a lot of debt with limited resources to invest in brands, and we like our own options better," said Leo Kiely, Coors's chief executive.

The combined debt level of the companies as of March 31 was about $2.1 billion and is expected to be below $1.9 billion by the end of the year.

If shareholders vote against the deal, Molson said its business will continue to operate as it is now.

Molson class A shares fell 6 Canadian cents to C$33.24 on Tuesday on the Toronto Stock Exchange. In New York, Coors fell 3 cents to $68.72.

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