Molson Coors Brewing Co. (NYSE: TAP), the Denver-based maker of Carling lager, agreed Tuesday to acquire StarBev LP for $3.54 billion (2.65 billion euros).
The acquisition will add beer brands such as Staropramen and provide Molson with an entry route into Central and Eastern Europe, the world's second largest beer market.
StarBev, headquartered in Amsterdam and Prague, operates nine breweries in Central and Eastern Europe.
Molson Coors Price History
In a statement, Molson Coors' President and CEO Peter Swinburn said, "StarBev, as a market leader in the CEE region, provides Molson Coors with a great platform for growth and an excellent foundation from which to extend out key brands, such as Carling, into Central and Eastern Europe."
He added that the beer market in the region is "attractive, with strong historical trends and upside potential."
While StarBev's business has slowed during the European debt crisis, beer consumption is seen as a growth market in the region. During a conference call, Swinburn told analysts StarBev had the top three market positions in all nine countries it operates in, which include the Czech Republic, Romania, Hungary and Serbia.
Melissa Earlam, an analyst with UBS in London, told Bloomberg News, "Molson Coors's portfolio has had an extremely mature focus. Relatively to their peers, they are underrepresented in emerging markets."
StarBev boasts more than 20 brands including labels such as Borsodi, Kamenitza, Berenbier, Ozusko, Jelen and Niksicko. It also distributes brands like Stella Artois, Beck's, Hoegaarden, Lowenbrau and Leffe.
Molson's signature brands include Coors, Heineken, Corona Miller and Blue Moon.
According to Bloomberg, the deal would be the largest brewery acquisition since SABMiller Plc bought Australia's Fosters Group Ltd in December 2011 for about $12.9 billion, including debt.
The transaction is subject to approval by certain European competition authorities, and is expected to close in the second quarter of 2012. Following the close, StarBev will be operated as a separate business within Molson Coors and will be headquartered in the Czech Republic.
Why StarBev Deal is Winner for Molson Coors (NYSE: TAP)
The move by Molson will add some froth to its bottom line by opening the spigot in markets where its presence has been lacking. It will help Molson Coors tap outside its main regions of North American and the U.K. where high unemployment and aggressive competition are weighing on growth.
Molson Coors' sales have grown as it has raised prices and pushed into emerging markets such as China. The company has operated in Russia and the Ukraine for the past several years, and those markets have performed well for Molson Coors, Swinburn noted. The company anticipates the revenue coming from markets other the United States, Canada and the U.K. will increase "from low single digits to mid-teens" as it works in the StarBev acquisition.
The deal is also expected to add earnings within the first year of operation.
While the deal will give Molson Coors a bigger presence and greater access to key emerging markets as beer consumption in mature markets like the U.S. have waned, hurt by a weak economic recovery and losses to wine and spirits, Moody's Service warned beer consumption in StarBev's markets has been volatile in past recessions.
The ratings firm warned that "with higher growth may come some greater fluctuation in financial results."
Moody's Investor's Service, as a result, lowered its rating on Molson Coors one notch to Baa2.
Moody's added it expected leverage to rise materially for the acquisition as Molson Coors will need to access the capital markets to take out a bridge land and assure enough liquidity for some large maturities that are coming due in the next 12 months.
Just after noon on Tuesday, shares of Molson Coors (NYSE: TAP) were off 3.35%, last trading at $44.13.
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