Seeking to expand abroad as it faces greater pressure from rivals at home, the Adolph Coors Co said on Monday that it would buy the Carling operations of Bass Brewers from Interbrew for US$1.7 billion.
The acquisition is by far the largest in the 128-year history of Coors. It is also the biggest push yet to reduce the company's reliance on the US market, which now accounts for nearly all its sales -- a market dominated by giants like the Anheuser-Busch Cos.
"This is the first time we've done anything of this magnitude," said Peter Coors, vice chairman and chief executive of the Coors Brewing unit in Golden, Colorado. "We've pretty much had all our eggs in one basket. But this deal broadens and diversifies our portfolio."
The acquisition, which is subject to regulatory approval, will make Coors an instant giant in the British beer market, where it will go from holding almost no share to an 18 percent stake overnight. Carling is Britain's No. 1 selling beer, and the other assets, including Worthington Creamflow Bitter, Caffrey's Irish Ale and 49 percent of a joint venture with Royal Grolsch of the Netherlands to sell Grolsch beer in Britain, combine to form the country's second-largest brewer behind Scottish and Newcastle.
With the consumption of beer in most developed countries either stable or declining, brewers have increasingly consolidated in an effort to achieve synergies by selling several brands through a common distribution channel.
But that rationale was not behind this acquisition. Coors has small operations in Ireland and Scotland through which it sells its Coors and Coors Light brands, but it has no presence in England. Unlike other bidders for the Carling assets, including Heineken, Coors will not get huge cost savings from pushing several brands through common distributors.
Given the lack of synergies, and the shrinking beer market in Britain, which has declined by about 16 percent the last decade, some analysts questioned whether the deal made sense.
"Coors can't win the fight with Anheuser-Busch in the United States, and so it decided to go for growth somewhere else," said Henk Grootveld, an analyst with the Robeco Group, in Rotterdam, the Netherlands. "But the UK market is not growing, it's declining."
With 11 percent of the US market, Coors ranks a distant third to Anheuser-Busch, which has a 50 percent share, and the Miller Brewing unit of the Philip Morris Cos, with about 20 percent. Those companies can use their size to offer distributors cash rebates and other incentives to sell their products, tactics that are less effective for Coors.
Since Coors outbid Heineken, which would have received substantial cost savings by selling its Heineken beer through Carling's distributors, "Coors paid a top price," Grootveld said.
Sharing some of those concerns, investors pushed shares of Coors down 5 percent, or US$2.98, to US$56.29, in a half session on Wall Street. Interbrew shares traded in Brussels climbed US$0.24, to 29.39 euros.
Peter Coors, a great-grandson of Adolph Coors, who founded the company in 1873, said that despite a decline in the overall British beer market, Carling's sales continued to grow. He said that Coors had no immediate plans to begin selling beverages, including the Keystone, Blue Moon and Zima brands, in Britain, or to export Carling to the US.
Interbrew of Belgium was ordered to sell Carling by British regulators, who objected to its dominance in the beer market after the acquisition of Bass Brewers and Whitbread last year. Interbrew, which makes Stella Artois, will retain Bass Brewer's operations in Scotland and Ireland, a brewery in Prague and the global rights to Bass Ale and Tennent's.
Coors, which also has operations in Canada, Japan and China, said it would finance the purchase with US$200 million in cash and the rest in debt. Peter Coors said he would prefer to reduce that debt before embarking on further acquisitions.
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