April 6, 2012 5:56 PM
Dealmaker of the Week: Scott Falk of Kirkland Ellis
Posted by Tom Huddleston Jr.
Scott Falk, 48, a corporate partner in the Chicago office of Kirkland Ellis.
THE CLIENT
Molson Coors Brewing Company, the product of a 2005 merger between Denver-based Coors and Canada’s Molson that is one of the world’s largest brewers.
THE DEAL
Molson Coors has agreed to pay $3.54 billion to purchase Prague-based StarBev from private equity firm CVC Capital Partners.
THE DETAILS
The deal, which was announced Tuesday, followed a blind auction process that began to receive press coverage earlier this year. The transaction’s terms call for Molson Coors to pay for StarBev with a combination of roughly $3 billion in cash and debt, plus an additional $667 million in convertible debt.
Molson expects the deal—which requires approval from various foreign regulators, including the European Commission and government agencies in Serbia and Ukraine—to close by the end of June.
THE BIG PICTURE
In acquiring StarBev, Molson Coors expects to expand its footprint in Eastern Europe, and is specifically eager to market its Carling brand in the region. The company also plans to market several of StarBev’s regional brews more broadly. StarBev, which operates nine breweries, sells more than 20 regional beer brands. Of those brands, Czech Republic’s Staropramen (which lends StarBev its name) is sold throughout the world. Other StarBev brews, like Bulgaria’s Kamenitza, are mostly sold only within their home countries.
“In this region, beers are very local and consumers are very loyal to their local brands,” Falk says. “[This deal] presents an opportunity for Molson Coors to identify ways to expand the markets for brands that have historically been limited to their country of origin.”
While some companies have been wary of investing in Europe because of the lingering debt crisis there, analysts say Molson Coors is banking on Eastern Europe’s potential for growth. Falk says there is reason to be optimistic about the region, especially when it comes to the beer industry. And why not? The Czech Republic, where StarBev is based, boasts among the highest per capita beer consumption rates in the world.
THE BACKSTORY
Falk’s relationship with the Coors side of Molson Coors dates to 2002, when Robert Reese joined the Denver-based company as general counsel. Reese had previously served as general counsel of another Kirkland client, Hershey, and brought his relationship with the firm to Coors. (Reese left Molson Coors in 2005; Samuel Walker is now the company’s chief legal officer.)
After being brought in by Reese, Falk helped advise Coors on the tie-up with Molson, as well as on the merged company’s 2007 joint venture with London’s SABMiller to form U.S. distributor MillerCoors. With the acquisition of StarBev, Falk has now had a hand in the three largest deals in Molson Coors’ history. Falk says Kirkland has also advised Molson Coors on other potential transactions the company has explored, but did not act on.
ON CLOSING
Patience was Molson Coors’ key virtue in this transaction. CVC bought the StarBev brands from Anheuser-Busch InBev in 2009. Three years later, with those assets back on the market, A-B InBev had the right of first offer to reclaim them. Everyone one else had to wait.
“Until there was clarity that [Anheuser-Busch InBev] was not interested in buying it back, no bidder could sign up a deal with [CVC/StarBev],” Falk says. “Because, you didn’t know if you were going to have a right to do so.”
In the event A-B InBev decided to pass, a host of other bidders were lined up to make a run at StarBev. “It was a pretty robust auction,” Falk says. “CVC launched a process and solicited interest from, I think, a large number of multinational brewers.”
Because the auction was blind, Falk cannot say for sure who Molson Coors was competing against. As the process began to play out, media reports indicated potential interest coming from such other companies as SABMiller, Carlsberg, Heineken, and Japan’s Asahi. By late last week, Reuters was citing sources saying A-B InBev was likely to pass on a deal, and that Asahi was on the cusp of finalizing a roughly $3 billion purchase. (A-B InBev did make its own notable Eastern European acquisition earlier this year, acquiring one of two Czech breweries with which it has faced off in legal battles over the “Budweiser” trademark.)
Falk’s team kept up with the reports and—despite the secrecy of the process—didn’t get discouraged. The diligence paid off when the brewer announced its agreement with CVC and StarBev management Tuesday.
The final agreement includes one particular provision that Falk says is especially interesting: a contingent note added the deal structure that counts for roughly $667 million—in convertible debt—of the announced deal price. The 18-month note covers the deal’s indemnification period, tracking for any breaches of warranties and covenants. Should a breach occur during that period, Molson Coors would offset any reimbursement against that $667 million note.
Says Falk: “It’s kind of a clever way to ensure that both Molson Coors is protected on indemnification claims, but the seller doesn’t have to dip into its pocket to come back out with new cash to reimburse us for a loss if they already have taken the cash from the deal proceeds and put it to work, or distributed it to its limited partners.”
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