All Business

THE STORY OF KIELY & CARLY

The CEO of Molson Coors has much in common with HP’s former boss

STEVE MAICH February 28 2005
All Business

THE STORY OF KIELY & CARLY

The CEO of Molson Coors has much in common with HP’s former boss

STEVE MAICH February 28 2005

THE STORY OF KIELY & CARLY

All Business

The CEO of Molson Coors has much in common with HP’s former boss

STEVE MAICH

ON THE VERY DAY Leo Kiely was preparing his first public presentation as head of newly merged Molson Coors Brewing Co., the world learned that Carly Fiorina had been fired from her job as chief executive of Hewlett-Packard Co. Chances are Kiely paid little attention to the ouster of his fellow CEO that day. He had his own problems to worry about. But by the time his first awkward conference call with analysts and investors was over, it was hard to miss the parallels between his situation and that of HP’s fallen chief. The challenges that Fiorina failed are the same ones Kiely faces now. And he’s off to a pretty bad start.

It’s not all his fault, mind you. Kiely was dealt a bad opening hand. Fresh off a divisive and nasty merger campaign, the new boss was immediately forced to deliver a raft of bad news. In the last three months of2004, Molson’s profit dropped by 59 per cent from a year earlier. Its market share in Canada has declined from 45 per cent in 2003 to just under 42 per cent, and the company’s Brazilian operations continue to bleed. Volume of sales there fell another 11 per cent in the quarter, taking Molson’s market share down to 9.7 per cent, from 17 per cent when it bought the business three years ago.

You can’t paint a happy face on results like that, and Kiely didn’t try. But investors who expected him to deliver a dynamic plan of action came away disappointed. Platitudes and vague assurances were all he could offer.

Someone asked about Brazil, and got a shrug of a reply. “We’ve got to get a team down to Brazil and suss the total business,”

Kiely said. “We’ve got to do a real good scrub of this business, from a cash-flow and strategic point of view.” Another analyst, alarmed at Molson’s fading fortunes in Canada, asked how the tide could be turned. “I can’t give you much more insight on that today,” Kiely admitted. “We’ve got a management team on the ground in Toronto that is looking these issues straight in the face. They’ve got a good grasp of what the issues are and a good grasp of what they need to do, both short and medium term. My sense, with this team, is that they’ve got good tactics in hand. They’re being aggressive with these tactics and we’ll learn a heck of a lot more about

it over the next several months.”

That’s 89 words to make the following point: I have no idea what we’re going to do, but I know we have to do something.

It was right about then that echoes of Fiorina and Hewlett-Packard started to flood back. HP’s ex-CEO was never at a loss for words, even when she was at a loss for answers. She staked her career on a merger with Compaq Computer in 2002. She said the Compaq takeover was absolutely vital if HP was to compete against the likes of Dell Computer and IBM. The deal was bitterly opposed by many major shareholders, among them one member of a founding family, Walter Hewlett, who insisted it would only make HP a bigger company, not a better one. Fiorina won the day by

promising cost savings and massive boosts to profit margins.

Anyone who followed the Molson Coors merger drama heard much the same message since the union was first proposed. For months, executives at the breweries had been telling investors they needed to get bigger to compete with giants like SABMiller and Anheuser-Busch. Large shareholders and a founding-family member—former deputy chairman Ian Molson—fought the deal, arguing that combining Molson and Coors would do nothing to solve the deeper problems affecting both companies, namely the

decline of their biggest brands. Kiely and his Canadian counterpart, Dan O’Neill, prevailed by promising US$175 million in cost cuts and efficiency improvements.

Now it falls largely to O’Neill, the man who led Molson’s disastrous expansion into South America, to deliver those essential cost savings. But this newly named vicechairman of synergies and integration was nowhere to be found on that first critical conference call. A Molson spokesperson later explained that since Kiely is now in charge, there was no need for O’Neill to be part of the presentation. As a result, questions about the problems in Canada and Brazil, and queries about the cost cuts, went unanswered. Kiely floundered, and the stock fell three per cent in its first day of trading.

The company’s lack of a clear direction has only bolstered the case of the critics, who’ve maintained all along that the merger of Molson and Coors amounts to a giant leap of faith. The deal wasn’t part of any grand strategy. The merger was the strategy, and there are, as yet, few firm ideas on what comes next.

Kiely promised to present a more detailed game plan by May, which gives him three months to figure out how to restructure Molson Coors’ breweries; fix Brazil; restore Molson’s brands; and accelerate growth at Coors. But more than that, he must find proof that Molson Coors is somehow more than the sum of its parts, because it was that implicit promise that formed the basis of the decision to merge.

Fiorina never found that proof at HP. The profit margins she promised never materialized and the stock went nowhere. She paid for her failure with the loss of her job and a severe blow to her reputation. For Kiely to write a different ending for himself, he’ll have to hope his shaky debut—and Fiorina’s simultaneous fall—weren’t omens of things to come.

Read Steve Maich’s weblog, “All Business,” at www.macleans.ca/allbusiness

KIELY MUST prove that the new company is more than the sum of its parts, because that promise formed the basis of the merger. HP’s Fiorina failed that test.