Virtually every analyst that has looked at the proposed combination of Canadian brewing legend Molson Inc. and Adolph Coors Co. of the U.S. has said it makes little sense for either company. It takes two small, narrowly focused, inefficient and uncompetitive brewers and merges them into one slightly larger but still narrowly focused, inefficient and uncompetitive brewer.
None of that matters, however, because chairman Eric Molson wants the deal to happen, and he controls more than 50 per cent of the company's voting stock.
Some family members oppose the deal, of course — including Ian Molson, who struggled with his cousin Eric over the chairmanship of the company and recently quit the board of directors. They can fight the deal, just as Molson's non-voting shareholders can, if they believe that it isn't in the best interests of the company as a whole. But they are fighting an uphill battle against a superhuman foe: the combined voting power wielded by Eric Molson and brother Stephen.
If the typical Canadian company is one that is controlled by multiple voting shares — and there is ample evidence for that argument, since more than one quarter of the S&P/TSX composite index is made up of such companies — then Molson might just be the grand-daddy of them all. The brewing behemoth has been in business for more than 200 years, and was making beer for close to a century before Canada even became a country.
Along the way, Molson built the first Canadian railway — the Champlain and St. Lawrence — decades before the Canadian Pacific railway was constructed; operated its own bank, the Molson Bank, and even issued its own currency; and of course owned the historic hockey franchise, the Montreal Canadiens. In fact, family insiders say the team even helped to lay the foundation for the current tension between Eric Molson's side of the family and Ian's side. According to the story, Ian's father sold the team against the wishes of Eric's father and Molson chairman, Senator Hartland Molson.
That tension, which has reportedly been brewing (so to speak) for almost a generation, erupted into public bickering at the company's recent annual meeting and may have even helped to precipitate the current Molson-Coors deal. According to some reports based on inside sources at Molson, when the battle between Ian and Eric reached the board level, one board member said the feud could put the company "in play," meaning it could spark takeover or merger offers.
Did Eric Molson come up with a Coors deal because he was afraid his cousin would come up with one first and leave him in the cold? That's certainly possible.
Over the years, the division between the two branches of the Molson family reportedly created a somewhat bizarre debate over who was a "real" Molson. According to a story in the Wall Street Journal, one of the reasons Eric didn't want Ian to succeed him as chairman was that Ian wasn't a "real" Molson, with his roots in the brewing side. This has echoes of the feud that ruptured the McCain french fry empire, or the earlier split in the Bronfman family, the founders of the Seagram liquor dynasty (one branch went on to create the Hees-Edper conglomerate).
In any case, Ian is fighting an uphill battle in trying to derail the Coors deal, despite the last name he shares with his cousin. Eric's family, which has controlled a majority of the votes in Molson since Hartland Molson was running the company in the 1960s, continues to wield a majority of the voting power in the company, and that trumps almost anything.
Even though it is theoretically possible for Ian to get enough support to block the merger (since it requires the support of 67 per cent of both the voting and non-voting shareholders), then Molson is back where it started — struggling to grow in both Canada and Brazil. A competing takeover offer for the company, if Ian were to come up with one, would still run headlong into Eric Molson and his family's control over the stock.
The problem with Molson, as with so many of Canada's other leading corporations that are controlled by super-voting shares, is that to even have a hope of derailing the deal with Coors, shareholders will have to resort to all kinds of legal maneuvering because of Eric Molson's voting stake. Holders of non-voting stock can make arguments about the board's fiduciary duty — cases that are difficult to make and even harder to win — but Eric and his family have a theoretical trump card. After all, they control the votes, and shouldn't those with the votes get the final say?
The bottom line is that Eric Molson and his family are trying to push through a deal that no one else seems to think is a wise move for the company, and the only reason they can do so is their control of the voting stock. Regular shareholders have to hang their hopes on Ian Molson and a possible court battle — unless, of course, the rest of the Molson family likes what Ian Molson comes up with as an alternative to the Coors deal.
That still wouldn't change the central point, however, which is that super-voting shares are an anachronism that gives families such as the Molsons an unfair stranglehold on what should be a public company.
