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Why Molson Coors Brewing Company Stock Popped on Wednesday

By Steve Symington - Sep 16, 2015 at 1:17PM

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Molson skyrocketed along with other brewers Wednesday on news of possible further industry consolidation. Here's what investors need to know.

What: Shares of Molson Coors Brewing Company (TAP -2.40%) were up 13% as of 1:15 p.m. Wednesday after news Anheuser-Busch InBev (BUD 1.01%) approached SABMiller (NASDAQOTH: SBMRF) with a takeover offer. AB InBev and SABMiller were up 8% and 22% around 1:15 p.m.

So what: Specifically, SABMiller announced AB InBev "has informed SABMiller that it intends to make a proposal to acquire SABMiller." Any such proposal will likely value SABMiller significantly above its $75 billion market cap as of yesterday's close.

If you're wondering why Molson Coors is climbing, keep in mind in 2007, Molson Coors and SABMiller formed a joint venture called MillerCoors, of which Molson Coors currently owns a 42% stake. And as Cowen analyst Vivien Azer reminded this morning in a note to clients, "a change in control at SABMiller would allow TAP to acquire the 58% of the MillerCoors JV that is currently owned by SABMiller." According to Azer's calculations, between the joint venture's "healthy margins" and operating synergies, such a move would be approximately 14% accretive to Molson Coors.

Now what: Of course, there are no guarantees a deal of this size will come to fruition. But at the same time, such consolidation is hardly new in the global brewing industry, and this particular news doesn't come as a big surprise; The Wall Street Journal reported almost exactly one year ago that AB InBev was in talks with banks to secure financing for the acquisition. While I certainly wouldn't blame investors in any of the above three companies for taking at least some of today's quick gains off the table, the long-term benefits of the deal going through could also make it more than worth your while to hold on.

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Stocks Mentioned

Anheuser-Busch InBev SA/NV Stock Quote
Anheuser-Busch InBev SA/NV
$57.24 (1.01%) $0.57
Molson Coors Beverage Company Stock Quote
Molson Coors Beverage Company
$55.40 (-2.40%) $-1.36

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