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Miller, Coors to combine U.S. operations

Brewers aim to compete with industry leader Anheuser-Busch

By TOM DAYKIN
tdaykin@journalsentinel.com
Posted: Oct. 9, 2007

Miller Brewing Co. and Coors Brewing Co., the nation's second- and third-largest brewers, are combining their operations, creating a bigger challenger to Anheuser-Busch Cos. - but also raising the possibility of future job cuts at Miller's Milwaukee headquarters.

For now, longtime Coors executive Leo Kiely will be running the newly merged operations of Miller Brewing and Coors Brewing.

But Miller President Tom Long is Kiely's heir apparent, and Miller owner SABMiller Plc will be picking the MillerCoors chief when Kiely retires - perhaps within a few years.

Those facts emerged from this morning's Webcast presentation to analysts about the agreement to combine Miller and Coors.

A decision hasn't been made yet on where the MillerCoors headquarters will be located once the merger is completed in 2008. None of Miller's six breweries, or the two breweries operated by Coors, will be closed as the result of the merger, said Pete Marino, Miller spokesman.

But administrative jobs in Milwaukee, and at the Coors offices in Golden, Colo., will be analyzed as the merged company looks to reduce costs, he said.

"It's safe to assume there will be some reductions," Marino said. But it's too early to estimate the extent of those job cuts, and where they will occur, he said. MillerCoors will maintain a presence in both Milwaukee and Golden, Marino said.

Miller has 1,700 employees in Milwaukee, with 800 employees in the corporate offices and 900 brewery workers.

Kiely, president and chief executive officer of Molson Coors Brewing Co., which owns Coors Brewing, will be the chief executive officer of MillerCoors. Long, president and chief executive of Miller, will be president and chief commercial officer of the merged company.

Kiely played the biggest role in today's presentation on the merger. He also was in charge of taking questions from financial analysts.

One analyst asked Kiely, who turns 61 in January, how long he would remain at the helm of MillerCoors. Kiely said he is committed to serving in that position for at least two years.

Kiely also said SABMiller "gets the nod" in picking his successor, and said Long "sits in a very critical position."

Long, 48, is a relative newcomer to the brewing industry. He worked in various management positions at Coca-Cola Co. before joining Miller in 2005 as the brewer's chief marketing officer. Long was promoted to president and chief executive in 2006.

Kiely worked in management positions at snack maker Frito-Lay Inc. before Coors hired him in 1993.

Pete Coors, vice chairman of Montreal-based Molson Coors, will be chairman of MillerCoors. Graham Mackay, chief executive officer of London-based SABMiller, will be vice chairman of MillerCoors.

Spokesmen for Brewery Workers Local 9 and Office & Professional Employees International Union Local 35 representing said Tuesday morning that it was too soon to say how the combination of Miller and Coors would affect their members at Miller.

"It's just too new, and we need to talk with our members," said Christian Hainds, labor representative for the Office & Professional Employees, which has more than 100 members at Miller.

"What I can say generally about Coors, obviously they operate in a right-to-work state and are not a unionized company, so any jobs that would be shifted to a non-union company presents us with some problems. So I would take issue with that," Hainds said.

For the 500 members of the Brewery Workers at Miller, the announcement comes during contract negotiations, which Harry Shayhorn, union president characterized as "slow."

Employees are working under contract extensions after the brewery workers' agreement expired Aug. 4, Shayhorn said. The contracts for sanitation and maintenance workers expired Aug. 11 and for laboratory workers and technicians Sept. 1.

"We're just basically waiting to see how things go," Shayhorn said of the Coors announcement. He said he wasn't worried about the lack of unions as Coors.

"Miller is organized in all of their breweries," Shayhorn said, "and I don't know why we would be concerned about that."

SABMiller and Molson Coors will each have a 50% interest in the joint venture, and have five representatives each on its board of directors. Based on the value of the assets, SABMiller will have a 58% economic interest in MillerCoors, and Molson Coors will have a 42% economic interest.

MillerCoors will have annual beer sales of 69 million barrels, roughly 29% of the U.S. market, and revenue of $6.6 billion. Anheuser-Busch has a market share of around 48%, according to trade publication Beer Marketer's Insights.

SABMiller and Molson Coors expect the merger to generate $500 million in annual cost savings by the third full year of combined operations. The merger is subject to reaching a final agreement, and obtaining clearance from antitrust regulators.

The merger will help Miller and Coors compete more effectively with Anheuser-Busch, as well as with other beverage companies, including wine and spirits makers, Kiely said.

If job cuts occur in Milwaukee, they would follow a reduction that occurred in 2003-one year after Miller was purchased by South African Breweries Plc, a move that created SABMiller. Under new President and CEO Norman Adami, Miller eliminated 200 jobs, with most of the cuts coming at the Milwaukee headquarters. No jobs were eliminated at any of Miller's breweries.

That was the largest layoff at Miller's headquarters since 1996, when 300 jobs were eliminated. That layoff came after the failure of Miller brand beer forced the company to reduce its corporate overhead.

Joel Dresang of the Journal Sentinel contributed to this story. Watch for updates through the day.



 

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