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Beer War
MillerCoors has eye on 'The King of Beers' crown

By Jeremiah McWilliams, The Southern News Services

Saturday, July 26, 2008 11:07 PM CDT

Peter Heimark, a California distributor of Anheuser-Busch beer, was tired of his competitors gloating over the imminent takeover of Anheuser-Busch by Belgian brewer InBev.

Miller and Coors distributors have "some undeserved grins on their faces about what they might perceive as confusion with our sales force and your sales force," Heimark told August A. Busch IV, chief executive of Anheuser-Busch, in a July 15 conference call.

Busch responded, "If there is a grin on anybody's face, it should be ours."

Which big brewer has the upper hand in the U.S. beer industry? In the wake of a month of unprecedented change, it's a matter of serious debate.

SABMiller and Molson Coors combined their U.S. operations to create MillerCoors on July 1. Twelve days later, Anheuser-Busch agreed to be purchased by InBev to form Anheuser-Busch InBev, the world's largest beer company.

With wrenching transitions anticipated at both MillerCoors and Anheuser-Busch InBev, big questions remain: Which brewer is more distracted? Which will capitalize?

"Both sides think the other side will be distracted," said Eric Shepard, executive editor of trade publication Beer Marketer's Insights. "There's going to be some worried folks on both sides."

The combination of Miller and Coors previously tooth-and-claw competitors presents a more formidable domestic rival than Anheuser-Busch has faced in a long time.

MillerCoors has about 30 percent of the U.S. market, and Anheuser-Busch InBev controls close to 50 percent. The market share of Chicago-based MillerCoors is closer to Anheuser-Busch than any brewer in the past two decades. MillerCoors boasts 70 million barrels shipped annually, $7 billion in sales and a network of eight major breweries. Measured in barrels, its U.S. sales are about two-thirds as large as Anheuser-Busch's.

MillerCoors plans to save $500 million annually by pooling distribution resources, marketing dollars and breweries. Coors, for example, could make beer in up to eight breweries, up from two, slashing the cost of fuel to transport Coors beer to market.

"Our logistical service times are going to be a lot faster. It's going to be fresher beer," Leo Kiely, now CEO of MillerCoors, told the Post-Dispatch last year. The merger is "a giant step forward" for both companies, he said.

But meshing Miller and Coors the No. 2 and No. 3 U.S. brewers, respectively requires job cuts in marketing and other areas. Keeping staffers motivated and focused as the two companies combine and move their headquarters to Chicago from Milwaukee and Colorado will be a major challenge.

Last October, that dynamic prompted August Busch IV to publicly exult over the chance to take advantage of MillerCoors while it was enmeshed in a transition period. But InBev's planned takeover of Anheuser-Busch may have dampened that opportunity, if not canceled it completely.

Several analysts said the short-term beneficiary of InBev's takeover will be MillerCoors, because of the culture shock awaiting the historically independent A-B.

MillerCoors has the advantage over the next year or two because Miller and Coors have done big combinations before, said Morningstar analyst Ann Gilpin. South African Breweries bought Miller Brewing in 2002, and Coors merged with Molson of Canada in 2005.

Also, the tie-up between Miller and Coors was a mutual decision to fight what Kiely, in an interview with the Chicago Tribune, called the "common enemy" Anheuser-Busch. Neither Miller nor Coors backed the other into a corner, as InBev appears to have done to Anheuser-Busch.

Anheuser-Busch directors initially resisted InBev's overtures before reaching an agreement. Employees "are not exactly eager for this change," said Gilpin.

Still, A-B executives insist the dislocation facing MillerCoors is more dramatic than that inside Anheuser-Busch, because Miller and Coors will have to merge two U.S. businesses. A-B, by contrast, will be trimmed down but will not have to combine with a U.S. competitor.

"The opportunity is ours to get," August Busch IV told the Post-Dispatch.

Jeremiah McWilliams writes for the St. Louis Post-Dispatch, a Lee Enterprises sister paper of The Southern.