Reuters: Mergers News: UPDATE 4-Molson Coors to buy StarBev for $3.5 billion

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UPDATE 4-Molson Coors to buy StarBev for $3.5 billion Apr 3rd 2012, 16:56 Tue Apr 3, 2012 12:56pm EDT * Molson Coors beats Asahi to East European brewer * Deal to lift EPS 1st yr, increase sales in developing markets * Shares down 3.7 pct By Martinne Geller and David Jones April 3 (Reuters) - Molson Coors Brewing Co struck a deal to buy East European brewer StarBev from CVC Capital Partners for 2.65 billion euros ($3.5 billion) as the North American brewer seeks a greater presence in developing markets. Molson Coors, whose beers include Carling, Blue Moon and Coors Light, outbid rival Asahi Group of Japan, an early front-runner that was unwilling to pay more than $3 billion for StarBev, the maker of Czech beer Staropramen, according to people close to the deal. Molson shares fell 3.7 percent on Tuesday, as analysts questioned the returns on Molson's investment and saw the deal as not addressing its core challenge of growth in North America, where lingering unemployment and a greater consumer interest in cocktails and wine has curbed demand for beer. The deal will help lift the percentage of revenue coming from outside Canada, the United States and Britain to the mid-teens from the low single digits, Molson said. "The result will be a more attractive growth profile and more balanced sources of earnings and cash," said Molson Chief Financial Officer Stewart Glendinning. The purchase should add to earnings in the first full year of ownership and give the brewer its first big business in emerging markets. StarBev has operations in the Czech Republic, Serbia, Croatia, Romania, Bulgaria, Hungary, Montenegro, Bosnia-Herzegovina and Slovakia. But given that the business has been owned by private equity since 2009, and Anheuser-Busch InBev before that, analysts questioned how much savings Molson can generate. "While we believe gaining exposure to emerging markets is positive, we don't anticipate much synergy potential in the acquisition," said UBS analyst Kaumil Gajrawala. "Ultimately, the key to creating shareholder value is to grow in the U.S." CREATING VALUE The deal is valued at around 11 times StarBev's core 2011 profit, or EBITDA, of 241 million euros, from annual sales of 700 million euros. That is "well within the range of recent transactions," according to Molson's Glendinning, but some analysts thought the price was high. "We did not think the business in many fragmented markets was worth more than 10 times EBITDA, or some $3 billion, so this has to be seen as a high price," said one analyst, who does not cover Molson Coors and, therefore, did not want to be named. Molson expects synergies of $50 million a year by 2015, with three-quarters of that coming from cost-savings in areas like procurement and production. The remainder should come from Molson being able to sell its existing brands in those countries. CVC, a private equity firm, bought StarBev in December 2009 and put the business up for sale after approaches from a number of brewers, thought to include Asahi, Molson Coors, Carlsberg , SABMiller and Heineken. Molson Chief Executive Peter Swinburn told reporters he was not aware of any bidding war with other suitors. After selling the business to CVC in 2009, AB InBev, the world's biggest brewer, had the "right of first offer" to repurchase StarBev, but it showed little interest. AB InBev sold the business to cut debt after buying Anheuser Busch for $52 billion in cash in 2008. It was seen as unlikely to buy back its relatively small positions in a range of markets while its eye is on the sizable shares it has in key markets such as the United States, Brazil, Russia and China. Despite recent weakness in Eastern European economies, StarBev is still seen as a long-term growth story in a rapidly consolidating brewing world. Analysts said this was the last major beer company likely to come up for sale in Central and Eastern Europe, with that market now largely controlled by SABMiller, Heineken, Carlsberg and Molson Coors. Morgan Stanley was the lead financial adviser to Molson Coors, with Barclays and Deutsche Bank as co-advisors. Nomura was the adviser for StarBev. Molson Coors shares were down $1.69, or 3.7 percent, at $43.97 in midday trade on the New York Stock Exchange. Link this Share this Digg this Email Reprints

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