Shares of Molson Coors Brewing Company (TAP - Free Report) gained almost 2% on Sep 28, 2016, driven by the news that shareholders of London-based SABMiller PLC voted in favor of its $103 billion merger with Anheuser-Busch InBev (BUD - Free Report) .
This brings Molson Coors a step closer to the takeover of the remaining 58% stake in MillerCoors, the joint venture formed between SABMiller and Molson Coors. Molson Coors already owns 42% of MillerCoors. The acquisition deal, announced in Nov 2015, came as a requirement for securing regulatory approval for big beer deal between AB InBev – SABMiller..
The Big Beer Deal
Anheuser Busch reached a deal to acquire London-based SABMiller in Oct 2015. Per the deal, AB InBev is offering common SABMiller shareholders $67.59 per share, while SABMiller’s two biggest investors, Altria Group, Inc. (MO - Free Report) and the Santo Domingo family from Columbia will be offered cash and shares alternative worth about $60 per share.
AB InBev agreed to divest SABMiller's 58% stake in MillerCoors to Molson Coors, in order to satisfy the U.S. regulators.
Besides purchasing SABMiller’s 58% stake in MillerCoors, Molson Coors plans to buy the Miller brand portfolio globally and retain the rights to all the brands currently in the MillerCoors portfolio for the U.S. market, including Redd’s and import brands such as Peroni and Pilsner Urquell. The deal is valued at $12 billion and will be financed through a combination of cash on hand and proceeds from issuances of new debt and equity.
Molson Coors’ purchase of SABMiller’s stake would allow it to take strategic control of its operations in its biggest market. Molson Coors would also be in a position to gain significant synergies, which would allow the company to cut costs quickly. As the U.S. beer market grows slowly, lower costs will help Molson Coors to increase its profits in the coming years.
However, Molson Coors’ acquisition of the remaining Millers Coors is conditioned upon the closing of AB InBev’s $107 billion takeover of SABMiller.
The mega merger, expected to close in Oct 2016, has received shareholder approval, but is yet to get a final approval by a court in U.K.
Molson Coors currently carries a Zacks Rank #3 (Hold).
Other stocks in the broader consumer staples sector worth considering include Constellation Brands Inc. (STZ - Free Report) , carrying a Zacks Rank #2 (Buy).
Constellation Brands have an expected earnings growth of 17.7% in the long term. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
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