Is MillerCoors more challenge than reward for Molson Coors? - Analysis

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While many observers are reserving judgement on Molson Coors until it completes its takeover of MillerCoors, the coming months prior to completion of the transaction run the risk of being as good a time for the brewer as - if not better than - it can realistically expect its longer-term future to be.

Will MillerCoors be a boon or a bane for Molson Coors?

Will MillerCoors be a boon or a bane for Molson Coors?

Last week, the North American company reported a set of figures for 2015 that suggested the brewer will have been glad to see the back of the year. With sales down by 14% in the 12-month period, and net profits falling by almost a third on ForEx, brand investments and contract terminations, Molson Coors was quick to highlight its optimism for the future.

Indeed, the first utterance in the results statement from CEO Mark Hunter had nothing to do with the figures whatsoever. "The most important strategic development for Molson Coors in 2015 was the definitive agreement we reached late in the year to purchase the 58% of MillerCoors that we do not currently own, along with the international rights to the Miller brands," he said. "This is a game-changing transaction for our company that is compelling both financially and strategically."

It's a game-changer, no doubt. It's also by far the biggest post-MegaBrew transaction in the brewing industry. But, will the takeover of MillerCoors be as positive a move as Molson Coors believes it will be? Lest we forget, MillerCoors has posted flat sales for the last three consecutive full-year results announcements.

"The (Molson Coors) shares are playing a waiting game for the completion of the MillerCoors deal," says Nomura's Ian Shackleton in a note to clients following the results last week. "There is potential, we believe, for some positive surprises, with a possible early deal completion (Q3 rather than H2), further synergies in the medium term, and a better underlying performance from the MillerCoors business."

On this last point, however, Shackleton remains unconvinced. "We do not see it as an easy task to move MillerCoors into a growth business, and think that the company's target to reach volume growth by 2019 is ambitious, given the current portfolio."

Pablo Zuanic at Susquehanna Financial Group also believes that the brewer has some tough questions to answer, going forward. "How much of the synergies will need to be reinvested, especially in the early years?" he asks, while warning that "the stern commitment to stabilising volumes could delay margin upside", and that "it is still unclear how Molson Coors will fix MillerCoors' value brand portfolio."

The most likely short-term avenue for success for Molson Coors from the MillerCoors buy, then, will be from those synergies, which have been estimated to total around US$200m.

Once these synergies have been booked, however, the real heavy lifting in the US can start.

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