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June 5, 2009

In the Spotlight – Cobra Beer

Molson Coors rescued Cobra Beer from administration late last week, picking up a 50.1% stake in the company’s UK operations.

Molson Coors rescued Cobra Beer from administration late last week, picking up a 50.1% stake in the company’s UK operations. Michelle Russell looks at the deal.

Cobra was forced into a controversial so-called pre-packaged administration deal late last week after losing support from one of its key creditors, a source familiar with the situation confirmed to just-drinks

Its Phoenix-like resurrection under a joint venture between founder Lord Karan Bilimoria and Molson Coors UK gives the beer company a new lease of life after being crippled by debts.

The manner of the group’s collapse has left a number of unsecured creditors set lose a total of up GBP75m (US$121m), it is understood, however.

Speculation has been rife across the trade and media in recent weeks that Cobra had to find a buyer or go bust altogether. There has been particular concern among the firm’s hardcore clientele of Indian restaurants across the UK, just-drinks was informed last month.

Since putting the company up for sale last year, Cobra has sought to cut costs. The departure of four directors, including chief executive Adrian McKeown and marketing director William Ghali in the last couple of months, heightened speculation that it was either sale or bust for Cobra. Staff numbers have been cut from 150 to around 60 in the last 12 months or so.

The new Molson-controlled joint venture – Cobra Beer Partnership – has acquired the Cobra brand and certain UK assets as part of the deal and will produce and market the beer.

Molson Coors paid GBP14m for its 50.1% stake.

The deal does not include the company’s Indian brewing operations, which are understood to have been retained for the time being by a separate finance vehicle controlled by Bilimoria. Cobra, which claims around a 1% share of India’s beer market, made no secret to potential buyers about its willingness to split its India and UK arms.

Bilimoria had last year hoped to secure in excess of GBP100m for Cobra, and possibly more than GBP150m, but continuing losses severely affected the price.

A source close to international brewer SABMiller told just-drinks earlier this year that it looked at Cobra but found the asking price to be too high. Diageo came close to taking a 30% chunk of Cobra last summer, just-drinks has been told, but talks broke down.

Asked about the current valuation of the Molson joint venture, Bilimoria told Business Standard this week: “The true value of the JV [joint venture] is not the upside money. The real value will be our share of profit from the JV.”

Although Cobra sales have grown rapidly since the group’s inception, it has not previously made a profit.

Still, Molson is clearly attracted by the fact that Cobra’s sales by volume rose 20% in the nine months to 30 April, against a national beer sector down by 8% for the same period.

Mark Hunter, chief executive of Molson Coors UK, said: “The joint venture will enable Cobra Beer to move on to the next stage of its brand evolution and open up significant opportunities for Molson Coors, including ethnic restaurants, where Cobra Beer has built an impressive distribution base.”

For Molson, the deal has strengthened the group’s UK beer portfolio at rock-bottom cost, bringing Cobra in alongside Carling and its licence for Grolsch, as well as Sol.

Some analysts believe that Bilimoria has spent the last two years building Cobra up for a sale. The eventual deal, although far from ideal in circumstances, at least offers the brand survival and the chance to take advantage of Molson’s superior resources.

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