Brewery Deal Seen Forcing Sale of MillerCoors to Satisfy U.S.By
AB InBev, SABMiller also need to placate global regulators
U.S. antitrust officials challenged AB InBev's Modelo bid
A deal to create the world’s largest beermaker would face the toughest regulatory hurdles in the U.S., where Anheuser-Busch InBev NV and SABMiller Plc already dominate the market and antitrust authorities have been skeptical of past attempts to combine big brewers.
Regulators around the world would scrutinize an AB InBev offer for SABMiller and require sales of brands to resolve concerns that the deal could raise prices for consumers, according to antitrust attorneys. Even with increased competition from smaller craft brewers, AB InBev and SABMiller had a combined North American market share in 2014 of 58 percent by volume, according to Bloomberg Intelligence.
In the U.S., the companies would have to sell SABMiller’s MillerCoors joint venture to win approval from the Justice Department, according to Darren Tucker, an antitrust lawyer at Morgan Lewis & Bockius in Washington.
“The parties will need to make that commitment to have any prospect of passing antitrust muster in the U.S.,” Tucker said. The companies “are likely to move quickly to address the Justice Department’s concerns.”
Analysts at Sanford C. Bernstein agree that the Justice Department will insist on the sale of the MillerCoors stake, adding that Molson Coors Brewing Co., which is based in Denver and Montreal, would be a ready buyer.
AB InBev and SABMiller would be facing off against Bill Baer, the head of the department’s antitrust division, who sued to block AB InBev’s takeover of Grupo Modelo SA in 2013. The government complained that the deal could raise prices by further concentrating an industry where AB InBev and MillerCoors controlled the majority of sales.
The companies “often find it more profitable to follow each other’s prices than to compete aggressively for market share by cutting price,” the Justice Department said at the time. It settled that lawsuit by requiring the sale of Modelo’s brands to Constellation Brands Inc.
The deal may not win Baer’s approval even with a sale of MillerCoors, said Allen Grunes, a former Justice Department antitrust lawyer, now with Konkurrenz Group in Washington. The antitrust chief has said some deals are so problematic they should never get out of the boardroom, and “it seems this is one of those,” he said.
“This deal is pretty close to unthinkable,” Grunes said.
AB Inbev would gain enhanced power as a gatekeeper of distribution that smaller craft brewers rely on to get their products on shelves, said Diana Moss, the president of the American Antitrust Institute in Washington.
“There’s nothing in this deal that could warrant its approval by federal antitrust enforcers,” Moss said.
If the deal was to be approved, it could take a year with regulators around the globe weighing in, Jennifer Rie, an antitrust analyst at Bloomberg Intelligence, said in a research note.
The companies also may face challenges in China, where the two brewers hold top positions. AB InBev may have to sell SABMiller’s 49 percent stake in CR Snow, a joint venture with China Resources Enterprise, according to Sanford C. Bernstein analysts.
Antitrust officials at the Chinese Ministry of Commerce will give the deal close scrutiny because the two companies have significant businesses there
directly and through joint ventures, said David Anderson, a lawyer at Berwin
Leighton Paisner in Brussels.
“MOFCOM will be a very important player in deciding this deal’s fate,” Anderson said. “The path to receiving merger clearance from Beijing for a deal like this one can be a long and uncertain one.”
In other countries, there’s little overlap between the companies, according to analysts at Numis Securities Ltd.
SABMiller is dominant in Africa, where AB InBev has no presence. In Europe, the combined company would be a much more effective competitor to Heineken NV and Carlsberg A/S. In Latin America, AB InBev is strong in Brazil, Argentina and Mexico, while SABMiller dominates in Columbia, Peru, Ecuador and Panama, Numis said.
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