MOLSON COORS CANADA INC. (Toronto symbols TPX.A $43 and TPX.B $43; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 180.9 million; Market cap: $7.8 billion; Price-to-sales ratio: 2.3; Dividend yield: 2.9%; TSINetwork Rating: Average; 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 and market cap 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.
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. However, brewing is a stable business, and StarBev’s cash flows will help Molson Coors pay down this debt.
Moreover, Molson Coors feels 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.
The stock is down 5% since the company announced the StarBev deal in April 2012. That’s because big acquisitions like this can be risky. 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.
Molson Coors B is a buy.
