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Back To The Future At Molson (Int'l Edition)


International -- Int'l Business: STRATEGIES

BACK TO THE FUTURE AT MOLSON (int'l edition)

Its bid to be a pure play in brewing isn't impressing stockholders

Eric H. Molson, scion of North America's oldest brewing family, has turned activist. In 1988, after becoming chairman of conglomerate Molson Cos., he shunned the hands-on job of CEO and let the 200-year-old Montreal company continue its drift away from its core beer business. To finance excursions into other businesses, he even presided over the sale of 60% of subsidiary Molson Breweries to U.S. and Australian beer companies.

Now, with its share of Canada's $3 billion beer market shrinking and with profits sagging, Molson is going back to what it knows best: brewing. At 60, Eric Molson still doesn't want to be CEO. But with backing from the family, he's launching a sell-off of nonbeer businesses--from lumber retailing to a 25% stake in Home Depot Canada. Molson will use the proceeds, likely to total $250 million, along with $478 million in stockpiled cash, to regain control of the beer business by buying back shares held by Milwaukee's Miller Brewing, a unit of Philip Morris, and Foster's Brewing Group of Australia. The cash will also finance a push into beermaking outside North America. Molson says he's looking for a "stable" older market--possibly Europe or parts of Latin America.

Such moves will make Molson again "a pure play, a brewer," says Molson, a qualified brewmaster who studied yeast chemistry at Princeton. And it will have "the resources to conquer more and more geographic territory," he adds.

So far, stockholders aren't impressed. "There are probably a lot more critics than there are fans" of Molson Cos., says Scott Penman of Investors Group Inc., which holds nearly 1 million shares. From a 51.8% slice of the home beer market in 1989, Molson has slipped to 45.8%, while corporate earnings have plunged from $118 million on sales of $1.3 billion in fiscal 1993 to $24 million on $1.1 billion sales in the year ended in March. With Molson trading around 18, up only slightly from its 1996 peak, some analysts want the company to pay out its cash through a stock buyback or a special dividend.

Molson insists that refocusing on beer will boost shareholder returns. With operating profits of $75 million on sales of $610 million last fiscal year, beer can be a heady business. At its Sept. 10 stockholders' meeting, the company said it was close to repurchasing the 20% stake in Molson Breweries bought by Miller in 1993. Analysts value it at $250 million plus $143 million in assumed debt. To negotiate the buyback and nonbeer sell-offs, Molson's board brought in corporate lawyer E. James Arnett as CEO in May--the third CEO since last September. Arnett's predecessor left after just eight months in a rift over how quickly the company should refocus on brewing.

OVERSEAS. Molson wants Miller and Foster's out because they limit his freedom to run the business and invest abroad. Foster's could increase its stake, now 40%, to 50% if Miller sells out. But by 2003, Molson will have the right to buy back at least 10%. Control of the beer company, Molson says, "will attract others in the world [who] want to do business with us."

To unwind the diversification that began in the late 1960s, Molson has put on the block the company's $488 million-a-year Beaver Lumber Co. chain and plans to let Home Depot take back Molson's stake in Home Depot Canada. Such retailing businesses accounted for sales of $346 million and profits of $19 million last fiscal year.

One change the family won't tolerate is sale of Molson's "legacy asset": the Montreal Canadiens hockey team and the new $190 million Molson Centre arena, which together brought in profits of $12 million last year on revenues of $102 million. "If the Molson family thinks it's a heritage asset, they should buy it and operate it," grouses Michael W. Palmer of Toronto broker Loewen, Ondaatje, McCutcheon Ltd. He thinks returns from the team and stadium "are not sufficient for a public company." But Molson argues that the team provides a marketing focus for beer.

Molson admits he let the company stray too far from its core business. Now, regardless of his title, he needs to restore the old-line brewer's bite.By Joseph Weber in MontrealReturn to top


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