Blog: Chris Brook-CarterNew year, same old troubles

Chris Brook-Carter | 11 January 2005

The start of the New Year is traditionally a time for new beginnings. Certainly there seems to have been an unusually high level of job changes and resignations in the news over the last week across the industry. Meanwhile, Diageo has been given the green light for its Chalone deal from the FTC; LVMH has wrapped up its bid to acquire Glenmorangie and PepsiAmericas has completed its purchase of CIC, all within the first week back.

I suspect that Eric Molson, chairman of the Canadian brewer Molson, and his counterpart at Adolph Coors wished they had a few more of their loose ends tied up as the New Year rolled in. Unfortunately, there still appears to be no end to the troubles facing the two as they try to sell the merger of these North American brewers to shareholders.

Executives at both brewers intend to embark on yet another charm offensive this week to try to convince the growing number of investors who are turning rogue and opposing the merger of their wisdom.

The brewers have until the vote on January 19th to make good, but it is looking a harder sell by the day. A number of investor groups, such as Burgundy Asset Management in Toronto and Montreal-based investor Jarislowsky Fraser Ltd, oppose the deal because they believe Molson is being undervalued.

They also believe they have enough support to deny Molson the two-thirds of the shareholder votes it needs to approve the deal, the Wall Street Journal reported this week, citing unnamed sources familiar with the matter.

The Journal also reported that Ian Molson, cousin of chairman Eric Molson and the principle opponent of the deal, is expected to officially announce his opposition today. Any such news would hardly come as a surprise, but it will continue to raise the pressure on Eric and his supporters to sweeten their offer again – a move they have so far ruled out.

It boils down now to a simple game of chicken - who is going to buckle first, the shareholders after a better deal or a management desperate to see this deal through. Despite the rough ride Eric Molson has been subjected to, he is still the favourite to triumph.

In a research note seen by just-drinks today, Mark Swartzberg, the drinks analyst at Legg Mason said he believes the Molson-Coors merger is still likely to be approved. "We continue to ascribe a high likelihood to the Molson-Coors merger, as proposed, being approved, although we are taking our probability down to 75% from 80%," he said.

Swartzberg adds that although he believes Ian Molson will convince some shareholders to oppose the deal, the economic risk of actually casting a no vote is significant, with no clear indication that another adequate bid will emerge and the threat that Coors will pull its joint venture business from Molson, should another party acquire the Canadian brewer.


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