BUSINESS

Miller Time for Molson

The largest brewer gives up Canadian control

JOHN DALY January 25 1993
BUSINESS

Miller Time for Molson

The largest brewer gives up Canadian control

JOHN DALY January 25 1993

Miller Time for Molson

BUSINESS

The largest brewer gives up Canadian control

JOHN DALY

Few companies have been as distinctively Canadian as Molson Breweries. Founded in Montreal in 1786 by English-born brewer John Molson, the company consistently plays up its Canadian roots in its advertising campaigns. Its flagship brand of beer is called “Canadian.” It sponsors Hockey Night in Canada telecasts. And when comedians Dave Thomas and Rick Moranis made fun of their homeland in a regular segment on the SCTV television show during the early 1980s, they dressed up as dim-witted “hosers” and surrounded themselves with cases of Molson Canadian. But last week, in a three-way deal, the Miller Brewing Co. of Milwaukee, Wise., the second-largest beer maker in the United States, agreed to buy 20 per cent of Molson Breweries for $349 million. If U.S. and Canadian regulators approve the deal, it will raise foreign-owned companies’ combined share in Canada’s largest brewer to 60 per cent from 50 per cent. But far from diminishing Molson’s Canadian identity, Molson Cos. Ltd. chairman Marshall (Mickey) Cohen said that the sale will help Molson promote its Canadian heritage “not only in Canada, but throughout North America.”

To promote that heritage in the United States, however, Cohen has effectively relinquished Canadian control of the company. That process began in 1989, when Cohen merged Molson with third-ranked Carling-O’Keefe Breweries of Canada Ltd., which was owned by Australia’s Elders’ IXL Ltd., brewer of Foster’s lager. That gave the Australian company a half interest in Molson Breweries, with the other half still held by the Molson Cos. Ltd., a holding company controlled by the Molson family. But the merger also pushed Molson Breweries past John Labatt Ltd. to become Canada’s largest beer maker.

Last week, Miller bought 10-per-cent stakes in Molson Breweries from both the Molson Cos. and the Australian company, now called the Foster’s Brewing Group. That will reduce the existing partners’ shares to 40 per cent each. Together, the three companies plan to manage Molson as equal partners, with the approval of directors from all three firms required for any major decisions. As well, Miller will become the sole distributor of Molson’s brands in the United States, although they will still be brewed only in Canada.

For Cohen, a former deputy minister under several prime ministers and later president of Olympia & York Developments Ltd. in its

heyday, the sale flows from a diversification strategy that he has pursued aggressively since he took the reins at the Molson Companies in 1988. “I have believed for some time that for a Canadian brewer to ensure its growth and survival, its products would have to succeed not only in Canada, but throughout North America,” Cohen said last week. Cohen has also expanded the Molson Companies’ holdings in non-beer ventures, especially its chemical and cleaning-supplies subsidiary.

In searching for new opportunities outside Molson’s core markets, Cohen is not breaking with company tradition. In addition to founding his brewery in Montreal, John Molson served as president of the Bank of Montreal and introduced the steam engine to the city. Now, in addition to Molson Breweries, the family’s holdings include the Montreal Canadiens hockey team and several retail chains.

But the long-term growth potential in the Canadian beer market for both Molson Breweries and its main domestic rival, Labatt, is limited. Molson sells about 130 million cases of beer a year in Canada, representing close to half the market. But total domestic beer sales peaked in the mid-1980s, and most industry analysts predict that they will remain stagnant or shrink over the next decade. As well, Ottawa and the provinces are dismantling trade barriers that protected Canadian brewers for dec-

ades from foreign competition, but which also forced them to set up small, often-inefficient breweries in almost every province.

However, under the terms of last week’s agreement, Miller undertook to aggressively promote Molson’s brands in the United States. At present, Molson sells about 21 million cases of beer annually in the United States, making it the second-largest selling brand of imported beer, after Heineken. But that is only .8 per cent of the total U.S. market. To improve those sales, Miller has agreed to spend as much to promote Molson’s as it and other U.S. beer makers spend on leading American brands with sales five times greater than Molson’s—as much as $100 million or more annually. But even if Molson’s U.S. sales increase dramatically, Cohen said that there would be little impact on employment in its nine breweries in Canada, because the company will continue to

try to reduce costs and improve productivity.

Initially at least, the terms of the sale appeared remarkably favorable for Molson. But industry analysts said that Miller will benefit, as well. Some of them speculated that it could pave the way for a takeover by Miller, a possibility that Cohen rejected. Other analysts said that Miller is spending far less to acquire an existing brand than it would have to develop and launch a new domestic brew of its own. “They could spend $1 billion and not come up with anything,” said Tony Tsoi, a consumer products analyst with the Toronto-based investment dealer Nesbitt Thomson Inc. For his part, Cohen said that Miller’s marketing strategy for Molson will highlight the beer’s “Canadian heritage,” making something that is now a thing of the past new again.