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Does Molson Coors Stand to Gain from the Big Beer Deal?

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Shares of two beer giants Anheuser Busch InBevBUD and SABMiller plcSBMRY shot up 6.84% and 20.8%, respectively after Belgium-based Anheuser Busch reportedly confirmed that it is considering taking over its London-based rival, SABMiller. Following the announcement of this takeover approach, beer producer Molson Coors Brewing CompanyTAP is also reportedly set to benefit from a potential AB InBev-SABMiller deal, as SABMiller owns a stake in MillerCoors, its joint venture with Denver-based Molson Coors. Shares of Molson Coors rose 14.23% after closing on Wednesday.

The Possibilities

The proposed merger would combine the two largest beer companies in the U.S. and could have wide implications on the worldwide beer market.

Therefore, it would be difficult for the two beer giants to get approval from U.S. anti-trust regulators, as the combination of these two companies would reportedly control over 70% of the U.S. market, generating nearly $250 billion in annual revenues. The deal will likely encounter the same challenge in other global markets where the two companies have a significant presence like Europe, China, Russia and Australia.

If there were to be a merger of SABMiller and Anheuser Busch in the near future, U.S. regulators would likely force the brewers to sell off the MillerCoors joint venture and maybe even CR Snow in China to make the deal palatable, per the reports. Another condition that regulators might impose to ensure continued competition could be spinning off individual brands, breweries or distributorships.

CR Snow (officially China Resources Snow Breweries Ltd.) is a brewing company headquartered in Beijing, China. It is a joint venture between China Resources Enterprise and SABMiller. It is the largest brewing company in China.

MillerCoors is a joint venture between SABMiller plc and Molson Coors Brewing Co. It brews, markets and sells the MillerCoors portfolio of brands in the U.S. and Puerto Rico. MillerCoors is the second-largest beer company in America, capturing nearly 30% of U.S. beer sales.

Now Molson Coors, which owns 42% of the MillerCoors joint venture, will have a chance to buy out SABMiller's 58% share in the business and become the sole owner of MillerCoors.

Molson Coors stands to benefit from the Anheuser Busch-SABMiller merger, mainly on two grounds. First, the purchase of SABMiller's stake by Molson Coors would allow it to take strategic control over its operations in its biggest market. Molson Coors would also be in position to gain significant synergies, which would allow the company to cut costs quickly. As the U.S. beer market grows slowly, lower costs will help Molson Coors to increase its profits in the coming years.

Per the Wall Street Journal, the purchase of SABMiller's stake in the joint venture could add nearly 50% to Molson Coors' earnings per share, besides allowing the company to cut nearly $400 million in costs.

Besides Molson Coors, another beneficiary from the potential deal could be tobacco giant Altria Group Inc MO , which currently owns 27% of the economic and voting interest of SABMiller and holds three board seats. As a result, shares of Altria gained 2.31% on Wednesday on the prospects of a premium bid for SABMiller. A less likely option could be that beverage producer Heineken NV (HEINY) takes over the U.S. operations of SABMiller.

Bottom Line

Though it is too early to talk about the merger of Anheuser Busch and SABMiller, investors will have their eyes on all the companies mentioned above. The deal could have major positive implications for Molson Coors and its share price in the future.

Molson Coors currently carries a Zacks Rank #3 (Hold).

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ALTRIA GROUP (MO): Free Stock Analysis Report

MOLSON COORS-B (TAP): Free Stock Analysis Report

ANHEUSER-BU ADR (BUD): Free Stock Analysis Report

SABMILLER PLC (SBMRY): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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