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Why an Anheuser Busch-SABMiller Merger Could be Huge for Molson Coors

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In a move that would be relatively unheard of, beer giants Anheuser Busch (BUD - Free Report) and SABMiller are reportedly speculating on a possible merger of the two companies. The stocks of the two companies surged on the news, with BUD closing the Wednesday up 6.84%, and shares of SBMRY up 20.80%.

Fellow beer producer, the Molson Coors Brewing Company (TAP - Free Report) also saw a major jump in its own stock price, closing the day 13.97% higher. This is mainly because Molson Coors likely would stand to profit greatly from the deal, despite not actually truly being a part of it.

In 2008, Molson Coors and SABMiller formed a joint venture when the two companies combined their U.S. operations. The joint venture owns popular brands such as Miller Lite, Coors Light, Blue Moon, and Keystone, in addition to a few smaller brands.

Despite the joint venture being split 50-50, it actually is much more important for Molson Coors. The company depends on the joint venture for 44% of earnings before interest, tax, and amortization, whereas SABMiller derives just 12%.

If there were to be a merger of SABMiller and Anheuser Busch in the near future, U.S. regulators would likely force SABMiller to dispose of their stake in the joint venture, and with Molson Coors having the right to first refusal, Molson Coors could buy the business at a reasonable price.

This would be a major positive for Molson Coors for two main reasons. First, the purchasing of SABMiller’s stake by Molson Coors would allow it to take strategic control over its operations in its biggest market. The second reason would be that with the purchase, Molson Coors would have the chance for significant potential synergies, which would allow for the company to quickly cut costs. As the U.S. beer market grows slowly, a cutting of costs is key for Molson Coors to grow its profits in the coming years.

Bottom Line

While many may not have known that Molson Coors would stand to benefit so greatly from an Anheuser Busch-SABMiller merger, they likely do know after seeing the company’s stock soar greatly in trading today. In one analyst’s opinion, the purchasing of SABMiller’s stake in the two companies joint venture could add nearly 50% to Molson Coors’ earnings per share, or EPS, in addition to allowing the company to cut nearly $400 million in costs as well.

The merger between Anheuser Busch and SABMiller is not a definite yet, but investors should keep their eyes not only on the two companies involved, but also on Molson Coors as the deal could have major positive implications on the company and its share price in the future. Be sure to stay tuned to Zacks as more information regarding the deal becomes available in the coming weeks.

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