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Cobra Beer’s UK Unit Sells Majority Stake To Molson Coors

31 May, 2009

Finally Cobra Beer’s UK operations have been sold off to Molson Coors, the American brewer behind the Carling and Worthington brands, which will pick up 50.1% stake in a new joint venture. This will help the debt-laden brewer to resurrect itself in the UK market where it’s a market leading beer seller among the South Asian population. Cobra in November appointed Rothschild to find a buyer for its business.

The deal does not involve Cobra’s Indian operations which will continue to be controlled and managed by Karan Billimoria and his family. Reports suggest Billimoria is in talks with private equity funds to infuse capital into the Indian operations, where it sells 2 million cases brewed from nine locations. The company’s talks with Wilbur Ross to raise capital for its India unit is believed to have hit a wall, and the company is said to be exploring alternative financing options, according to a report last week in The Times, the London based newspaper.  

In the UK, Cobra Beer has signed an agreement to establish a joint venture company, Cobra Beer Partnership Ltd, with Molson Coors, which will own, produce and market the Cobra Beer brand. The JV acquired the brand and certain assets of the Cobra business from Cobra’s Administrators, PwC.

Brewing Losses

The financial details of the deal are not known. Lord Karan Bilimoria, Founder and Chairman of Cobra Beer, was reportedly expecting £180 million to £200 million for the business, but that was hard to come by as the business was caught in a bind of low demand for beer in British market and the mounting losses. Billimoria owned 64% in the company, while Och-Ziff, the investment firm, also owned a stake in Cobra.

According to the sale memorandum, the company reported underlying 2008 losses of £15.9 million and is forecasting losses for the next three years, Times reported. The company had a topline focus rather than bottomline. Its net sales were forecast to rise from £34.1 million last year to £73.6 million in 2011. The group also claimed it spent about £40 million on marketing the brand since its launch in 1990.

India Hived Off 

Billimoria said: “As a result of our Joint Venture with Molson Coors our Indian operations will now be wholly independent.” It will be wholly owned and financed by its shareholders. Cobra set up shop in India in 2002. 

Ravi Kaza, Managing Director of Cobra Beer India, said: “Clearly this is an exciting time for Cobra Beer in India as Cobra is well positioned as the first Indian international quality beer in the fastest growing beer market in the world. We are looking forward to taking Cobra Beer to the next level of its development in India.”

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1 Comment
David . 6 years ago

Lord Karan Bilimoria of Chelsea is a smooth talking incompetent who ran what is one of the world’s most fascinating Ponzi schemes. Recall that a financial Ponzi scheme is where in essence the third person entering the scheme has his capital used to pay interest to the second person, and so on. The scheme continues till the nth person doesn’t enter and then collapses.

Cobra beer presents an interesting case study. The business never made a profit in its 20 years of existence. Massive amounts were spent on “marketing the brand” – both above the line and below the line. As a results, sales grew, but given the high marketing spends, there wasn’t a penny in profits in its 20 year existence.

Of course, if this continues over time, the business net worth erodes every year and it runs out of cash. When this happens, it takes on more debt or sells equity. It continues the marketing spends with the cash it receives from the debt/equity issuances, and builds profitless sales. Finally, this source of funding dries up. It then resorts to riskier financing like factoring and payment in kind notes. This too reaches its limits. As the business goes into a death spiral, and keeps burning cash, it withholds payments to suppliers – in this case Wells and Youngs the brewers who actually made Cobra beer. (Recall that Cobra owned nothing, it being basically a marketing and PR machine for “building” the Cobra brand).

Finally, the company/Ponzi scheme is incapable of sustaining itself. The outside financing entering the scheme is impossible to sustain the amounts spent on marketing. The inflated profitless sales are used to entice a buyer but no one bites (obviously). This despite one of the most well oiled PR machines in the business. The business goes bankrupt. Due to the intricacies of UK bankruptcy law, secured creditors and the man himself got something out of it. Unsecured creditors – Wells among them – got shafted to the tune of 75 million pounds.

What is shocking is how such a man, a smooth talking incompetent who ran his business into the ground, could write a book on entrepreneurship – a second one to be published this week – and be lauded as a role model by Labour. And now he’s trying to raise cash for his Indian operations !!! This is shamelessness.

Cobra Beer’s UK Unit Sells Majority Stake To Molson Coors

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