Comment - StarBev to become Star in Molson Coors' Crown?
Molson Coors is the new owner of Staropramen - but how big is the brand's potential?
Molson Coors is placing a US$3.5bn bet on Eastern Europe's return to form via its deal for StarBev.
The North American has today (3 April) ended a flurry of speculation around StarBev's future by announcing that it has agreed to buy the Czech-based brewer from private equity group CVC Capital for US$3.54bn.
It's a risky move, mainly because beer consumption in many of StarBev's key Central and Eastern Europe markets continues to look shaky. Since the onset of the global economic downturn, consumers in this region have either turned away from beer or moved to cheaper brews.
Historical precedent suggests that there will be some kind of revival, but no one is sure when, or how fast.
For the pleasure of living with such uncertainty, Molson Coors has agreed to stump up serious money. In 2009, CVC Capital bought the jigsaw pieces that would form StarBev from Anheuser-Busch InBev for $2.2bn, moving up to $3bn depending on unspecified targets for return on investment.
Today's deal, then, represents a significant premium on the original sale, completed little more than two years ago. This probably reflects A-B InBev's right of first offer on StarBev, which is likely to have driven the price up for any other buyer. It may also reflect rival interest from Asahi, although the Japanese brewer's president was quoted today as denying an approach for StarBev.
However, Molson Coors' deal is not outrageous in a wider context. The deal is priced at 11 times StarBev's EBITDA for 2011, of EUR241m ($322m), putting it on the cheaper side of the beer industry average: SABMiller paid a ratio of around 13 times EBITDA for Foster's Group at the end of last year.
There are few synergies to be had between Molson Coors and StarBev, and just $50m are anticipated by the Canadian brewer by 2015.
What will make or break this move, then, is Molson Coors' ability to regenerate beer consumption in StarBev's core markets. Aside from the Staropramen brand, Molson Coors appears most interested in capitalising on StarBev's distribution network, which spans nine countries. Molson Coors' Carling brand will spearhead the assault.
In terms of geographic spread, the deal also represents Molson Coors' belated attempt to cut its reliance on the sluggish beer markets of the UK, Canada and the US. StarBev is equal in size to just over a quarter of Molson Coors' global volume sales. In calendar 2011, StarBev's net sales reached $1bn, versus Molson Coors' $3.5bn.
Still, there will be those who argue that Molson Coors would be better sticking with Asia in its pursuit of emerging market growth, rather than clogging itself up with Eastern Europe.
Two things, though. Firstly, opportunities for sizeable acquisitions in beer are dwindling. If, like Molson Coors, you are a little below the first tier of brewing in terms of size, there is a double problem of finding suitable assets that will not be coveted at some blockbuster price by an A-B InBev, SABMiller or a Heineken. StarBev fits that bill.
Secondly, Molson Coors has said that it is prepared to sit out short-term market uncertainties in Central & Eastern Europe (CEE). "The CEE markets are expected to benefit from positive volume and per capita consumption trends over the long-term," it said today.
The key question is whether these markets can go far enough, quickly enough, to satisfy Molson Coors' shareholders.
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