Lord Karan Bilimoria on the Sale of Cobra Beer


June 4, 2009

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The following interview appeared on Livemint

The UK-based wholly owned subsidiary of New York-listed Molson Coors Brewing Co., Coors Brewers Ltd, has acquired majority stake in Karan Bilimoria-owned Cobra Beer Ltd. It will pay £14 million (around Rs105 crore) for a 50.1% stake in a new joint venture company called Cobra Beer Partnership Ltd. Bilimoria will own the remaining 49.9% and continue as its chairman. The Indian-born entrepreneur explains the rationale behind the deal in an interview. Edited excerpts:

You put the company up for sale around November. What’s happened in the past couple of months?

In fact, the sales merger process started almost a year ago with Rothschild (NM Rothschild and Sons Ltd), the investment bank. We approached nearly every drinks company and brewer in the world, and this was in an environment where for a high-growth company like ours, finance had completely clammed up.

We have grown 40% from the time we started. Even in these horrible markets, the beer market dropping 8% per year in the UK, we have been growing 20%. But we couldn’t get to finance growth, so we thought let’s team up with a global major player, we have the critical mass in terms of sales and volumes, and the synergies are there and the ideal, ideal player right from the beginning was actually Molson and Coors, and three months ago they agreed on a joint venture with us.

Of course, many of these unsecure creditors and suppliers out there, they will be the ones to suffer in this deal ultimately.

Well, the deal from Cobra’s brand point of view is a dream come true, to be part of one of the biggest brewers in the world, the owners of Carling, the biggest brand in the UK. The synergies are fantastic for the brand going forward globally. The employees are being very well looked after…the secured creditors are being payed off and being payed off in full.

But unfortunately, this upsets me a great deal, in the way this deal is made. The unsecured creditors are not being paid and that’s something I feel very strongly about and very upset about.

Why did it come to that?

We were working on a company voluntary arrangement (CVA) where creditors would have the opportunity of being paid up to 50 pence to the pound and we had prepared this for weeks in a, thorough sort of, 200-page document. We had 90% of the creditors supporting the CVA, and the day before we were about to launch it, one of our major suppliers (pulled out), because of one of their credit insurers put a statute demand, and the whole CVA was completely scuppered at the last minute, and so in a week we had to go down another route.

The company had been up for sale for several months and the CVA had been worked on for several weeks and then we had to change at the last minute and this was the only option.

I’m sure a lot of companies have found themselves caught up similarly in the circumstance of the time. In hindsight, how could you have grown a high business differently that would not have ended up in this situation?

I think looking back on it three years ago, we raised several million pounds…. A year ago, we almost had a deal at an equity valuation of £75 million, and suddenly the world changed, and banks and finance dried up. And for a high growth company, you need that.

So no one could predict exactly what happened over the last few months and the way the world changed. So its timing, you can’t predict it. And I would say that looking ahead, our business model is going to be completely different in the hands of a giant brewer. It will be very much growth, but yes, huge profits as well.

You are going to stay on with the business, as part of the arrangement here. What else do you see your future at this point? Are you going to be involved in any future brands?

My focus is very much on Cobra now, on supporting the joint venture, on working with the team at Coors, integrating my team into the Coors’ team, and on building a bigger global brand because the brand has an enormous future; it has got great following; it’s got 80% prompted awareness household name; and we created a beer brand in 20 years when most beer brands are centuries old.

Is it possible for a small start-up to launch a brand such as Cobra in this day and age since the beer market has become consolidated among giants?

We started Cobra in 1990 when the last recession actually started, so you can start a business in the worst of times. We have shown now that we can all actually be not in the ideal way, you can merge with a giant in the worst of times, but the best of times are ahead of us.