North America Equity Issue: Molson Coors Brewing’s US$2.6bn follow-on
Many hoppy returns
Consolidation in the beer industry was a defining trend of the capital markets in the past year. But rarely was it funded by primary issuance of equity – and for good reason: high and consistent cashflows facilitated cheap borrowing.
Molson Coors Brewing bucked the trend, choosing to use equity to fund an acquisition of a joint venture with SABMiller. But the beer giant did it with extreme sensitivity to shareholders, selling the fewest amount of shares necessary.
Its US$2.6bn follow-on offering, part of a broader US$12bn package to fund the buyout, was carefully crafted to maintain investment-grade credit ratings.
“This was a once-in-a-lifetime opportunity,” said Molson Coors CEO Mark Hunter. “Staying investment grade would provide flexibility to look at opportunities beyond this deal.”
The company does not issue stock often. And mindful of its Baa2/BBB– ratings from Moody’s and S&P, it opted to fund no more than 20%–25% of the acquisition with new equity.
UBS was sole adviser on the deal, and to simplify the decision about when to come to market, the bank set up a so-called traffic light strategy across five metrics.
When all five – the company’s stock price, the S&P 500 level, volatility, oil prices and Treasury yields – had a green light, the bank would get ready bring the deal.
UBS then held an extensive two-day roadshow with two management teams to broaden investor reach.
“If you put these five components together, you’ll more than likely arrive at the basis for our recommendation to go or not to go,” said James Palmer, UBS’s head of Americas ECM.
Together with Bank of America Merrill Lynch and Citigroup, the bank was able to get multiple-times oversubscription for 29.9m shares that priced at US$86.50.
While that was 1.4% below pre-launch levels, the extent of demand was such that the company was able to convince a couple of new key institutions to lift their bids.
Including the overallotment option, the offering amounted to 15.5% of Molson Coors’ outstanding shares. In order to minimise dilution, overallotment was capped at 10% instead of the 15% typical in large follow-on offerings.
Molson Coors traded up 4.6% on the first trading day and the overallotment was fully exercised at the market close. Gross proceeds ended up accounting for 21% of acquisition financing.
UBS played a significant role for Miller Coors throughout. It backstopped the purchase of the joint venture with SABMiller in December 2015; it was lead joint bookrunner on the equity offering in January; and it served as bookrunner on a US$5.3bn four-part bond sale in June.