Brazil, land of sun, sizzling beaches, dental floss thongs and the world's largest carnival. Canada, land of snow, sparkling lakes, polar fleece, and some of the world's greatest skiing. Two opposite cultures not to mention climates, yet however different they may seem, there is something that now binds the two nations - beer. Molson beer to be precise.

Canadian beer giant, Molson has announced it is making way for the South American beer market by purchasing Bavaria beer, one of Brazil's leading brands, from Companhia de Bebidas das Americas (AmBev). The sale of the Bavaria brand was a condition of the Brazilian regulatory authorities for approving the merger between Brazil's two top beer companies, Antarctica and Brahma to form AmBev. AmBev is now the fourth largest brewer in the world.

Molson acquired Bavaria and five regional breweries for $98m. The deal is performance-driven with the balance of sale triggered by increased market share. Currently, Bavaria holds 3.7% of the Brazilian market or 3.8m hectolitres. Incentive payments mean that AmBev would be paid $110m if the brand's market share reaches a level of 6.5%.

The transaction agreement means Molson will have access to AmBev's considerable distribution network for a minimum of four years with the option of extending the agreement to 10 years. The deal is yet to be closed and approved by CAGE, the Brazilian regulatory authority, but Molson expects the deal to go through by December 31 of this year, as this was the date given by CAGE for AmBev to offload Bavaria.

John Paul Macdonald, VP of Molson corporate affairs, told that the sale of the Bavaria brand could not have been better matched for Molson. He said: "When we saw that Bavaria was up for sale, we did a lot of research and found that while the brand was popular, we saw that there was quite a bit of room for more brand recognition. We feel that with the proper marketing support we can increase the market share."

But other aspects of the agreement have also contributed to making the deal sweet for Molson. The Canadian company will have access to AmBev's trained local professionals; maintain strong control over the Bavaria brand; and the deal represents Molson's first entry into a foreign market outside Canada and the US. The Montreal-based group has chosen well. The beer market in Brazil is four and a half times that of the Canadian market with a total of 88m hectolitres. And, Molson predicts, the Brazilian beer market may well surpass that of Germany in the next decade, making it the third largest market in the world with a growth rate of 4.5%.

Highly concentrated, the Brazilian beer market has four major competitors and a growing youth adult market, with an estimated increase in beer consumption of 26% by 2003.

Daniel O'Neill, president and CEO of Molson, said: "From the outset, this acquisition is expected to be accretive and should enhance Molson's commitment to annual operating profit growth of 12.3%. Developing an earnings stream from emerging markets significantly improves the future of Molson."

Marketing schemes or extra money to be spent on luring the Brazilian public to drink more Bavaria beer were not divulged. The deal is consistent with the international trend of entering into growth markets and piggybacking the Molson brand while improving distribution. However plans to shoehorn the Molson brand into Brazil, and vice versa, have been put on the proverbial backburner.

Molson brands on sale in Canada will not be exported into Brazil nor will Bavaria make it into the Canadian market in the near future.

Macdonald added: "There is a possibility for that at a later date but for the moment we are going to focus on expanding the market share of the brands in their respective countries."

He continued: "We think that future growth will come from outside North America. We are not going to go down the road of acquiring breweries like Interbrew. We don't think bigger is necessarily better."

Kelly Gray, editor of Bar and Beverage Business Magazine based in Winnipeg, told the Molson AmBev deal is a sign of the times. He said: "Consolidations like this are happening in every industry and beer is no exception."

Gray said because the Molson brand is largely limited to North America, particularly Canada, it has risked being left behind in the rush towards globalisation. Indeed its national competitor Labatt has been introducing overseas brands in Canada, through Interbrew. Now international brands are seeing much success in a nation that was quite comfortable having two major brands available.

He said of the deal: "They need a shake up. It can only do good things." Molson Inc, founded in 1786, is Canada's top selling brewer, with sales of more than $2 billion per year with brands such as Molson Canadian, Molson Export, Molson Dry and Rickard's Red.