Molson Coors Merger case study - Business Essay Example

I - Molson Coors Merger case study introduction.         Statement of Core Problem

In the past, Ian Molson and company chairman Eric Molson, his cousin, had fight about the brewery. Ian Molson resigned from the board over disagreements with his cousin. Ian Molson challenged that the combined company would not be a merger of equals as it has been pushed because control of Molson, which has a larger market capitalization, higher profitability and a stronger domestic base, would shift to a new U.S. headquarters with two Coors executives in charge (“Ian Molson Opposes Molson-Coors Merger”, 2004).

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However, 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 (“Molson Coors Begins Cutting Costs”, 2005).

Several shareholders have challenged the proposed merger was not equitable and did not give them enough money for their holdings. In past months, many analysts and shareholders have suggested an increased dividend or premium.

 

II.        Summary Recommendation

My opinion on this merger is that I believe both were kind of forced to merge. Taken individually, Molson and Coors are relatively small players, with difficulties to increase market size. Molson is quite stagnant in Canada and Coors is dwarfed in the US by competitors such as Anheuser-Busch. They might stand a fighting chance when combined together, and it’s easier for both to merge together than being simply swallowed by a larger competitor.
Molson Coors Brewing Co should plans to boost its revenues through the restructuring of its operations, besides investing at its plants. From a financial perspective, the cash drain from the business is undesirable and must be focused quickly. The company should aims to take steps to stop the market share erosion of its key brands.

 

III.      Alternative Solution

I think the mergers succeed or fail based on their ability to achieve a single compelling vision and culture. A key immediate objective of their management and their Board is to set alignment of the entire enterprise around a clear, motivating vision, a common set of values and a solid understanding of each team’s role in winning as the new Molson Coors Brewing Company.

This is should be a strong Board, well qualified to support the company as it pursues its potential. It is designed to ensure that the interests of all shareholders are represented in the decisions determining the direction of the company.

A bright future ahead of them Molson Coors has the talent, scale and financial strength to be a strong competitor in the global beer marketplace. Their focus should not change fundamentally from what they have always done the best to do at both Molson and Coors: “build the brands; strengthen the partnerships and seek new ones; attack costs; and build the team”.

While they struggle to excel at these fundamentals, they should always be alert to new opportunities to accelerate their performance and improve their position. The new company virtually doubles their size overnight. This puts at their disposal extraordinary resources, and they should intend to make the most of them to build their core markets, develop new regions and grow shareholder value.

 

IV.      Analysis and Conclusion

This transaction allows them to create a stronger company in a consolidating global industry while protecting Molson’s rich heritage as North America’s oldest beer company and Canada’s leading brewer. Molson are extremely pleased to be combining with Coors, one of the world’s most respected developers, in such a strategically convincing merger. They look forward to working together to realize the full potential of the new company (“Molson Coors Brewing Company”, 2004).

Coors feel very proud to see the company started by their great-grandfather more than 130 years ago combine with a company of Molson’s caliber and heritage. This historic transaction combines 350 years of developing excellence. Moreover, it creates a dynamic and competitive organization. It able to deliver long-term value to shareholders, it happens while continuing to be an important contributor to the communities in which they operate (“Molson Coors Brewing Company”, 2004).

Molson Coors Brewing Company have a 15-member Board of Directors, most of them from the existing Boards of both companies. It composed of five members nominated by Molson family Board members, 5 members nominated by Coors family Board members and 3 directors elected by the company’s non-voting shareholders. Leo Kiely and Daniel J. O’Neill also become directors. Nine members of the company’s Board of Directors become independent of management and the controlling shareholders. The company has executive headquarters in Denver, Colorado, and Montreal, Quebec  (“Molson Coors Brewing Company”, 2004).

The companies aim to establish an Office of Synergies and Integration to facilitate the development and implementation of plans to achieve the expected benefits of the transaction. The Office is responsible for the realization of cost savings and other synergies, including the alignment of related capital expenditures, by applying best practices and global benchmarking. The combined company expects to achieve annualized synergies of approximately US$175 million by 2007. The principal sources of these synergies include the optimization of brewery networks, increased obtainment efficiencies, modernized organizational design, consolidated administrative functions and greater tax efficiencies (“Molson-Coors merger deal”, 2004).

The company has dual head offices in Denver and Montreal. Its Canadian operations managed from Toronto. The transaction structured as a share exchange, whereby Molson shareholders could either convert to shares of the new entity or elect to receive exchangeable shares on a tax-deferred basis (“Molson-Coors merger deal”, 2004).

There is also speculation that a third brewer might still enter the picture to make a bid for both companies. The biggest beneficiaries of a Molson-Coors’ merger is likely to be Canada’s growing microbreweries, one industry observer said, predicting their market share could easily double to 20% within a decade (“Update 1: Canadian Agency OK’s Molson-Coors Merger”, 2004).

The news was overshadowed by reports that Molson-family stakeholder Ian Molson may try to make a counteroffer that could hush up the deal. Ian Molson was disappointed he was unable to submit a rival offer for the company. Ian Molson has evaluated the Molson/Coors proposal carefully and has concluded that this is a bad transaction for Molson shareholders. He thought that the status quo is a better option (“Update 1: Canadian Agency OK’s Molson-Coors Merger”, 2004).

The Ontario Teachers’ Pension Plan, which owns about 1.6 million shares or 1 percent of Molson stock, supported the merger plan, saying the combined company would be stronger than Molson as a separate company.

By combining Molson and Coors, Molson Coors Brewing Company have created a company with the market and financial strength necessary to drive organic growth and compete more effectively in today’s increasingly challenging global market, while preserving the rich heritages of two of the world’s most famous brewing companies. They look forward to drawing on this brewing heritage and the combined strengths of an excellent management team to deliver greater value to their customers, partners, employees and shareholders (‘Molson-Coors Merger Unites Two Irresponsible Brewers”, 2004).

Both Coors and Molson agree that the merger is the best alternative for both companies, and are confident that the merged company can create greater levels of sustained shareholder value. Today’s action provides immediate value to Molson shareholders while still enabling them to participate in the significant long-term upside of the combination (‘Molson-Coors Merger Unites Two Irresponsible Brewers”, 2004).

Ian Molson’s comments came eight days before shareholders of both companies will decide whether to approve the merger. The newly combined company would have annual revenues of about $6 billion with brands like Coors Light, Molson Canadian, Keystone and Carling. Ian Molson said he would vote against the merger, joining a growing list of Molson investors opposed to the deal. Nevertheless, three independent institutional investor advisory firms have previously backed the deal (“Ian Molson Opposes Molson-Coors Merger”, 2004).

Molson shareholders are not being paid for the change of control nor the disappearance of the institution called Molson that they are being asked to facilitate. Molson has a continuing ability to create value for its shareholders, substantially in excess of what is offered by way of the Coors merger proposal. Molson should not be afraid of the future (“Molson shareholders approve Coors merger”, 2005).

Based in uptown Golden, Coors is the third biggest U.S. brewer while Molson is in a tight race with Interbrew SA’s Labatt Brewing in Canada. In terms of both revenue and barrels sold, the combined company would rank fifth globally (“Coors, Molson brew a merger”, 2004).

The company has established an Office of Synergies and Integration to facilitate the development and implementation of plans to achieve the expected benefits of the transaction. Through this Office, the company expects to achieve annualized synergies of approximately US$175 million over three years. The principal sources of these synergies include the optimization of brewery networks, increased obtainment efficiencies, streamlined organizational design and consolidated administrative functions (“Blue Team, Profitability and Market Performance, Analysis of Ratios”, 2005).

This transaction expected marks a new and important chapter in the history of both companies. It should can influences successful business relationships and builds on the strategic and cultural fit between the two companies. With an impressive record of accomplishment in brewing excellence, the new Molson Coors Brewing Company expected will be a dynamic and competitive organization that will create long-term value for their shareholders and the communities in which they operate (“Blue Team, Profitability and Market Performance, Analysis of Ratios”, 2005).

The global beer business is rapidly consolidating, becoming more competitive every day. More than ever, scale is important for any brewer to do extremely well. That is why they thought that is the right time for Molson Coors. For two successful players in the world’s most profitable beer markets, that is a perfect fit. Together they are financially stronger and more efficient. By dramatically increasing their size overnight, the merger enhances their ability to support aggressive marketing campaigns, innovative product introductions and strategic geographic expansion (“Blue Team, Profitability and Market Performance, Analysis of Ratios”, 2005).

Molson Coors Inc. believe that they are making good progress on actively reaching out to investors of both companies to ensure they have a clear understanding of the strategic and financial benefits to combining these two organizations (“Blue Team, Profitability and Market Performance, Analysis of Ratios”, 2005).

Molson management and the board are very pleased that shareholders have supported the merger and understood the strategic and economic value of the transaction. The merger creates a company “with the operational scale and the financial strength to compete in the rapidly consolidating global beer market” (“Blue Team, Profitability and Market Performance, Analysis of Ratios”, 2005).

Molson Coors Inc told that Molson shareholders should not be giving the wrong impression about thinking that there is an alternative transaction in any form that will provide the same opportunities as the Molson Coors merger.  In addition, shareholders should not be misled into thinking that they would agree to any such alternative transaction. Molson Coors Inc want to repeat to their shareholders their enthusiastic belief that the merger of equals between Molson and Coors, as propose, is the right transaction with the right partner and it is fair to shareholders in the short, medium and long term.

Maybe this is shocking news to people who consumes beer, especially for Canadian people, that their homegrown Canadian beer will be moving together with Coors the USA beer that nobody that they know likes and drinks. People thought that Molson is the best beer in the world so why would they want to merge with the worst beer in the world. It just does not make any sense to them. People knew that things were going wrong with Molson when they sold the Montreal Canadians (“Molson’s Montreal brewery to produce Coors’ Blue Moon brand for US market”, 2005).

There were more shocking people to read the story about Coors and what they did in the past to hire employees, by giving them a polygraph test so that they can tell what there sexual preference. Because they did not want any gay people working for them. Now that is just plain wrong and something should be done about this and Coors deservers to be investigated and lawsuits should be filed.

SWOT Analysis

Strength
As a merged company, they are stronger, more flexible and more competitive. They are off to a fast start on integrating and building the organization of the combined company, and their synergies teams are moving quickly to capture the substantial cost synergies and other benefits of the merger. Their Brands are powerful. Across the globe, there is a growing preference for more refreshing, drinkable beers. The Molson Coors portfolio comprises some of the world’s leading brands. The merger creates a company “with the operational scale and the financial strength to compete in the rapidly consolidating global beer market”.
Weakness
The risk that the businesses will not be integrated successfully; the risk that the cost savings and any revenue synergies from the merger may not be fully realized or may take longer to realize than expected; and disruption from the merger making it more difficult to maintain relationships with customers, employees or suppliers.
Opportunities
Their opportunities have no borders. Success in the beer business requires meeting two imperatives: profitably building core markets, and entering high-potential new markets across the globe. Their newly expanded business is better positioned than ever to grow in their home markets, four of the world’s largest and most profitable – Canada, the United States, Brazil and the United Kingdom – while they plant a flag selectively in other high-potential beer markets. Molson Coors has the scope, scale and talent to grow where they are already established and where they are new.
Threat
The merger both were rather forced to merge. Taken individually, Molson and Coors are relatively small players, with difficulties to increase market size. Molson is quite inactive in Canada and Coors is dwarfed in the US by competitors such as Anheuser-Busch. They might stand a fighting chance when combined together, and it is easier for both to merge than being simply swallowed by a larger competitor.
Molson Coors are going to win in the beer business, and they are going to do it the right way. Molson Coors combines two very strong traditions of responsible marketing and community involvement to address underage drinking and irresponsible consumption. Their increased scale and power will benefit more than their efforts to grow, it will strengthen their ability to make a difference on this important aspect of their business everywhere they sell their products. Just watch. Everyone here at Molson Coors shares a sense of excitement at the possibilities the merger of these two great companies represents. This is going to be fun.

 

 

Bibliography

 

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