Diversification at 119-year-old Adolph Coors Co. started early. Adolph Coors Jr., son of the founder, plunked down $15,000 in 1912 to bail out a failing pottery company. Over the next eight decades, Coors and his descendants invested more than $800 million in a hodgepodge of nonsuds businesses. Today, the company that brought America the Silver Bullet also sells ceramic multilayer computer boards, packages for soaps and dog food, vitamins for animal feed, and 11 different parts for Chevrolet Corvettes. But all those will fall away if the brewer moves ahead with plans, announced at its May 14 annual meeting, to spin off its nonbeer activities to shareholders.
There's no one reason for the planned separation. Analysts had long groused that they couldn't determine Coors' real worth when 30% of its $1.9 billion in overall sales came from a grab bag of operations. And Wall Street never warmed to the erratic earnings and frequent write-offs at the aluminum and energy division. Investor concern over those businesses, the Coors brain trust believes, has helped keep its stock stuck around 18--about two-thirds of book value--for weeks prior to the May announcement.
But the spin-off is more than a ploy to please outside investors. It's also a recognition that the brewer's core business faces a stiff test. It's still a distant third to giants Anheuser-Busch Cos. and Philip Morris Cos.' Miller Brewing, and gaining ground will be costly.
SILVER-SHEATHED. For the past decade, the company's growth has been fueled largely by sales of its lower-calorie Coors Light brand. Launched in 1978, the silver-sheathed brew accounts for nearly two-thirds of the 19.4 million barrels that Coors sells domestically, according to industry newsletter Market Watch. But the publication says that Coors Light was overtaken last year by Bud Light and still trails category leader Miller Lite by a healthy margin. Sure, Coors boosted unit sales of beer in 1991--but by only 1.2%, and it had to boost advertising 9%, to almost $300 million, to score that small gain.
Hefty advertising, along with a five-year, $738 million program to upgrade its brewing plants, dragged down Coors' operating earnings (chart). Last year, beer earnings fell 69%, to $59 million, despite a 4% rise in sales, to $1.5 bil-lion. Overall earnings fell by 34%, to $25.5 million, on a 5% hike in sales. The goal now is to build "critical mass," says Peter H. Coors, the founder's great-grandson and president of Coors Brewing Co. That means doubling market share, now at 10.3%, he says, putting it closer to Miller Brewing Co.'s 22% or Anheuser-Busch's 43.5%. "And to do that, we're going to have to sharpen our spears."
How will splitting the company into two pieces accomplish that? For one thing, it will make it easier for debt-rating agencies to get a handle on the separate companies' balance sheets. And that could allow the brewing unit to tap the bond market for capital to buy one of two smaller and less robust competitors, Stroh Brewery Co. or G. Heileman Brewing Co. "That's not why we're doing it," insists Coors, whose company backed out of a 1989 deal to buy Stroh's. But he quickly adds: "I've learned never to say never."
FRUIT FLAVORS. Without the high-technology lines, Coors could focus more on pushing its line of new and repositioned brands of beer. In late 1989, the company introduced two medium-priced beers, Keystone and Keystone Light, which together sold an impressive 2.3 million barrels in their first 12 months. And it's raising the profile of its premium-brand Coors Extra Gold. This year, the company will also come out with a new brand, most likely a fruit-flavored beer cooler. "Even its critics say that these guys know how to make a very good beer," says St. Louis-based industry consultant Robert S. Weinberg, a former top Anheuser-Busch executive. "But their problem has always been getting that point across."
Whether the proposed spin-off will improve the company's marketing efforts remains a big unknown. This is still the company, critics say, that was late into the market for dry beer and until the early 1980s, rarely advertised on national television. Indeed, they've sharply cut back advertising recently for their oldest brand, Original Coors, whose sales have faded in recent years.
If nothing else, the Coors family stands to make money if the spin-off is completed later this year as planned. The clan now owns 55% of the parent's outstanding stock and would own the same percentage of each of the newly created companies. Peter would continue to run the brewery, while two of the founder's other great-grandsons, Jeffrey and Joseph, would help run the new unit. The real Rocky Mountain high would come if the two companies, once parted, got Wall Street buzzed.