Molson Coors Brewing Co. (TAP) said Friday it will shut its Memphis brewery in early 2007 for annual savings of up to $35 million, the first step in the newly merged beer maker's cost-cutting plan.

The closure is part of a wider restructuring plan that targets annual savings of $175 million within three years.

Molson Coors, which was formed two days ago with the merger of Montreal's Molson Inc. (search) and Colorado-based Adolph Coors Co. (search) , creating the world's fifth-largest brewer by volume, will start phasing out production in Memphis in the second half of 2005.

Once the closure in completed in early 2007, the company expects annual savings of $32 million to $35 million.

Molson Coors will spend $70 million to $90 million to shift production, reflecting capital expenditures at its other North American breweries, along with restructuring and other costs.

Shares fell 4.4 percent, or C$4.06, to C$89 on the Toronto Stock Exchange (search) and 0.3 percent, or 21 cents, to $71.44 in New York after the announcement.

While the Memphis closure was not a surprise, some investors may be disappointed by the pace of the savings, said Sanford Bernstein analyst Robert van Brugge, who rates the company "outperform".

Molson Coors is targeting annual merger savings of $50 million in the first year of its plan, $90 million by the second year, and $175 million in the third year. It has not said when the clock starts ticking on that plan.

The company's breweries operate at about 79 percent capacity utilization, versus rivals running in the low 90 percent range, van Brugge said.

"The Memphis brewery (closure) was definitely something that we anticipated," he said. "We knew it made sense."

The brewery, which has a capacity of approximately 3 million barrels annually, brews Coors Light for export, Zima XXX, Blue Moon and Keystone Light.

Van Brugge next expects to see job cuts at corporate headquarters, estimating about 150 to 175 positions will be affected. He also forecasts savings from operational changes within breweries and better supply deals.

First Associates Investments analyst David Hartley said the closure was a positive step, and he doesn't expect to see any other breweries shuttered.

Several analysts have expressed concern that the company can deliver the promised savings while facing other critical challenges, such as boosting its market share.

An "office of synergies" has been set up to focus on optimizing brewing and packaging operations to lower distribution and overhead costs, as well as to seek procurement efficiencies, streamline operations and consolidate administration.

Analysts will want more answers about that strategy when the company holds analyst days on March 2 in New York and March 3 in Toronto.

Separately, the company also set its quarterly dividend at 32 cents a share, payable on March 15 to shareholders of record as of Feb. 28.

($1-$1.24 Canadian)