This article was originally published in Maclean's Magazine on February 5, 1996
Molson Unloads Diversey
In his most recent incarnation as chief executive officer of Molson Cos., Marshall A. Cohen, universally known as "Mickey," repeatedly stressed two points. The first was that he would get growth for Molson, the oldest brewery on the continent, through Diversey Corp., its wholly owned chemical subsidiary. The second was that any suggestions that he was more interested in gallivanting globally than attending to more mundane corporate pursuits were simply unfair.
Times change, and so do dictums. Last week, after months of negotiations, Molson sold the lion's share of Diversey to Unilever for $780 million. In the aftermath, Cohen toasted the deal-makers, including investment advisers Lazard Frères, at an impromptu champagne party at his Rosedale home. By week's end, as Bay Street pondered Molson's future - and, for that matter, Cohen's - Cohen himself was making personal preparations to jet to Davos, Switzerland, to attend this week's annual world economic summit.
Going global was what Cohen, three-time deputy minister and onetime president of the Reichmanns' Olympia & York Enterprises Ltd., was supposed to do when he stepped into Molson in 1988. And he did. A fast deal with Elders IXL, the Australian company that had purchased Carling O'Keefe in 1987, created Molson Breweries, owned equally by Elders and Molson. In one move, Cohen had catapulted Molson into a first-place 51-per-cent Canadian market share from 34 per cent. In a later deal, 20 per cent of the brewery was sold to Miller Brewing Co. of Milwaukee, leaving Molson with 40 per cent and Foster's - the company that emerged after the corporate demise of Elders - with the other 40. (In the year 2002, Molson can exercise a call to buy back 10 per cent of the brewery held by Foster's, taking it to a 50-per-cent position.)
But Cohen, who draws annual compensation from Molson of more than $1 million, was never much interested in beer. He was going to build a powerhouse multinational. To that end, in 1991, he bought Cincinnati-based DuBois Chemicals Inc., and merged it with Molson's Diversey. Molson had bought Diversey in 1978, pre-Cohen, as part of a diversification drive that also took it into home hardware and designer fabrics. Through Diversey, a maker of cleaning and sanitizing compounds for the hotel and restaurant trade, Cohen's intent was to snag international service contracts through U.S.-headquartered companies.
It did not work out. While Diversey was profitable overseas, it was a huge money loser in the United States. In 1994, Diversey lost $37.7 million there on revenues of $456 million. The subsidiary's loss helped pull Molson's overall profits down to $86.8 million from $125.7 million the previous year, and Cohen's reputation sank along with them. As a remedy, Cohen fired Diversey CEO Derek Cornthwaite and stepped in to run the company himself in the spring of 1994.
In subsequent presentations to shareholders and analysts, Cohen, who had wound Molson out of virtually all of its other diversified interests, insisted that the Diversey barge could be turned around, and that unlike the old days his efforts would be fully focused on accomplishing just that. As recently as last September's annual meeting, he reiterated that the company's future lay in chemicals and beer - and hockey, the Montreal Canadiens being a so-called legacy asset that will not be sold. But according to Barry Joslin, senior vice-president of corporate affairs, top executives decided over the past few months that it was time to cut their losses on Diversey.
It will likely take four months for the Unilever deal to close, and Molson still has to strike agreements to sell remaining pieces of Diversey. When that is done, the company will receive in total an estimated $1.1 billion. Joslin says it will use between $350 million and $400 million to pay down debt. The remainder will be used to refocus the company on the product that started it all in Montreal in 1786: beer.
Part of the Molson strategy will be to "get closer to the consumer," says Joslin. In the past six years, Molson's Canadian market share has slipped to 48 per cent. The company has named three regional presidents and transferred marketing staff to develop local strategies. The regions will work under John Barnett, who replaced Bruce Pope as president of Molson Breweries last fall. Barnett has 25 years' experience in the beer business, including six years running Molson's beer operations in the United States. Barnett is expected to introduce a more aggressive U.S.-style pricing strategy to Canadian operations. "I think he's going to shake up the Canadian industry," says John Sleeman, president of Guelph, Ont.-based Sleeman Breweries.
Molson also intends to go on the hunt for acquisitions, using the Diversey proceeds to acquire beer and maybe even sporting assets for Molson Cos. directly, rather than for Molson Breweries. That distinction is key, sending a signal that Molson intends to reassert its beer bearings exclusive of Foster's and Miller. It also reasserts the brewing beliefs of the ruling Molson clan, which still controls roughly 50 per cent of the voting shares in Molson Cos.
But it will not be easy to find a brewing bargain. The consensus in the beer industry is that prices for breweries are high. Belgium's Interbrew was criticized for overpaying when it bought Labatt for $2.7 billion and took it private last summer. And before that, Labatt itself got flack for buying a 22-per-cent stake in Femsa Cerveza of Mexico for $710 million, an investment whose value had to be written down by $200 million after the collapse of the Mexican peso.
In scouting for good brewing investments, Molson must also compete against some of the world's biggest beer barons. Anheuser-Busch of St. Louis has been on an aggressive foreign expansion kick for several years now. And Heineken of the Netherlands and Carlsberg of Denmark are two more giants looking to grow globally.
Like Molson, all these companies face stagnant, if not contracting, markets at home and want to move into areas like Asia and Latin America where beer drinking is becoming more popular instead of less. Just because there is more demand for beer, though, does not mean it is easy to woo locals away from their favorite brews. With all its experience and clout, Carlsberg experienced a costly failure in Thailand recently when it tried to compete with Singha, the most popular domestic brand. Should Molson fail to spy acquisition prospects in the near term, it may use the Diversey proceeds to pay a special dividend to shareholders or start a share buyback.
Such travails will, presumably, be Mickey Cohen's next challenge. But, as Scotia McLeod beverage analyst Brian Lomas says, "the investment community is very down on Mickey Cohen." From his downtown Toronto headquarters, Cohen keeps company now with just 50 Molsonites, down from 130 six years ago. Recent employee moves have shunted more bodies back to the brewery. With Diversey gone, Cohen has shed himself of the property that he had taken on as his main task. Now 60, Cohen has previously said he would be staying on at Molson until retirement. "We're at a transition stage now and Mr. Cohen's looking forward to that challenge," says Barry Joslin. The trans-Atlantic Mr. Cohen could not be reached for comment.
Maclean's February 5, 1996