Molson Coors CEO Change Seen Cooling Brewers’ Deal Fever

The retirement of Molson Coors Brewing Co. Chief Executive Officer Peter Swinburn may be bad news for investors betting on a merger between Anheuser-Busch InBev NV and SABMiller Plc.

Molson Coors announced yesterday that Swinburn will step down on Dec. 31, passing the reins to 51-year-old Mark Hunter, head of the company’s European division. Swinburn has spent more than 40 years in the beer industry -- the last six leading Molson Coors -- and was seen as a veteran dealmaker.

Hunter’s appointment to the top job suggests the company isn’t preparing for another wave of consolidation, said Brian Yarbrough, a St. Louis-based analyst for Edwards Jones. Molson Coors would be integral to a potential tie-up between AB InBev and SABMiller because the merged company would probably need to sell off its half of the MillerCoors LLC partnership to appease regulators. That means Molson Coors would have a major stake in hammering out a transaction.

“If that deal was imminent, I can’t believe Swinburn would be retiring at year-end,” Yarbrough said. He has a hold rating on Molson Coors, which has dual headquarters in Denver and Montreal.

Merger speculation had helped bolster shares of Molson Coors, contributing to a 30 percent gain this year through July

24. After the CEO change was announced yesterday morning, the shares fell almost 2 percent to $71.57, the biggest one-day decline in more than three months.

Investor Anticipation

Investors have been betting that AB InBev, the world’s biggest brewer, will eventually swallow up its top rival SABMiller. AB InBev faces slowing growth and a dearth of other big takeover targets, making a deal seem more probable. SABMiller CEO Alan Clark told Bloomberg News in January that the case could be made for a merger, even though it would probably require divesting some U.S. operations to placate regulators.

Clark declined to say whether there have been any discussions or how probable such a deal may be. AB InBev, Molson Coors and MillerCoors have all declined to say whether any overtures have been made. Colin Wheeler, a spokesman for Molson Coors, declined to comment on merger speculation.

While Molson Coors’s new leader is knowledgeable about the beer industry, he hasn’t overseen deals of this caliber.

“The incoming CEO is a good industry guy,” said Philip Gorham, an Amsterdam-based analyst for Morningstar Inc. who sees Molson Coors stock as slightly overvalued. “He’s an experienced manager, but he’s not experienced in M&A.”

The management transition itself may also hinder a potential negotiation, though bringing in a new CEO just before a merger isn’t unprecedented, Gorham said.

Reynolds Purchase

Within months of being rehired to run Reynolds American Inc. after a hiatus, Susan Cameron closed a complex agreement to purchase Lorillard Inc. for about $25 billion. Unlike Hunter, though, she already had a major deal on her resume: She executed the $3.5 billion purchase of Conwood, then the second-largest maker of smokeless tobacco in the U.S. She also integrated the $3 billion merger between R.J. Reynolds Tobacco and Brown & Williamson in 2004 after being named CEO of the newly formed Reynolds American.

In taking charge of Molson Coors, Hunter will have to contend with a sales slowdown in the U.S., Canada and the U.K., its three largest and most mature markets, Yarbrough said. While the company has been able to offset sluggish revenue growth with cost cuts and price increases, that will be hard to sustain in the long run, he said.

“They will continue to struggle to get volume growth,” Yarbrough said.

Eastern Europe

To Hunter’s credit, he oversaw Molson Coors’s burgeoning Eastern European business following the 2012 acquisition of Staropramen maker StarBev LP, Yarbrough said.

“He’s been in the business a long time,” Yarbrough said. “He’s got a great track record.”

In the U.S., the explosion of upstart breweries in recent years has brought both headaches and opportunities to Molson Coors. While the new brews are competition for traditional beers like Coors Light, the company has had success with its own craft-style products such as Blue Moon.

Swinburn, 61, said last month that big beer companies may see more consolidation, though he didn’t expect the kind of merger mania that created AB InBev and SABMiller in the first decade of the 2000s. Regions such as Asia have potential for additional deals, he said in an interview at the time.

Some investors may be betting that Molson Coors itself is a takeover target, Swinburn suggested. One reason for the stock’s recent run-up this year may be “deal fever,” he said.

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