Several months ago I blogged about the Miller Coors joint venture consummated between SAB Miller and Molson Coors (see Now Introducing Miller Coors, JV???). At the time I expressed some reservations about the joint venture. I still have those reservations.

My basic argument was that the joint venture would likely encounter serious coordination issues, and that it would be characterized by conflict between the parents. I continue to believe that the deal probably should have been structured as an acquisition, and unless this joint venture is a prelude to such an acquisition, I don’t hold out high hopes for its success.

Given the coordination issues I identified, you can imagine my glee at reading several columns from last week’s newspapers. The first was an article that appeared in the Chicago Tribune suggesting that the likely headquarters for the joint venture would be Chicago (see Miller Coors may Base Venture in Chicago). The second was a piece from the Dallas Morning News claiming that Dallas was under consideration as the headquarters for the joint venture (see Dallas Among Options for Miller Coors Move).

What’s interesting to me was not that a corporation is deliberating where to locate its headquarters. These kinds of decisions happen all the time. What fascinates me is that given the location of the parents’ US headquarters, whatever location they choose (Dallas or Chicago) will necessarily result in increased costs. For example, let’s say they choose Dallas. If that’s the case, what happens when management from the Coors side of the business (located in Colorado) needs to coordinate with management from the Miller side of the business (located in Wisconsin)? It will require a whole heck of a lot of increased travel back and forth to Dallas. That ain’t free. Similarly, what happens when operations folks in Colorado and/or Wisconsin need support from management? You got it. More travel!

All they are doing by creating a new headquarters apart from the existing Colorado and/or Wisconsin operations is adding another layer of management costs on top of each of their individual operating structures. 

And forget the part about how costly it will be for the two sets of management to decide on where the actual headquarters should be located. That’s another negotiation altogether. One thing’s for sure: if it remains a joint venture, I bet they do not choose Colorado or Wisconsin for fear of alienating one of the parent firms. However, choosing either Colorado or Wisconsin is precisely what they should do!

Does management really believe that the achievable (notice I did not use the word available) production and marketing synergies through this joint venture structure will really offset the increased coordination and management costs? That’s obviously a rhetorical question. They must since they decided to enact the venture. But I’m not buying it.

As I mentioned in the previous post, if this were an outright acquisition in which one party were able to direct the activities of the other so as to make operating decisions unilaterally and shut facilities down, then sure, I think this marriage of firms would have a fighting chance at creating a formidable competitor to Anheuser-Busch. If it were structured as an acquisition, I’d also be willing to bet that the headquarters would end up exactly where it should - in either Golden, CO or Milwaukee, WI - and not in some silly neutral site palatable to both sets of management.

It should be fun to watch this one play out. Stay tuned!

This entry was posted on Tuesday, February 26th, 2008 at 6:05 pm and is filed under Corporate Strategy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.