Beer merger could benefit funds, says Morningstar

(July 23, 2004) The proposed merger of Molson and Coors could boost the fortunes of mutual funds that invest in the two beer companies, says Morningstar Canada.

Several Canadian mutual funds have substantial holdings in Molson’s shares including Trimark Canadian Endeavour (5.4% of assets), Trimark Enterprise (4.2%), Clarica Canadian Large Cap Value (4.2%), Northwest Canadian Dividend (4.1%) and Trimark Canadian SC (4.1%).

Few Canadian funds invest in Coors, but there are exceptions, such as COTE VTA Action américaines (3.5%), COTE 100 Excel (1.9%), CI American Managers Sector (1.7%), CI Global Consumer Products Sector (1.6%), and Desjardins Global Equity Value (0.5%).

“While it’s not clear which company would end up with the leading role in the new brewing giant, the deal is expected to produce a much more profitable operation,” said Morningstar Canada vice president Matthew Elder in an online report.

The two companies say the $6 billion US merger will create the world’s fifth largest brewer, with combined savings of more than $175 million US.

Under the terms of the agreement, Molson shareholders would receive about one-third of the new Molson-Coors stock for each Molson share while Coors shareholders would trade their stocks one-for-one. Analysts expect the new stock to trade at around $80 US. Coors closed yesterday at $72.40 US, down 3%, while Molson gained 3% to $35.70.

Still, Elder points out the merger isn’t a done deal, noting rival bids for either, or both companies, could still surface. “Ian Molson, cousin of Eric, recently resigned from the company’s board of directors, and is said to be putting together a bid for his namesake firm,” Elder says. “Takeover architect Onex also is rumoured to be interested. On the U.S. side, Coors has been regarded as a takeover candidate by such competitors as Anheuser-Busch.”

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com