Molson buys Czech brewer with operations throughout Eastern Europe.

By Paul Delean

Postmedia News

MONTREAL — Six years after shutting the tap on an expensive and ill-fated venture in Brazil, Molson Coors Brewing Co. is taking another stab at emerging markets.

The company announced Tuesday it has agreed to pay $3.5 billion US to acquire StarBev, a major brewer in Eastern and Central Europe.

Headquartered in the Czech Republic, StarBev has operations as well in Serbia, Croatia, Romania, Bulgaria, Hungary, Montenegro, Slovakia and Bosnia-Herzegovina. Sales in 2011 totalled about $953 million. Its flagship brand is the Czech beer Staropramen.

The takeover, expected to close in the second quarter of 2012, solidifies Molson Coors as the world’s fifth-largest brewery by volume behind Anheuser-Busch InBev., SABMiller, Heineken and Carlsberg. Molson Coors had revenue of $6.7 billion US in 2011.

“In terms of an opportunity in the market, this is the one we’ve had on our radar for quite a while,” said Peter Swinburn, president and chief executive officer. “Most importantly, I think we’ve got it at a price that’ll be reasonable.”

Investors weren’t so sure. Molson’s Class B shares were down more than five per cent on the Toronto Stock Exchange for most of the day before closing at $44.35, off less than three per cent.

“Obviously, the street doesn’t like it too much,” said Brian Yarbrough, consumer and industrial analyst for Edward Jones.

Yarbrough said the fact Molson Coors is buying StarBev from a private-equity company has investors wary, since it’s presumed many synergies already have been taken out of the business to make it more profitable and attractive.

Europe also is close to a recession, “and how long will that last?” Yarbrough said.

Nor does the deal change the fact Molson Coors’ core markets — Canada, the U.S. and the U.K. Зare mature and stagnant. “This doesn’t help them out. They’ve got to get the U.S. and Canadian market going again,” he said.

Swinburn said the company is looking to deepen its reach in growth markets around the world, and the Central and Eastern European beer market has “strong historical trends and upside potential as the region returns to its pre-economic-crisis growth rates.”

Molson, then a stand-alone company, invoked similar arguments in 2002 when it put up $765 million US to buy what was then Brazil’s second-largest brewer, Kaiser. Four years later, it sold 68 per cent of the money-losing Kaiser unit to FEMSA Cerveza SA of Mexico for $68 million US and assumption of $60 million US of debt.

Asked what made an investment in Eastern Europe more attractive now than Brazil, Swinburn — who wasn’t with Molson at the time of the Kaiser purchase — said “Brazil already has an incumbent with 67 per cent market share. We’re acquiring a business where we have No. 1 market share in four of nine countries (Bosnia-Herzegovena, Montenegro, Serbia and Croatia) and the No. 1 brand in five of nine.”

Swinburn said beer markets in Eastern and Central Europe still have projected growth of two to three per cent annually, while markets are flat in the U.S. and U.K.

He said the acquisition would have a “minimal” effect on Canadian operations, with no reduction in investment, infrastructure or brand development contemplated.

Molson Coors will pay for StarBev with cash and debt.

Montreal Gazette

pdelean@montrealgazette.com

PN 4/03/12 16:51:23