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AIM could hold the trump card in Molson-Coors merger vote

But major shareholder mum on position

Ian Hardacre didn't get into the money management business for power. He got into it because he has forever been fascinated with the stock market -- ever since he was 12 years old and his parents gave him the money to buy a few shares of Becker Milk Co. "It's always what I've wanted to do."

Twenty-six years later, he runs about $4-billion for AIM Funds Management Inc., but his taste in stocks hasn't changed much. He still likes to invest in those easy-to-understand consumer companies -- like Molson Inc., for example. Mr. Hardacre holds at least $175-million of the brewer's stock in his funds, a position that gives him unusual clout as the company tries to push ahead with its proposed merger with Colorado's Adolph Coors Co.

It's no understatement to say he could be the man who decides whether the merger succeeds or dies at a shareholder meeting this fall. AIM is Molson's biggest single shareholder, owning 14.5 per cent of the company's non-voting, class A stock. When Molson chief executive officer Dan O'Neill said last week that he's not sure he has the support for his $8-billion "merger of equals," it's partly because he knows he hasn't yet persuaded Mr. Hardacre and his group of equity managers to vote AIM's shares in favour of it.

The firm's managers are still mulling over what it will do when the Molson deal comes to a ballot.

The vote will probably take place in November.

"We don't want to make a big decision up front based on emotion. That's not the way we do things," Mr. Hardacre says. "We want to use common sense, we want to look at all the options, we want to think it through."

Beyond that, he refuses to say anything on the Molson-Coors deal -- certainly not which way AIM's managers are leaning. Nor will he comment on why they recently bought 3.4 million of the brewer's shares. "Obviously, we're a pretty big factor in the deal, so we take it pretty seriously," he says.

But on Bay Street, people are already speculating on what AIM's decision will be. It's a matter of arithmetic.

To pass, the Coors merger needs the support of two-thirds of the votes cast by Molson's class A shareholders. The Montreal-based brewing company has about 105 million class A shares outstanding.

Assuming a turnout of about 80 per cent, it would take only 28 million shares to kill the deal. AIM holds 15.2 million. If the voter turnout is lower, then so is the number of votes needed to block the merger, and AIM's relative influence grows.

Mr. O'Neill's comments last week -- the first formal admission by the Molson chief that investors have been lukewarm to the deal -- have caused some to begin talking about what happens if the deal fails to get the shareholders' blessing. National Bank Financial analyst Jim Durran did the numbers and figured that Molson could be worth $43 a share if it restructured and turned its cash-rich Canadian operations into an income trust.

But AIM hasn't bought so many shares because it's looking for a fight on Coors, Mr. Hardacre says. It's just a typical sort of investment for the firm's renowned group of value managers, who oversee funds under the AIM and Trimark names.

"Any consumer product company that has a reasonable growth profile -- which I think the beer business does -- generates massive free cash flow and has a brand . . . that's really what you want," he says. "Molson's one of the few consumer-product companies of size [in Canada] . . . Those are classic businesses for us."

Some analysts believe that if Molson's stock remains in the low $30 range -- it closed at $33.77 yesterday -- it will make it easier for shareholders to defeat the transaction, because of a belief among many investors that the brewer's operations in Canada are worth at least that much as an independent company, thus giving support to the stock if the deal fails.

If AIM decides to weigh in against the Molson deal, it will take only a few other large shareholders to end chairman Eric Molson's dream of a cross-border merger to create the Molson Coors Brewing Co.

At least one other large shareholder, Jarislowsky Fraser Ltd., has indicated it will vote its holding of more than 4 million shares against the deal. Jarislowsky president Len Racioppo objects to the way the deal has been structured to entrench the power of the Molson and Coors families, who will get to appoint two-thirds of the merged company's directors despite holding an economic stake of less than 20 per cent. "There are real governance concerns here which, on their own, would make us say no to it," Mr. Racioppo said.

Other big players could include Highfields Capital Management LP, a Boston-based investment manager that is thought to have a substantial position the brewer's stock, though it has never disclosed how large. Highfields has been involved in shareholder battles in Canada before, most recently when it tried to force Manitoba Telecom Services Inc. to hold a vote on its proposed acquisition of Allstream Inc. AGF Management Ltd., which led the fight this June to remove former Hollinger International Inc. director Dan Colson from the Molson board, owns about one million shares, while the Ontario Teachers Pension Plan Board has about 1.6 million.

© 2007 The Globe and Mail. All rights reserved.

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