Miller, Coors beers to merge in U.S.

MILWAUKEE -- The nation's second and third-largest brewers, Miller and Coors, are planning to blend their U.S. operations to help them compete in a struggling U.S. industry and against its leader, Anheuser-Busch.

The deal, announced Tuesday, will place almost 80 percent of the U.S. beer market in the hands of just two companies, the new MillerCoors and Anheuser-Busch, making it a likely target for a tough antitrust review.

Miller Brewing Co., owned by SABMiller PLC, has about 18 percent of the market, as of last year, according to trade publication Beer Marketer's Insights. Molson Coors Brewing Co. has almost 11 percent and Anheuser-Busch Cos. has just under half.

The companies said the combination will have to pass antitrust review by either the Federal Trade Commission or the Department of Justice.

Few analysts expect the government to try to block the deal, however, despite close scrutiny by regulators. The emergence of many smaller brewers has made the industry more competitive than it was a decade ago, said William MacLeod, an attorney at Kelley Drye Collier Shannon and former antitrust official at the Department of Justice. That makes the transaction "much more feasible" now, he said.

Milwaukee-based Miller and Denver-based Molson Coors executives said a final agreement is expected by the end of the year, with the deal closing in mid-2008.

SABMiller, which brews Miller Lite and Miller Genuine Draft, will have a 58 percent economic interest in the venture, and Molson Coors, maker of Coors and Coors Light, will own 42 percent. But they will have equal voting interests. Precise financial terms of the deal were not disclosed.

The move positions the two brewers to better compete against market-leader Anheuser-Busch, brewer of brands like Budweiser, Michelob and Bud Light, executives said.

Anheuser-Busch declined to comment. The move could prompt a long-rumored deal between Anheuser-Busch and InBev NV S.A., the world's largest brewer by volume, said Juli Niemann, an analyst with Smith Moore & Co. in St. Louis. InBev is known for beers like Stella Artois.

SABMiller and Molson Coors said the joint venture will result in cost savings of $500 million over three years, mainly from reducing shipping distances, optimizing production and eliminating overlapping corporate and marketing services. But the companies will have to make a one-time cash outlay of $450 million to achieve those savings.

London-based SABMiller, which also brews European beers such as Peroni, and Denver-based Molson Coors, also known for craft beer Blue Moon, will each have five members on the new company's board of directors.

Pete Coors, vice chairman of Molson Coors, will serve as chairman of the new company with Kiely as CEO. Tom Long, CEO of Miller, will be president and chief commercial officer.

Under the agreement, the companies said they will conduct all of their U.S. business exclusively through the venture. They project MillerCoors will sell 69 million barrels in the U.S. and reach revenue of about $6.6 billion.

Anheuser-Busch sold 102.3 million barrels in the U.S. last year and had net revenue of $15.7 billion.

Kiely said beer sales and profits industrywide are dwindling due to rising sales of wine, spirits and craft beers.

Consumers won't notice much difference after the merger, though they can probably expect to see more national marketing campaigns.

The company will decide on a location for the new headquarters as integration moves forward, executives said, though they promised to keep a presence in Miller's hometown of Milwaukee and Coors' headquarters in Golden, Colo.