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Molson Coors spends $3.5B on CVC brewer

by Jonathan Braude in London | Published April 3, 2012 at 2:41 PM

Canada's top brewer will be rolling out the barrel in Europe. Molson Coors Brewing Co. announced an agreement Tuesday, April 3, to acquire StarBev LP from private equity shop CVC Capital Partners and the beermaker's management for €2.65 billion ($3.5 billion).

The deal comes a little more than two years after CVC created StarBev through the acquisition of Anheuser-Busch InBev NV's Central and Eastern European assets, following InBev NV's $52 billion takeover of Anheuser Busch Cos. in 2008.

Molson is paying just under 11 times StarBev's 2011 Ebitda and about 3.8 times sales. The disposal marks CVC's exit from its first investment in Central and Eastern Europe. It comes just over a month after CVC agreed to pay 15.5 billion Swedish kronor ($2.4 billion) for Sweden's Ahlsell AB, a plumbing and building products distributor owned by Cinven Ltd. and Goldman Sachs Capital Partners; and a day after CVC bowed out of the bidding for U.K. software maker Misys plc.

CVC declined to comment on its returns on the December 2009 investment. But the buyout firm and Anheuser-Busch InBev said at the time that CVC had agreed to pay as much as $3.03 billion for the nine Central and Eastern European breweries in the package, starting with an initial $2.23 billion installment, including $1.62 billion in cash and $448 million in assumed debt. The payment could then rise by as much as $800 million, depending on CVC's return on its investment.

Since CVC's acquisition of the assets, StarBev has invested heavily in capital expenditure, marketing and brand development. CVC said it had helped the company increase market share and increase profitability despite the challenging economic climate.

"We have created an innovation-driven, highly profitable and cash generative company from a collection of assets during a difficult period economically and for the industry," CVC partner István Szöke said in a statement. The agreement was announced simultaneously by CVC in London and by Molson Coors at its U.S. headquarters in Denver and in Montreal. Molson Coors said the acquisition would provide it with a strong platform for growth and for extending key brands, such as Carling, into Central and Eastern Europe. The StarBev brands that Molson gains include its international flagship Staropramen.

"The acquisition of StarBev fits squarely into Molson Coors' strategy to increase our portfolio of premium brands and deepen our reach into growth markets around the world," Molson Coors president and CEO Peter Swinburn said in the statement. "The Central and Eastern European beer market is attractive, with strong historical trends and upside potential as the region returns to its pre-economic-crisis growth rates."

Molson Coors said it had committed financing in place from Morgan Stanley Senior Funding Inc. and Deutsche Bank Securities Inc. to complete the acquisition. At current exchange rates, Molson Coors said financing would probably comprise $3 billion in cash and debt. It plans to issue an additional €500 million in convertible debt to the seller, which would enable CVC to "participate in future upside."

Moody's Investors Service Inc. immediately lowered the rating on Molson Coors' debt vehicles from Baa1 to Baa2, arguing the brewer would face challenges integrating StarBev and managing the new markets. It also said leverage would rise from 2.5 times to closer to 4 times, although this would come down to below 3 times within two years of the deal closing. In addition, Moody's said Molson Coors would have to access the markets in the short term to take out a bridge loan and assure sufficient liquidity for some large debt maturities coming due in the next 12 to 18 months.

The buyer expects the transaction to be accretive to earnings in the first full year of operations and to generate about $50 million of pretax operational synergies by 2015, primarily through production efficiencies, procurement, systems and related areas.

It said StarBev will operate as a separate business unit within Molson Coors and will be based in the Czech Republic.

From its two headquarters in Amsterdam and Prague, StarBev still operates nine breweries in Central and Eastern Europe and generated sales of nearly €700 million and Ebitda of €241 million in 2011. It employs about 4,100 people, has brewing operations in the Czech Republic, Serbia, Croatia, Romania, Bulgaria, Hungary and Montenegro. It brews 13.3 million hectoliters annually and holds a top three market share position in each of its markets, according to Molson Coors.

The transaction, subject to regulatory approval, is expected to close in the second quarter.

Nomura International plc acted as financial adviser to CVC and StarBev, while Freshfields Bruckhaus Deringer LLP's Chris Brown, Duncan Kellaway, Martin Hutchings, Alastair Chapman and Jill Gatehouse provided legal advice. Morgan Stanley served as financial adviser to Molson Coors, with Barclays plc's James Ben and Wilco Faessen and Deutsche Bank AG's Eric Brook and Jim Stynes acting as co-financial advisers. The buyer's legal advice came from Kirkland & Ellis LLP's Scott Falk, Roger Rhoten, Shaun Goodman, Christopher Butler and Christian Nagler.

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