Comment - Molson Coors, SABMiller Spat: A Lovers' Tiff or Something More?
The initial lock-up period over MillerCoors comes to an end in July
All relationships have their ups and downs. And, when it comes to business relationships, you can expect more than your fair share of frosty moments. But, the news that Molson Coors is suing SABMiller’s Canadian subsidiary, Miller Brewing Company (MBC), has raised eyebrows even among seasoned industry observers.
To recap: MBC is dissatisfied with the performance of its brands under Coors’ stewardship in Canada. So, the firm has given Coors six-months' notice on the licensing agreement, due to end in July. The North American company has subsequently hit back by lodging a lawsuit in a bid to block MBC ending the deal.
Coors’ action poses some key questions: Why is it so bothered about the Miller brands, given that it's such a small part of its business? Why has MBC decided to end the agreement now? And, will this have a bearing on the two companies’ JV in the US, MillerCoors?
The first question is a tough one. Miller's brands represent just 15% of Molson Coors’ total group volumes. But, according to Coors, Miller alleges that it “failed to meet certain volume sales targets”. While Coors does not dispute this, it says that it does not believe Miller Brands has “any right” to terminate the agreement.
And, what of MillerCoors - the JV the two companies have run in the US since 2008 as a competitor to Anheuser-Busch InBev? The terms of the JV say the groups can dissolve the deal by "mutual agreement". However, while they remain partners, neither company can make a bid for the other for a ten-year period.
The timing of SABMiller's move to cut ties in Canada, coupled with another key detail of the agreement, is manna from heaven for conspiracy theorists. If SAB gets its way and the Canadian agreement ends in July, this will be just three weeks after the “lock-up” period over MillerCoors in the US ends. Under the terms of the MillerCoors agreement, there exists a five-year period where each had agreed not to transfer their voting or economic interests. This ends on July 1.
As one source told me: “They are not committed to each other after that deadline passes”.
SABMiller CEO Graham Mackay has made no secret of the fact he would like a greater chunk of MillerCoors. At a break-out session at the recent CAGNY conference in Florida, he indicated that he would prefer to have a larger slice of the JV, rather than sell it, I’m told.
Is this cutting of the ties in Canada a bid by SAB to force Coors to negotiate on MillerCoors? Possibly. But with the US Department of Justice crawling all over the Anheuser-Busch InBev, Modelo deal at the moment, SAB may not have the appetite just yet.
Plus, they have a leadership change to contend with later this year.
Officially, the line from a SABMiller spokesperson is this: "The decision (to end the licensing agreement) is driven solely by circumstances in Canada and has no bearing on our ongoing commitment to the MillerCoors joint-venture in the US."
Sources at Molson Coors are making similar noises.
Global drinks companies deal in all sorts of tie-ups with competitors over the world. But, once the link between Molson Coors and SABMiller is severed in Canada, the US remains the last region where they have a significant partnership.
Of course, there are some relationships that manage to go the distance. Is this one of them?
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