COORS MOLSON MERGER

FEBRUARY 28, 2010

Table of Contents
EXECUTIVE SUMMARY ii
SCOPE 1
INDUSTRY 1
Top 5 Brewing Companies 1
The Beer Brewing Process 1
The Brewer to Retailer Process 3
Beer Importers 3
Beer Wholesalers 3
Beer Retailers 3
COORS 4
Marketing 4
Information Technology 4
Financial 5
MOLSON INC. 5
Marketing 5
Information Technology 5
Financial 6
MOLSON COORS MERGER 6
Four Objectives of Molson Coors 6
Goals from Molson and Coors 7
Coors Goals 7
Molson’s Goals 7
Merger: Good or Bad? 7

EXECUTIVE SUMMARY
This document analyzes two world renowned brewing companies, Coors and Molson, in their achievements and efforts as individual companies in order to gain an understanding of the merger between Coors and Molson. The beer brewing industry is briefly reviewed in terms of the top five brewing companies in the world along with the information and beer brewing process flows of the industry. Marketing, information technology, and financials are elaborated upon for Coors and Molson. These three key aspects of each company are compared and contrasted in order to come to a positive decision about the merger. Finally, the merger is concluded to be a great decision for the two companies.

SCOPE
The merger between Coors and Molson are highlighted in this document. In order to come to a decision about the merger, the companies’ top competitors are mentioned. Information flows, as well as beer processing flows, are discussed. The two companies are then compared in terms of their marketing, information technology, and financial information. Finally, a conclusion is drawn upon by the team in terms of whether the merger was a good decision for Coors and Molson.
INDUSTRY
Top 5 Brewing Companies
After the merger was announced between Coors and Molson, Coors-Molson became the fifth largest brewing company in the world. It is preceded by InterbrewAmBev, A-B, SABMiller, and Heineken. InterbrewAmBev, with its headquarters located in Belgium, earned a net total of $947 million last year. The company is under the leadership of CEO John Brock. Patrick T. Stokes leads the second largest company, Anheuser Busch. Its headquarters are in St. Louis. This company earned a net total of $14.9 billion in 2004. The third largest brewing company, SABMiller, is under the leadership of CEO Norman Adami. SABMiller earned a net total of $1.05-billion last year. CEO Thony Ruys leads the 4th largest brewing company in the world, Heineken. The company earned a total net earnings of 537 million (EUR) last year and houses its U.S. headquarters in White Plains, New York.

The Beer Brewing Process
Brewing, or the process of some yeast converting vegetable sugars to alcohol, is as ancient as these organisms themselves. Typical beer histories explain beer brewing as being 10,000 or more years old and when talking about humans fermenting barley in Mesopotamian, that’s correct, but in order to explain the process of beer brewing, it’s important to point out even more ancient origins. (Dictionary)
Alcohol is created when yeast, a microscopic single-cell organism, comes into contact with sugars. These sugars can come from fruit, like the sweet sugars of grapes make wine, or from grains, as with beer. When the yeast comes into contact with the sugars, it consumes sugars as an energy source and produces alcohol and carbon dioxide as waste.(Bud)
Despite the great ingenuity of brewers, the basic beer brewing process has remained essentially the same for thousands or tens of thousands of years or as long as plants have been producing sugary fruits. It consists of four basic steps.

1) Grain Processing – The brewer employs various methods for turning grain into a fermentable product. Here are the basics.
Germination – The grain is steeped in water and soaked to encourage sprouting. Sprouting releases a special enzyme that catalyzes or helps the conversion of complex carbohydrates into simple, fermentable sugars.
Kilning - The grain is dried and roasted. This kills the sprout and provides the grain with roasted grain flavors and color. Lighter colored beers are more lightly roasted. Darker beers are more darkly roasted.
Milling – The grain is cracked and the sprouts removed. This crushing allows the grain to be better exposed to the boiling water. This helps convert more sugars and more efficiently kill bacteria in the grain.
Mashing – Sugars are created from complex carbohydrates or starches in the grain by simply applying heat. Chemical bonds break and the resulting pieces are smaller, simple carbohydrates – sugars that can be fermented by the yeast.

2) Boiling – Hops and flavorings are added to this grain sugar and water mixture called wort (pronounced wert). Boiling helps to kill all bacteria in order to eliminate competition for the brewer’s yeast and, as part of the mashing process, to break down complex carbohydrates into smaller, simple carbohydrates – sugars –that are fermentable.

3) Pitching – The wort is cooled to a temperature perfect for the particular brewers yeast to enjoy a competitive advantage against any stray bacteria for the wort’s sugars. The yeast is then pitched and immediately begins to quickly reproduce. Pitching yeast is a relatively new step in brewing. Ancient beers used wild, airborne yeasts to inoculate their wort.

4) Fermentation – The yeast’s biological process consumes sugars and produces carbon dioxide (CO2) and ethyl alcohol (EtOH or ethanol). Some of this CO2 is allowed to escape and some is used to carbonate the beer so that it’s bubbly. (Dictionary)
Beer brewing is as ancient as sugar and consists of only these four basic steps. In order to look at the visual of the process, see Appendix A.

The Brewer to Retailer Process
The brewing industry is organized into a so-called "three-tier" distribution system: 1) brewers and importers, 2) wholesalers, and 3) retailers. Under this system, brewers and importers generally transport their beer to distribution warehouses, where they are temporarily stored and then reloaded onto distribution trucks and delivered via a routing system to individual retailers.

Beer Importers
Beer imports enter the United States through import companies which serve as main wholesalers selling the brands to wholesalers in local markets. The largest import brands are distributed locally by major beer wholesalers (i.e., those handling leading national or dominant regional beers) or, in some markets, by major wine and liquor wholesalers. Smaller import brands, unable to attract major distribution, are sold through smaller wholesalers.

Beer Wholesalers
Beer wholesalers serve as the middle tier in the three-tier system. They purchase beer from suppliers and importers and, in turn, sell beer to retailers. Although most beer wholesalers handle beer exclusively, a growing portion distribute food products and other beverages – primarily soft drinks, iced teas, and bottled waters – in conjunction with beer.
Most of the leading beer wholesalers in the country fall into one of two general categories: exclusive wholesalers or independent multi-brand wholesalers located in one or more regions. Exclusive wholesalers are usually partially owned by the brewer. For example, Coors distributes about 75% of its beer through independent wholesalers; the remainder is marketed through exclusive wholesalers.(coors.com) In recent years, multi-brand beer wholesalerships have been proliferating. This is due, in great part, to the consolidation that has marked the industry for nearly two decades. The number of wholesalers has declined from more than 5,000 nationwide in 1970 to fewer than 2,500 today.(bud.com) Unlike wine and spirits wholesalers, which are generally multi-state operators, beer wholesalers tend to operate within the boundaries of a single state. In the last few years, however, more wholesalers have been venturing outside their home states. These moves are being accelerated by the support of leading brewers and "super retailers.

Beer Retailers
Over the last decade or so, the off-premise retail segment for beer has changed dramatically. While traditional liquor stores and mom-and-pop operations continue to account for a significant share of off-premise beer sales, national retail chains – be they supermarkets, drug stores, membership clubs, or convenience stores – are increasingly accounting for more beer sales. Part of this trend is due to the American consumer’s search for convenience and the competitive pricing and brand selection these stores offer. Similarly, while independently owned taverns, restaurants, and night clubs account for a sizeable share of on-premise beer sales, national restaurant/hotel chains are growing in importance.
COORS

Over the years Coors Brewing Company has expanded their product line, the range of customers they serve, and the innovations they have made. Coors started out making only one product in 1873 and now manufactures seventeen products including Blue Moon Belgian White Ale, Killian’s Irish Red, and Keystone Light just to name a few. The business is located in Golden, Colorado, and at one point only distributed their beer to eleven western states. Coors has now expanded its sales to all over the world. The company has many achievements. For example, in 1999 they celebrated the anniversary of the aluminum can which was first produced by them in 1959. In the following few paragraphs is a more in depth investigation on how Coors operates and has become the success it is today.

Marketing
Coors now offers seventeen product beverages, including alcoholic and nonalcoholic. Coors sells their beer all over the Americas, the Caribbean, Europe, and Asia. They market their beer only to adults and support the education of underage drinking prevention and driving under the influence prevention. They have a link on their website that sells clothing apparel, mugs, novelties, and etc. all bearing the Coors emblem. Coors is affiliated with the NFL, racing, and the rodeo. It is not unlikely to see several of their commercials advertising their different beverages during Sunday afternoon football games. They sponsor a Dodge race car in the NASCAR Series. The company has a newsletter for its consumers in order for them to be informed of the sweepstakes and promotions Coors provides.

Information Technology
Coors was not open about the information technology they use at their different breweries, but through case studies there was some information available. Coors has worked in different ways to help decrease aluminum consumption and help the environment. Recently they have found a way to track their aluminum cans by scanning a symbol on the bottom of them. Through this Coors is able to make more informed manufacturing decisions, cut costs, and save scrap. Coors has also partnered with a company named EDS to help with their information technology. This company has converted Coors to Windows 2000, has taken over their help desk, redesigned their supply chain, and converted core business applications to and eASP model. Coors has been open to letting other companies help them with their information technology so that Coors may be able to concentrate on the quality of their product.

Financial
Coors has become successful over the years and this is reflected in their financial reports. They are the number one selling brewer in Puerto Rico and are at the number three position in the United States. According to their most recent financial report, they have saved almost two dollars per barrel of beer since 2001. Their income has increase 8% and their net sales have increased 5.9% percent since the last 2002 report. Sales have increased in their overseas buyers as well. Another goal they have is to capture the number two position in the U.S. beer market. They plan to do this through integrity, quality, excellence, and passion. Coors’ current symbol on the NYSE is TAP. This is a recent change from their previously held RKY symbol because of the merge with Molson. Their stock is recovering from a recent dip that occurred at the end of February. This was most likely due to the merge with Molson. Most recently in news, Coors has named a new head of its U.S. operations, Frits van Paasschen. The day Mr. van Paasschen was named to his position, Coors Molson stock rose one cent. In the future Coors would like to become a five billion dollar plus company.
MOLSON INC.

Marketing
Molson’s marketing strategy has exceeded their expectations and has evolved into more than just online brand positioning. While Molson does sell merchandise online, its e-commerce efforts to date are currently targeted only to Ontario, Canada residents, who can purchase Molson buttons, towels and T-shirts. Although Molson doesn’t utilize banner ads, the company did form a partnership with 3web Network, a Canadian portal, and the University of Calgary. Molson sponsored the distribution of 15,000 3web installation CD’s to the university. The university receives free internet and e-mail access, while Molson gets to serve as an anchor advertiser on the university edition of the 3web Network.

Information Technology
In 1997, Molson embarked on a search for a planning and forecasting solution that would enable the company to improve the efficiency of its Breweries. Molson recognized that in today’s beer markets new trends can develop on a regular basis and their Breweries must be prepared to adjust to this trend as soon as it is recognized. Molson selected the Time Trends Forecast Warehouse by Montreal-based ALT-C Systems Inc. The system was basically built from the ground up to be a solution that would give each individual company a chance to create a forecasting and planning process that would fit its particular business requirements. In all, choosing this system enabled Molson to easily add whatever functionality it required in order to customize the system to fit perfectly within its business processes.

Financial
In fiscal 2004, Molson delivered double-digit operating growth in Canada through continued cost focus and production efficiencies. For the year ending March 31, 2004, net sales revenue increased 0.4% to $2.5 billion. The increase was comprised primarily of a 3.2% revenue increase in Molson’s operations in Canada offset by lower net sales in Brazil of 10.4% due to lower volumes. Net earnings for the 2004 fiscal year were $237.0 million compared to $308.7 million for the prior year. The current years earnings included a charge for a previously announced plant closure in Brazil in the amount of $43.3 million partially offset by a pre-tax gain of $7.0 million, for a net rationalization provision of $36.3 million. Fiscal 2004 also included a $16.0 million non-cash increase in income tax expense due to higher income tax rates in Ontario.

MOLSON COORS MERGER
After much speculation in the past few months, Canada's Molson and the U.S.'s Coors officially announced the news that they have merged on February 9, 2005. When Molson and Coors merged they became the world’s fifth largest brewer. Their net sales will equal more than $6 billion and they will save approximately $175 million over a three year period. Molson Coors has many future plans for the business to grow and become more successful.

Four Objectives of Molson Coors
On March 2, 2005, Molson Coors held a web broadcast presentation to talk about the goals and future predictions of the company. Molson and Coors have developed core objectives that they want to accomplish in the coming years. They will accomplish these objectives through success in each of the core geographies in Canada, the United Kingdom, the United States, and Brazil.
The first goal is to stabilize the alignment of management and boards. To do this they have to create a clear motivating vision, a common set of values, and have a solid understanding of each team’s role to win in the new merger.
Secondly, their goal is in 2005 to grow global revenue in the mid to high single digit percent range with the sales to grow in the low to mid single digit range.
The next goal involving productivity is to deliver the 2005 synergy target of 50 million dollars incremental, so their base line productivity works in each division.
The last goal in financing includes achieving low double digit EBIT growth and generating more than one billion dollars of EBITA through forced energy merger related costs

Goals from Molson and Coors
Once a merger has taken place between companies, both Molson and Coors have to set their own goals and objectives. In pursuing this, each company will need a strategy for success. Molson and Coors have defined their own strategies to go further in the beer brewing business.
Coors Goals
Coors’ strategies for success in 2005 start with a more powerful positioning for Coors Lite in the United States; even though improvement has been made emphasizing to the public that Coors Lite is filtered, packaged, and shipped cold, they don’t feel they have found a right balance of communication or have engaged their product enough to the people. Their advertising is currently in productions that showcases the Rocky Mountains as cold and refreshing in a fun and engaging level. They feel that this will be a “launching pad” to increase sales. Not only through advertising are they going to achieve growth, but also through focusing on how to improve the products they recently have. Their goal is to use advancements to heighten the distributor, retails, and consumers focus on Coors Lite rather to distract them to new brands.

Molson’s Goals
One issue that Molson has to face is that they must stabilize their premium portfolio by having a new advertising campaign that will be used throughout marketing and sales efforts. By doing this they believe that they will see an increase in investment and activity. Also, they are going to continue investing in growth for Coors Lite in Quebec and increase spending to gain momentum in Ontario.

Merger: Good or Bad?
Although some may think this merge should have never taken place between a United States company and a Canada company, we believe that it was a good merge between two highly respectable companies. Molson and Coors were already distributing each others products, and had very little market overlap, so the agreement just makes sense. It also makes sense that if they merged there will be a savings of 175 million dollars. “The Molson Coors merger has created a company that is financially stronger, more diversified, more flexible, and more competitive and sure, more valuable to our shareholders as measured by a wide ranged metrics” (online webcast).
The Molson Brewing Company was started in 1768 and Coors was established in 1873. With this said, we believe that this merger will be a success since both these companies have been around for a long time, and they know how to conduct business.

SOURCES OF INFORMATION www.coors.com www.symbols.com/solutions/manufacturing_coors.html www.coorslight.com www.eds.com/services/casestudies/coors/aspx www.hob.com/venues/concerts/coors www.coorsandco.com www.theglobeandmail.com www.molsoncoors.com webcast
Anheuser-Busch. (2005, January 20). Retrieved March 20, 2005 from World Wide Web: http://www.anheuser-busch.com/financial/default.htm

Coors Company. (2005, January 15). Retrieved March 20, 2005 from World Wide Web: http://www.coors.com/didyouknow/didyouknowHome.asp

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SABMiller Reports Strong Results. 18 November, 2004. Iafrica.com business. 20, March 2005 http://business.iafrica.com/news/391555.htm

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