MOLSON COORS CANADA INC. (Toronto symbols TPX.A and TPX.B; www.molsoncoors.com) has completed its $3.4-billion purchase of StarBev LP, which owns nine breweries in Central and Eastern Europe (all amounts except share prices in U.S. dollars).
In the three months ended June 30, 2012, this acquisition contributed $19.7 million to Molson Coors’s pre-tax earnings. That helped push up the company’s overall earnings by 8.0%, to $250.1 million from $231.6 million a year earlier. Earnings per share rose 12.2%, to $1.38 from $1.23, on fewer shares outstanding.
Sales rose 7.0%, to $999.4 million from $933.6 million. StarBev contributed $57.3 million to the latest sales figure.
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Investing in stocks: New acquisition to merge with Carling division in U.K.
The company borrowed $2.9 billion to buy StarBev. As a result, its long-term debt has risen to $4.1 billion from $1.9 billion at the end of 2011. That’s a high 52% of its market cap.
Molson Coors feels that its brewing expertise and strong negotiating position with suppliers will let it cut StarBev’s yearly costs by $50 million by 2015. As well, Molson Coors will merge StarBev with its U.K.-based Carling division, which should free up even more cash for debt repayments.
Molson Coors should earn $3.91 U.S. a share in 2012, and the stock trades at 11.2 times that estimate. The $1.28 U.S. dividend yields 2.9%.
Molson Coors’s class B shares have less voting power for directors than the class A shares, but are more liquid and receive the same dividends.
In the latest edition of The Successful Investor, we look at the added risk Molson Coors is taking on with purchase of StarBev and whether Molon’s share price can keep rising as it integrates StarBev. We conclude with our clear buy-sell-hold advice on the stock.
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