Molson Coors (TAP) and Altria Group (MO) to Benefit from SAB/ABI Tie-Up - Cowen

Cowen analyst Vivien Azer said both Molson Coors (NYSE: TAP) and Altria Group (NYSE: MO) stand to benefit on the potential Anheuser-Busch InBev SA (NYSE: BUD)/SABMiller tie-up. She reiterated her Outperform rating on both.

The deal would allow TAP to acquire the 58% of the MillerCoors JV that is currently owned by SABMiller. MO currently holds a 27% stake in SABMiller, and holds three board seats.

On Molson Coors, Azer commented:

"Our Outperform rating on TAP ($72.64) has been predicated on our belief that this deal would occur (to which we had ascribed a 70% probability). As a reminder, a change of control at SABMiller would allow TAP to acquire the 58% of the MillerCoors JV that is currently owned by SABMiller. The acquisition of the outstanding stake would occur in two parts. Upon a change of control, TAP automatically gets the right to acquire an additional 8% of the JV (which currently accounts for nearly 50% of TAP’s EBIT), which purchase price would be established by a group of investment banks. As well, the company would then secure permanent management control for the JV. The remaining 50% stake would be up for bidding, with TAP receiving the right of first and last offer (where they are ensured purchase if their offer comes in 5% higher than any competing offer). We believe bidding will be limited, as the lack of management control would likely be unappealing for other parties. We currently estimate that the deal would be 14% accretive to TAP, given the healthy margins seen for the JV, while it would also offer opportunities for cost synergies around manufacturing, sourcing and back office functions. Maintain Outperform."

On Altria Group, the analyst commented:

"MO ($54.11) currently holds a 27% stake in SABMiller, and holds three board seats. Accretion to MO from the deal will be highly dependent upon the deal structure (in particular in terms of the mix of ABI stock and cash, given MO’s low tax base on the stake). We have previously argued that we would expect a roughly 50/50 mix of cash and stock, as well as for MO to receive some board representation at ABI, such that the company could continue to account for the stake as equity income. As a reminder, we have found that historically MO’s cigarette pricing decisions have been in part tied to growth at SABMiller (as MO has tended to take less cigarette pricing in years where SABMiller’s equity income growth provided an outsized benefit to EPS growth, such that the company required a lesser pricing benefit to achieve their targeted 7-9% EPS growth). We will evaluate our estimates as more detail becomes available; Maintain Outperform."

For an analyst ratings summary and ratings history on Molson Coors click here. For more ratings news on Molson Coors click here.

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