Molson Coors earmarks Central and Eastern European business for sale – sources

27 March 2020

Molson Coors Beverage Company, the Denver, Colorado-headquartered brewery giant, has earmarked its Central and Eastern European (CEE) beer business for sale, two sources familiar with the matter and several sector bankers said.

[The third graph has been amended to include comments from the CEO of Molson Coors]

  • PE firms and local industry players more logical bidders
  • PPF tipped among likely suitors
  • Heineken, Asahi could consider piecemeal deal

 

Molson Coors Beverage Company, the Denver, Colorado-headquartered brewery giant, has earmarked its Central and Eastern European (CEE) beer business for sale, two sources familiar with the matter and several sector bankers said.

 

The process is at a very early stage, the sources said. The sellers regret not launching the process earlier given the coronavirus crisis, which could impact negatively on valuations, one of the sources added.

 

A spokesperson for Molson Coors denied that any sale of the company’s CEE assets is under consideration. He noted that its chief executive, Gavin Hattersley, said, on its latest earnings call, “Are we planning to sell Europe? The answer is no.”

 

The USD 8.4bn market cap company had acquired the Czech Republic-headquartered business, at the time called StarBev, in 2012 from CVC Capital Partners for EUR 2.65bn (USD 3.54bn), representing a multiple of approximately 11x EBITDA, as announced. StarBev operated nine breweries across the Czech Republic, Serbia, Croatia, Romania, Bulgaria, Hungary, Montenegro, Bosnia-Herzegovina and Slovakia at the time.

 

Molson’s CEE business comprises the flagship Czech beer brand Staropramen. Other CEE brands include Apatinsko, Bergenbier, Borsodi, Jelen, Kamenitza, Niksicko, and Ozujsko, among others, according to its website.

 

Private equity, local buyer interest

CEE is a relatively atomized market with each country having different brands and marketing approaches, so it could be quite costly for large companies to run several beer businesses across the region, especially if there is not much value in the brands, the second source said. For this reason, the deal could be more suited to local strategic buyers or for financial investors, this source added.

 

Private equity firms are the most likely bidders for the assets, a Czech banker, who confirmed that Molson has been weighing the sale of its CEE assets, agreed.

 

Some private equity firms are already circling around the possibility of Molson’s CEE business coming to market, a sector banker said.

 

Czech financial group PPF could be a potential bidder given that it bid for AB InBev’s [NYSE:BUD] Eastern European beer brands in 2016, the first source and the Czech banker said.

 

Private equity firms including KKRBain CapitalEQTPAI Partners and BC Partners were reportedly participating in the auction for AB InBev’s Grolsch and Peroni beer brands at one point, before Asahi announced it would acquire the European business for USD 2.9bn. CVC Capital Partners and Cinven were also around the deal early on, as reported.

 

These same private equity firms, having done their homework on the space in 2016, are now the likeliest candidates to bid for Molson’s CEE business, another sector banker said.

 

Major sector players could be keen if piecemeal deal

 

Another scenario would be for a buyer to acquire the whole asset for a relatively good price, and then split it piece by piece, or sell the assets to various groups in CEE, the second source said. Heineken, for instance, is very strong in the Czech Republic and Slovakia and could be keen on beefing up its presence in another CEE market, this source added.

 

Companies like Asahi, which already has presence in CEE, could be interested if allowed to cherry-pick assets by market, as it would run into anti-trust issues otherwise, especially for markets like the Czech Republic, an industry source said.

 

In 2016, Asahi announced it would acquire Eastern European beer brands from AB InBev for EUR 7.3bn, including Czech Pilsner Urquell, Poland’s Tyskie and Lech, Hungary’s Dreher and Romania’s Ursus. Pilsner Urquell had top market shares in the Czech Republic, Slovakia, Poland, Hungary and Romania, according to the announcement.

 

Chinese beverage majors or Thai Bev could, however, show interest for the entire asset, the industry source said.

 

Irish C&C could also be among potential bidders, although it is not clear what its priorities are now that former CEO Stephen Glancey left last month, a third sector banker said.

 

Entire European portfolio at play?

 

Molson’s European business in general has been talked about by the beverage industry as an eventual potential sale candidate, according to several sector bankers.

 

It makes no sense for Molson to hold on to its European assets, as they realise no marketing or production synergies with the North American business, the second banker said.

 

The UK business is distinct from the CEE business, which would likely sell for a lower multiple than the former, the second banker continued. The third banker agreed that there is relatively less growth in its CEE business compared to the UK one. Large players interested in the UK assets would, however, likely encounter competition issues, so it could prove a tricky sale, a fourth banker said.

 

Molson’s entire European business has EBITDA of USD 350m-400m, the third banker said.

 

Molson posted about USD 10.6bn in net sales revenue (down 1.8% year-on-year) and net income of USD 241.7m (down 78.4% year-on-year) for FY19.

 

It was locally reported last month that Molson had suffered most among listed brewery majors from the gradual decline in beer consumption and demand in the US due to Molson’s focus on the US, Canada and UK markets.

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