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Molson Coors Brewing Company (NYSE:TAP)

Annual Meeting of Shareholders

May 30, 2012 1:00 pm ET

Executives

Andrew T. Molson - Chairman, Member of Nominating Committee and Member of Class A-M Nominating Subcommittee

Peter H. Coors - Chairman, Chairman of Executive Committee, Chairman of Governance Committee, Chairman of Adolph Coors Company and Director of Adolph Coors Company

Samuel D. Walker - Chief People & Legal Officer and Secretary

Peter S. Swinburn - Chief Executive Officer, President and Director

Andrew T. Molson

Good morning, ladies and gentlemen. I would like to welcome you all here in Denver, as well as everyone joining us via webcast to the Eighth Annual Meeting of Shareholders of Molson Coors Brewing Company. [French]

My name is Andrew Molson. I am Chairman of the Board, and I will act as the Chairman of this meeting. And after short opening remarks, we will proceed with the formal business meeting. The video you have just seen provides a very concise summary of the past year for our company and the substantial progress that we have made as an organization despite the headwinds. One accomplishment that I'd like to call attention to from the video is the progress we have made in the area of corporate responsibility over the past 2 years. We see this as an extension of our overall business performance. We are especially proud of our recognition by both the Carbon Disclosure Project and our first-ever listing on the Dow Jones Sustainability Index, where we were only one of 6 North American food and beverage companies chosen. We are focused on growing this business, but we're also focused on growing it the right way. And we're very proud of the progress we have made so far in the area of corporate responsibility.

As I look back at the last year, both as Chairman and as a committed shareholder of Molson Coors, I feel very confident that the future will give us many more reasons to raise our glass in celebration. When we stood before you in Montréal this time last year, we all spoke of our ambition to become a true global brewer. We touched on our increasing presence in high-growth markets, and we hinted that this was just the beginning. A year later, I'm proud to say that there have been a number of significant accomplishments and progress along our journey to global growth. Among them, our flagship brands have continued to offer a strong performance in our core markets led by Coors Light, which became the #2 beer brand in the U.S., ahead of a beer called Budweiser.

Through innovations such as Coors Light Iced T, we have continued to expand our frame of reference to a broader beverage landscape that includes beer, but also other alcohol beverages. Not only meeting evolving consumer tastes, but reaching new consumers altogether.

Recently, our management team wrote the next page of our history with the announced acquisition of StarBev of Central Europe. And still, there are many more chapters to come in the story of Molson Coors, the Global Brewer. Most importantly, we have achieved results this year while always remaining true to our values. In 2005, 2 great brewing heritages came together with their common values and principles and elaborated a long-term vision that is now bearing fruit. The governance principles that have guided our founding families for over 2 centuries in the beer business continue to help us as we move forward. These values and vision are shared by all in this company, from our employees across our operations to our Board of Directors, our success rests on the passion, loyalty and dedication of our people. It is rare to find such high levels of commitment as demonstrated in our people surveys year-over-year. We are proud and grateful for these qualities in our people and the performance they deliver every day.

2011 marked our 225th anniversary in the beer business in Canada. My brother Geoff and I took the opportunity to travel across Canada to meet with our employees, to meet with business partners and scores of customers and consumers. Wherever we went, we were reminded how much our companies strive to live up to the values and principles on which it was founded, and we were reminded of the pride that our people derived from them. In the state of industry challenges, I would like to reiterate our confidence in the talent and expertise of our leadership team under our President and CEO, Peter Swinburn. I also want to take this opportunity to thank our Board of Directors for their support and total engagement in the business of our company this past year. Our board members play a very important role in our strategic decision-making, and all of them have been very committed throughout the past year. I would particularly like to thank both John Cleghorn and David O'Brien, who are retiring from the Board this year. I'd like to thank them for their loyalty and dedicated service to our company for so many years.

Finally, I would like to thank Pete Coors and his family, as well as members of my family, for their respective contributions to Molson Coors. As long-term shareholders, our 2 families offer a unique perspective on the affairs of Molson Coors. It is a perspective based on centuries of involvement in the beer business, confidence in our heritage, in our brands and in the people who make it all work. At this point, I'd like to ask Pete to come up and offer a few introductory remarks before we get started with the official proceedings.

Peter H. Coors

Thank you, Andrew, and let me add my warm welcome to those of you who've come to Denver to enjoy our annual meeting. It's great to have you all here. I'm pleased to have an opportunity to say a few words to echo Andrew's remarks regarding our families' lasting commitment to our beer business. This past month I had the opportunity to travel across the U.S. with my son, David, our road trip to promote the rich history of one of our iconic and very special brands, Coors Banquet beer. Some of you may know that during the 1800s, Colorado miners would throw parties they call banquets, which of course were appropriately stocked with Coors beer here in the mining communities in and around Golden. This is how Banquet beer was actually born. Ever since it was launched in 1936, Banquet beer has become synonymous with the Coors brand, which celebrates lively gatherings and the wonderful heritage we have here in the West.

Now Horace Greeley said, of course, "Go West, young man," and but we decided to go east on this road trip. So we headed east to commemorate really the west -- the eastern expansion and journey of Coors Banquet that we made about 3 decades ago when it grew from being a regional sensation to becoming a national brand. In all, we hit 6 cities over 7 days. We started in Denver, then Kansas City, Chicago, Indianapolis, Cleveland, Pittsburgh, and finally finished up in New York City. It really was a fantastic and rewarding experience, both in terms of interacting with grocer owners, liquor store owners, bar owners, tavern owners, restaurant owners and our distributors and many consumers who are really responsible for making our business successful every day. It was fun also to spend some quality time with my son, David, who's the Associate Brand Manager for the Banquet brand. Now it is true that family is both the link to our past as well as what we see as our bridge to the future. And it's also true that traveling 5 or 6 hours a day in an RV for 6 straight days even with your son can create significant wear and tear.

But all kidding aside, the point I want to make this morning is that the hallmark of Molson Coors is not only our well-earned reputation for consistently delivering quality and innovation to beer drinkers worldwide, but also our ability to take the long view based on our families' enduring commitment to the beer business from one generation to the next. Led by this extraordinarily talented executive team, the future of Molson Coors from our viewpoint remains very, very bright indeed, and with the recent purchase of StarBev, we have an even more exciting journey ahead of us as we travel even further east to Central and Eastern Europe, a region with very promising growth opportunities for our business. This is an indeed, from our view, a very exciting time for our company, and I look forward to seeing how this management team helps us expand and grow the business as we move on into the future. And with that, I'd like to turn it back to Andrew for the rest of the business meeting. Andrew?

Andrew T. Molson

Thanks, Pete. Now I'd like to formally open the business portion of this meeting. Let me begin by introducing the individuals who are seated with me at this table. To my right, you have just met him, Pete Coors, Vice-Chairman of the Board; to my left is Peter Swinburn, President and Chief Executive Officer of the company; to his left is Stewart Glendinning, Global Chief Financial Officer; and to Stewart's left is Sam Walker, Global Chief Legal and People Officer and Corporate Secretary, who will act as secretary of this annual meeting. Next, I'd like to introduce the other members of our Board of Directors who are present this morning. I'd like to ask them to stand and be recognized as I call their names: Dr. Francesco Bellini, Christien Coors-Ficeli, Brian Goldner, Charles Herington, Fritz Hobbs, Geoff Molson, Iain Napier, Sandy Riley, Doug Tough, and we also have with us today our Chairman Emeritus, Bill Coors. Welcome, Uncle Bill.

We also have with us here today, Mr. Eric Jacobsen, he's a representative from PricewaterhouseCoopers, our independent registered public accounting firm, and he will be available to respond to questions and may make a statement, if he so desires. Now let's proceed with today's business. We plan to wrap up the meeting no later than 12 noon. Here's how the meeting is going to flow. First, I'd like to assure you we will cover each issue adequately and give as many people as possible an opportunity to speak. We welcome you all, but only shareholders or their proxies are authorized to address this annual meeting. I will explain how we will handle comments from the floor in just a few minutes.

There are 4 matters we will vote on at this meeting, and each of the proposals will be presented individually. Once all the proposals have been presented and the business portion of the meeting has been concluded, I will conduct a question-and-answer session where there will be additional time for you to return to one of those proxy issues already raised, if you wish to do so. Here's how we will conduct comments to the 4 proposals and the question-and-answer session. If you would like to make a comment or have a question, please make your way to the microphone and form a single line. When it is your turn to speak, I will identify you. Please introduce yourself and who you represent if you are a proxy. Then please proceed with your comment or question. Please address all your questions to the Chair. I will answer your question, or if necessary, ask one of my colleagues to respond where appropriate. And one final point, if you need a ballot, please raise your hand now. However, please note that you do not need a ballot if you have already voted, unless you wish to change your vote. If you own your shares in street name and gained admittance to the meeting with a legal proxy, you should have been issued a ballot at that time. Please note that if you own your shares in street name or are a proxy for a street name holder and do not have a legal proxy, you cannot vote in person. Also, if you are a holder of exchangeable shares, you cannot vote in person. The polls will be open until the end of the business portion of the meeting, at which time all the ballots will be collected. Now, I'll ask Sam, could you please present the Secretary's report?

Samuel D. Walker

Thanks, Andrew. The Broadridge Financial Solutions has provided the company a written affidavit confirming that the notice for this annual meeting and its related proxy statement were mailed beginning April 18, 2012 to all shareholders of record as of April 2, 2012. Our Inspector of Election, also from Broadridge, advises that we have a quorum, with respect to both Class A shares and Class B shares as follows: 93% of the total Class A shares eligible to vote are present in person or by proxy, and 81% of the total Class B shares eligible to vote are present in person or by proxy.

Andrew T. Molson

Thank you very much, Sam. So the polls are now open and will remain open until the end of the business portion of this meeting. And again, a reminder, there are 4 matters to be voted on at this meeting. The first matter is the election of Class A directors. The second matter is the election of Class B directors. Third, we will take up the ratification of the appointment of our auditors for the year. And lastly, we will then consider the proposal to approve an amendment to the company's Incentive Compensation Plan to increase the number of authorized shares of our Class B common stock issuable under the plan by 5 million shares. Sam, would you please present the first matter to be voted on today?

Samuel D. Walker

The first matter to consider is election of Class A directors. The company's by-laws require that each Class A director stand for election each year. The holders of Class A shares as of the record date are entitled and are being asked to vote for the election of these directors. The following individuals have been nominated for election as Class A directors for 1-year terms, expiring in 2013: Francesco Bellini, Peter Coors, Christien Coors-Ficeli, Brian Goldner, Franklin Hobbs, Andrew Molson, Geoffrey Molson, Iain Napier, Peter Swinburn and Douglas Tough.

Andrew T. Molson

Is there any discussion now on this matter? Thank you. Now we will move on to the next proposal. Sam, will you please present the second matter today?

Samuel D. Walker

The second matter to consider is election of Class B directors. The company's by-laws require that each Class B director stand for election each year. The holders of Class B shares as of the record date are entitled and are being asked to vote for the election of these directors. The following individuals have been nominated for election as Class B directors for 1-year terms expiring in 2013: Charles Herington and Sanford Riley.

Andrew T. Molson

Is there any discussion now on this matter? Thank you. Now we will move on to the next proposal. Sam, will you please present the third matter for today?

Samuel D. Walker

Our audit committee has appointed the firm of PricewaterhouseCoopers LLP to serve as the company's independent registered public accounting firm for this fiscal year, and we ask the Class A shareholders as of the record date for their ratification of this appointment.

Andrew T. Molson

Is there any discussion on this issue? Thank you. Now we'll move on to the next proposal, the fourth matter to be addressed today. Sam?

Samuel D. Walker

The Board of Directors is asking the Class A shareholders to approve an amendment of the company's Incentive Compensation Plan to increase the number of authorized shares by 5 million shares.

Andrew T. Molson

Is there any discussion on this matter? Thank you. The polls are now open for voting. Until the polls close, any shareholder may revoke or change his or her prior vote on any matter. However, upon the closing of the polls, no ballots, proxies or votes, nor any revocations or changes will be accepted. If anyone needs a ballot, please raise your hand now and we will see that you get one. If you've already voted your proxy by mail or on the Internet, there is no need to cast another ballot unless you wish to change your previous proxy vote. The proxy committee, consisting of Sam Walker and Peter Swinburn, will vote your shares as indicated on the proxy you've already submitted to us. Before I close the meeting and move to a report from our CEO and the question-and-answer period, I would like to ask Sam for the preliminary vote this morning. For those of you completing those votes this morning, please raise your hand now and an attendant in the room will collect your ballot. After the business portion of the meeting, the polls will be closed. Your vote will be tallied this afternoon and included in the final vote. Then I'll open the floor for additional questions from shareholders and proxies. Now, Sam, for the preliminary report please.

Samuel D. Walker

The Inspector of Election reports that each nominee for election as Class A director has received a sufficient number of votes cast in favor of their election. Therefore, all of the Class A director candidates have been elected to serve as directors until 2013. Each nominee for election as Class B director has received a sufficient number of votes cast in favor of their election. Therefore, all of the Class B director candidates have been elected to serve as directors until 2013. The management proposal on the ratification of PricewaterhouseCoopers as the company's independent registered public accounting firm has been approved with a sufficient number of votes in favor. The proposal to approve an amendment to the company's Incentive Compensation Plan to increase the number of authorized shares by 5 million shares has received a sufficient number of votes in favor.

Andrew T. Molson

Thank you, Sam, and thanks to all of you for voting. And again, please raise your hand if you have a ballot and someone will collect it. We now seem to have all ballots and since all those desiring to vote by ballot have done so, I hereby declare the polls closed. Is there any further business properly brought before this meeting? If not, I hereby close the business portion of this meeting, and I will invite Peter Swinburn, our CEO, to share his view on the state of the business. Peter?

Peter S. Swinburn

Thank you, Andrew. Good afternoon -- or good morning, everyone, and thank you for joining us today for our 2012 Annual Meeting of Shareholders. Before we start, I have to share our Safe Harbor language. Our presentation today contains forward-looking statements within the meaning of the U.S. federal security laws. Important factors that could cause actual results to differ materially from the company's projections and expectations are disclosed in the company's filings with the Securities and Exchange Commission. Also, the presentation includes certain non-GAAP performance measures. A reconciliation to the most comparable GAAP measures is available on our website.

I'll begin with a review of our 2011 financial performance. Molson Coors grew underlying after-tax profit by 5.2%, which was a significant accomplishment given the economic challenges facing the industry and our business. In Canada, we grew volume and profit in the back half of the year to improved performances with Coors Light, Molson Canadian and our above-premium portfolio, assisted by the launch of Rickard's Blonde and the expansion of Creemore and Granville Island to new markets. As a result of these achievements and favorable foreign exchange, Canada's underlying pretax income grew by 3.3%. In the U.S., Coors Light significantly outperformed the Premium Light segment in both share and average price, and passed Budweiser to become the second largest beer in the market. Miller Lite's performance however, was disappointing.

In the Craft Beer segment, the Blue Moon brands continue to lead the segment with more than 20% growth. Leinenkugel's also grew at a double-digit rate. Against major headwinds, the U.S segment grew underlying income by 2.4%. In the U.K., we gained market share through our focus on brands and innovation. We acquired the Sharp's Brewery and Doom Bar brand early in 2011, added the Modelo brands to our portfolio, and we relaunched Carling and Coors Light in the second half. Underlying pretax earnings in the U.K. increased 3.2%, driven by strong pricing and cost reductions. And within Molson Coors International, the major highlights were our new Cobra partnership in India and our new partnership with Obolon to sell Carling in Ukraine, Eastern Europe's second biggest beer market.

In 2011, Molson Coors International volumes grew by nearly 50%. Our strategy to deliver growth and scale to the business rests on 3 key pillars: first, maximizing the profitable growth opportunities in our core markets; second, accelerating our push beyond our core markets especially into developing markets and growing brands internationally; and third, looking for M&A opportunities that meet our strict criteria for generating shareholder value and growth platforms for our business. With respect to our core markets, we are focused on 3 main growth levers: continuing to invest behind our power brands; delivering excitement and interest through value-added innovation; and accelerating our current success in the above-premium category.

I'd like to touch briefly on the growth levers in our core markets. Premium and Premium Light's represent by far and away the biggest profit pools in our core markets. They account for nearly 60% of our worldwide volume and an even higher percent of our profit. As such, we believe growing these power brands more than anything else will have the biggest impact on our business. Coors Light continues to own ice cold refreshment in the premium beer category. And because of this clear, relevant brand proposition, Coors Light has consistently achieved positive volume gains over the past 7 years, driving the brand to the #2 position in the U.S. market, and this builds on the brand's momentum across all of our businesses, having become the #1 brand in Canada and growing 25% in the U.K., and double-digits in all of our other international markets.

As I mentioned, Miller Lite has been challenged for a while, but has undergone revitalized brand messaging, new advertising creative, a full slate of innovative packaging and an even higher level of engagement with multi-cultural audiences across the U.S. In short, we are making significant investments behind Miller Lite to turn it around. Similarly, we have worked hard to reposition Molson Canadian over the past few years. We have built a consistent theme around Molson Canadian and the brand promise to related sponsorships around the brand. Molson Canadian entered 2011 as a strong and healthy brand, and over the year, increased market share for the first time in more than 15 years. For Carling, 2011 was a year of repositioning and transition for the U.K. #1 lager. Carling's visual identity has been transformed across all consumer touch points into a stylish, aspirational brand that shouts of quality, care and attention. In both the on and off premise to the second half of 2011, Carling drove value ahead of volume. The investment we are making behind our power brands is generating positive results, and we will continue to make this the highest priority for our business.

At the same time, innovation is central to our growth strategy because it allows us to do 2 things. First, it helps keep our power brands' relevant by sharpening our advertising, reinforcing brand equities, encouraging trial and providing true [ph] value amongst our loyal beer drinkers. It can also help us drive positive pricing and market share as we have done with Coors Light. Secondly, it allows us to leverage the growth of the total alcohol category by meeting evolving consumer tastes to new locations. And both opportunities are driving our innovation agenda today. Whether it's delivering new packaging innovations, like the aluminum pint or the new punch top can for Miller Light or responding to interesting new flavors, with brands like Molson Canadian 67 Sublime, Batch 19, the Rickard's line or our new Coors Light Iced T, we intend to stay at the leading edge where consumers are heading. Innovation is and will remain key to the -- to our purpose of challenging the expected to deliver extraordinary brands that delight the world's beer drinkers. The above-premium and craft segment, whilst still small, continues to experience tremendous growth across our markets. Sure again [ph], we are very well represented by leading brands at the top end of the market, as well as dedicated market and sales organizations that will serve to drive our brands within this segment.

In the U.S., Tenth and Blake is now America's largest craft brewer, selling 16% of overall craft volume. Last year, it grew by almost 15%, outpacing the overall craft market. In Canada, we launched Six Pints, a division established to market and sell our distinctive Creemore Springs and Granville Island Craft brands and to focus on new premium -- above-premium introductions. Six Pints grew 10% last year with volume gains in every province as well as winning 5 national brewing awards. Together with our growing Rickard's family of brands, we now have a compelling portfolio of above-premium brands in Canada that captures more than 35% of the above-premium segment. And in the U.K., we have been building above-class [ph] portfolio. Early last year, we purchased the Sharp's Brewery, home of the Doom Bar brand, which we have grown by 45%, making it the #3 brand in the segment.

While we are pulling all the growth levers in our core markets, we also recognize the need to further accelerate our push elsewhere, especially into emerging markets, as the second pillar of our growth strategy. Currently, we are focused on 4 strategic markets: China, Russia, India and Ukraine. These markets are projected to be among the fastest-growing beer markets. And on the brand front, Molson Coors International, is focused on 3 strategic brands: Coors Light, Carling and Cobra. I'm pleased to say that Molson Coors International is beginning to contribute significantly to top line results. Over the past 2 years, our International business has nearly doubled in size, while reducing their investment per hectoliter by more than 20%. Last year, Molson Coors International represented 3% of our worldwide volume, but it contributed a full 16% of NSR growth for Molson Coors.

And the final pillar of our growth strategy is M&A. As we have demonstrated, M&A, big and small, is part of our growth strategy, just as it is with any company that operates in a highly competitive consolidating industry. As we look back to 2011, the Sharp's acquisition has gone exceptionally well, with the Doom Bar brand growing strongly. Our new India partnership is also off to a solid start. And the purchase of Crispin in the U.S. gives us significant and immediate presence in a fast-growing category that pools disproportionately from wines and spirits. As most of you know, we have much bigger M&A news this year with our impending acquisition of StarBev. Given its importance to our business going forward, let me say a few words about this acquisition.

As we disclosed in early April, we've entered into an agreement with CBC, under which Molson Coors will acquire StarBev for EUR 2.65 billion or approximately $3.4 billion in cash and debt. This represents a multiple of approximately 11x EBITDA. The transaction is entirely consistent with our strategy of enhancing the growth profile of our company, and it fits with our stated goal of only considering M&A opportunities that deliver attractive returns over the medium term of 3 to 5 years. Following the transaction close, the percentage of our revenue coming from markets other than the U.S., Canada and the U.K. will increase from low single-digits to the mid-teens, which is a significant change. StarBev is a market leader, with top 3 market positions in all of the 9 countries where it operates. The Central European beer market is very attractive, and StarBev, as a leader in that space, provides Molson Coors with the ideal platform to capitalize on future growth in the region. When we look at the Central European markets, we see strong historical consumption trends in a region where beer is the alcohol beverage of choice. StarBev's brands, leadership and operations are also highly complementary with ours. It will be earnings accretive in the first full year of operations and comfortably meets all our strict shareholder return criteria. The acquisition is strategically and financially compelling as well as an attractive use of capital. We look forward to closing the transaction before the end of June and getting on with the integration of this attractive business. 2011 was an important year where we positioned the company for even stronger and more sustainable growth in the coming years.

As I have outlined this morning, we continue to be very confident about our strategy of developing top line growth across all of our markets. Our primary focus remains on the first of our growth pillars as we continue to invest in our core brands and fill our innovation pipeline in our core markets. But to maintain the long-term health of our business, we continue to accelerate our growth in the emerging markets and capitalize on smart M&A opportunities, as we have with StarBev. We are confident that these growth strategies paired with disciplined cash use and cost management will drive revenue, profit, cash flow, and long-term value for our shareholders. Most importantly, we have a solid track record of delivering on our commitments, whether it has been on generating significant cost savings, investing in our brands and delivering exciting innovation to the marketplace, or capitalizing on M&A opportunities. We are focused on growth, cost management and disciplined high return use of cash, and to delivering sustainable long-term value to our shareholders. On behalf of the Molson Coors leadership team, I want to thank you for your time today. And at this point, I'd like to turn the meeting back to Andrew. Andrew?

Andrew T. Molson

Thank you very much, Peter. We will now go to the Q&A session, question-and-answer period.

Question-and-Answer Session

Andrew T. Molson

Are there any questions or comments regarding the general affairs of the company to ask right now? Hearing no questions, we will bring this annual meeting to a close. I want to thank you all for coming here today. Thank you very much.

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