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Molson Coors hits new low

How do you say "52-week low" in Portuguese? Investors hoping that Molson Coors would abandon its troubled Brazilian operations ASAP sent the company's stock to a new low after an announcement that the company would continue operating in South America's largest market.
/ Source: TCPalm.com

How do you say "52-week low" in Portuguese?Investors hoping that Molson Coors would abandon its troubled Brazilian operations ASAP sent the company's stock to a new low after an announcement that the company would continue operating in South America's largest market.

But Molson Coors CEO Leo Kiely said its Brazilian management had been given a new directive to stop losing money. Also, Molson Coors said it will not invest any more cash in the business until it knows it can be a winner.

"We want to be in the Brazilian market but only on a winning basis and not at the current risk level," Kiely said in a statement Wednesday.

The company said it "continues to believe that Brazil is a valuable beer market with potential for long-term growth."

Introducing Coors Light there is a possibility, the company said.

Molson Coors traded as low as $58.60 before closing at $59.40. It's now down 23 percent from April 27, the day before the company released disastrous first-quarter results that showed sales volume declines in all four of its major regions - U.S., Canada, U.K. and Brazil.

That announcement placed even more pressure on the company to announce a Brazil fix. Molson bought Cervejarias Kaiser SA in March 2002 for $765 million.

But distribution problems quickly turned the country's No. 2 brewer into No. 3. As Molson prepped for its merger with Golden-based Adolph Coors Co., Brazil was its No. 1 trouble spot. By Sept. 30, Molson wrote down the value of its Brazilian operations to $336 million.

The two companies closed their merger Feb. 9. In Molson Coors' first quarterly report, filed May 11, the company disclosed it believed the value of the Brazilian business was less than $200 million.

It also revealed that Brazilian authorities are claiming it owes more than $500 million of federal excise, social contribution and value-added state taxes, which "could require a significant amount of cash payments in later periods," the company said.

Molson Coors has recorded an estimated liability of $176 million and said an additional $65 million of claims will undergo "further evaluation as to the probability of loss." There are $273 million of claims "whose probability of loss was considered remote," the company said.

Kiely said Wednesday the company is "making solid progress month to month" in Brazil, as the cash losses are narrowing. For the four months ended April 30, the Brazilian business had negative cash flow from operations of $3 million, compared with a negative $22 million in the first four months of 2004.

While Molson Coors stopped short of announcing it will dispose of Brazil, Legg Mason beer analysts Mark Swartzberg and Mark S. Astrachan said the statement "constitute(s) an effective 'For Sale' sign on the business, with Heineken and Femsa being the most obvious early participants."

Dutch brewer Heineken already owns 20 percent of Kaiser and has written down the value of its investment to zero. It is said to be looking at Latin American expansion by potentially buying Colombia's biggest brewer, Bavaria. Femsa, or Fomento Economico Mexicano S.A. de C.V., is Mexico's dominant brewer and counts Tecate among its brands.

But the Legg Mason analysts said they no longer believe Molson Coors can generate $4 to $5 per share - or $340 million to $425 million - from a Brazil sale, thanks to the newly disclosed tax liabilities "that may represent 40 percent or more of the noted $4 to $5 per share."

Beer bust

Molson Coors' Brazilian operations have declined steadily in value:

2002: Molson buys Cervejarias Kaiser SA in March for $765 million.

2004: Molson writes down the value to $336 million as of Sept. 30.

2005: Molson Coors says in its first-quarter report that the business likely is worth less than $200 million.

David Milstead is finance editor of the Rocky Mountain News. He can be reached at 303-892-2648 or milstead@RockyMountainNews.com.