MillerCoors: Let the Fun and Games Begin
July 2nd, 2008Well, the MillerCoors venture officially kicked off yesterday (see MillerCoors Officially Launches). It certainly will be an adventure.
As I’ve written (and detailed) on this blog before, I believe that the joint venture governance structure will strain their union (see Good Luck Miller Coors, Update: Miller Coors JV, and Now Introducing Miller Coors, JV???). At the time, I suggested that “management problems” were likely to plague the venture for years to come. We now have some details that better indicate why and how:
For example, the St. Louis Business Journal writes:
SABMiller and Molson Coors each named five members to the MillerCoors board.
From the SABMiller side:
- Graham Mackay, CEO
- Malcolm Wyman, CFO
- Nick Fell, group marketing director
- Johann Nel, group human resources director
- Sue Clark, corporate affairs director
From the Molson Coors side:
- Pete Coors, vice chairman
- Peter Swinburn, president and CEO
- Sam Walker, global chief legal officer and corporate secretary
- Stewart Glendinning, global CFO
- Dave Perkins, president of global brand and market development
MY COMMENT: Since when does an organization need two CEO’s and two CFO’s? And how long will that arrangement last? Extra managerial staff comes with extra managerial cost, …and top-level management ain’t cheap. Also, extra managers create extra managerial conflict. And with 5 representatives on the board from each side, how will they achieve consensus on critical strategic and operational decisions? The 10 final arbiters of any conflict will likely split down party lines. Managing in that environment sounds like fun! Just ask the folks from DaimlerChrysler how all that went for them.
The article continued:
While announcing the closing of the merger, the brewers did not announce a location for the headquarters of MillerCoors. The decision on where MillerCoors will locate its corporate headquarters will be a “first-level agenda issue” for the joint venture’s leadership team…
MY COMMENT: I take some comfort in knowing that location is a “first-level” agenda issue. But might that divert managerial attention away from what they’re supposed to be doing - say, running a company? Having two sets of management negotiate where the headquaters should be is not costless. Moreover, given the location of the parents’ US headquarters (Golden, CO and Milwaukee, WI), whatever location they choose will necessarily result in increased costs. For example, let’s say they choose Dallas (a rumored HQ city under consideration). If that’s the case, what happens when management from the Coors side of the business needs to coordinate with management from the Miller side of the business? 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! Essentially, 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.
As I concluded in my previous posts - this deal should have been structured as an outright acquisition.
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.
Not only that, but if the deal were structured as an acquisition, the combined entity would be able to reduce management costs by eliminating duplicate managerial activities.
So once again, congratulations MillerCoors. And good luck achieving those $500 million per year in promised cost-saving synergies.
