Commentary

U.S. Okays AB InBev, SABMiller Merger

They were raising glasses of America beer and Corona Extra lager in Leuven, Belgium, and London, England, yesterday after Anheuser-Busch InBev and SABMiller got a thumbs-up for their proposed $108 billion merger from the U.S. Department of Justice. As its has proposed from the get-go, SAB Miller agreed to sell its entire U.S. business — which includes Miller High Life and Miller Lite — to Molson Coors in order to complete the largest consumer-products deal ever.

The new entity will have a few additional minor requirements to meet in the U.S., and it still needs an okay from China, but that is considered a done deal, according to several reports.

The U.S. agreement “limits the Belgian-based brewer from creating incentive programs that encourage independent distributors to sell and promote its beers over rivals,” report Dow Jones Business News’ Tripp Mickle and Brent Kendall. “It means AB InBev will have to abandon a new plan that would financially reward U.S. distributors for focusing on brands like Budweiser and Stella Artois.”

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AB InBev will also have to get the DOJ’s approval to acquire any additional beer distributors or craft beer brands.

“While we will make some adjustments to certain aspects of our U.S. sales programs and policies, our fundamental approach and commitment to this market will not change,” AB InBev CEO Carlos Brito said in a statement.

“AB InBev has already acquired several regional craft beer companies, looking to benefit from a rapidly growing niche market in the slowing beer industry. Recent deals include Colorado-based Breckenridge Brewing, Oregon-based 10 Barrel Brewing and Virginia-based Devil’s Backbone Brewing Company,” Reuters’ Lauren Hirsch and Chris Prentice report.

“The DOJ’s significant requirements … appear to address some of our major apprehensions with the merger. With effective enforcement of these provisions, small brewers can rely on their independent distributor partners to access the market,” Bob Pease, president and CEO of the Brewers Association, said in a statement cited by Hirsch and Prentice. 

“The two largest U.S. brewers — ABI and MillerCoors — will now remain independent competitors after the deal. The settlement also preserves the ability of smaller brewers — including brewers of craft and import beers — to compete against ABI by protecting their access to important distribution networks,” summed up Sonia Pfaffenroth, deputy assistant attorney general with the DOJ's Antitrust Division, in a statement. “Independent distributors that sell ABI’s beer will have the freedom to sell and promote the variety of beers that many Americans drink.”

The DOJ’s approval allowing the “brewing juggernauts [to] combine runs counter to the government’s recent moves against other big deals,” several observers including Bloomberg’s David McLaughlin point out. “The Justice Department and the Federal Trade Commission have killed proposed tie-ups in the cable, office supplies and oil drilling industries, among others. In this case, the companies proposed asset sales from the start that helped resolve antitrust officials’ concerns,” he says.

“Before the deal, AB InBev, the No. 1 global brewer, had about 21% of the world's beer market, says Caroline Levy, managing director, U.S. equity research for independent brokerage and investment group CLSA. Its acquisition of London-based SAB Miller, the No. 2 brewer, will increase that global share to 28%,” Mike Snider reports for USA Today.

“They increased their scale and beer is a scale business,” Levy tells Snider. “They are buying extremely profitable businesses in Colombia and Peru and South Africa ... (and) the growth opportunity in Africa, called sort of the last frontier for (a) real per capita or premium-ization opportunity.”

“AB InBev says it has approval in 21 jurisdictions including Africa and Latin America, and is working with authorities in areas where the deal is still pending. The European Union's regulator gave approval in May, conditional on the sale of practically the entire SAB beer business in Europe” the AP reports.

One possible hitch in the deal, which is on track to close later this year, has been the decreased value of the British pound since Brexit. 

“There was pressure from some SABMiller shareholders to … reconsider the 44-pound-a-share offer following the plunge in the pound since the U.K. voted to leave the European Union,” writes Bloomberg’s David McLaughlin. “SABMiller’s board, which is convening before the company’s annual shareholder meeting on Thursday, has unanimously recommended the offer.”

After explaining the mathematics of it all, Dow Jones’ Mickle and Kendall say, “It is far from guaranteed that SABMiller would seek better terms for a deal that already has been signed — or that AB InBev would agree to raise its offer. “

Cheers and à votre santé!

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