SABMiller/AB InBev requires clear US exit, attorneys say
Following Anheuser-Busch InBev’s (NYSE:BUD) 2013 acquisition of Grupo Modelo, the Department of Justice (DoJ) will not allow the global beer giant to pick up additional US market share, antitrust attorneys said.
Belgium-based AB InBev confirmed on 16 September its intention to pursue SABMiller (LON:SAB). No further details regarding the terms of the proposed combination of two of the world’s largest beer makers have been released. SABMiller would be open to engaging in talks, media reports have said. A spokesperson for AB InBev declined to comment.
SABMiller owns a majority stake in the MillerCoors joint venture, which brews beers under Miller and Coors brands in the US. A deal with InBev would give the combined company a market share of more than 70% in the US.
Based on such a high level of market concentration, InBev will have to divest the joint venture to secure US antitrust clearance, according to two antitrust attorneys with knowledge of the industry and Mike Mazzoni, senior partner at consultancy Seema Interational.
The DoJ already views the US beer market as susceptible to coordinated effects, the two antitrust attorneys said. That’s in part because competitors such as AB InBev and SABMiller’s MillerCoors typically follow each other in terms of price, with the former as the price leader, the two antitrust attorneys and Mazzoni said.
AB InBev “can’t get any bigger in the US. Period. End of story,” the first antitrust attorney said.
In 2013, the DoJ found that Mexican brewer Modelo’s Corona brand acted as a so-called maverick in the US, providing a destabilizing force for beer prices. To complete the deal, InBev agreed to sell the US rights and capacity to produce Modelo beer to Constellation Brands (NYSE:STZ).
“This deal only happens because SABMiller will transfer their interest in MillerCoors and exit the joint venture,” the first antitrust attorney said.
Under the JV agreement, Molson Coors Brewing (NYSE:TAP) has a right of first refusal to buy SABMiller’s interest in MillerCoors.
SABMiller currently receives 58% of MillerCoors’ profits, while Molson Coors (MCBC) gets 42%, according to MCBC’s most recent 10-K filing with the US Securities and Exchange Commission (SEC).
MillerCoors was formed in July 2008. As the second-largest brewer by volume in the US, MillerCoors accounted for approximately 27% of the total US brewing industry in 2014, according to an SEC Filing. That figure excludes exports.
MCBC’s entire US segment consists of and results from the joint venture with SABMiller, according to its 10-K. In the US, MillerCoors core brands include Coors Light and Miller Lite, as well as Blue Moon, Coors Banquet, Keystone Light and Miller High Life, among others, according to the 10-K.
There are also some imports under the MillerCoors joint venture, including Grolsch. Grolsch is owned between MCBC and Royal Grolsch, a member of the SABMiller group, according to the 10-K. The merging parties could transfer control of imports to MCBC, too, the first antitrust attorney said.
Divesting SABMiller’s interest in MillerCoors to MCBC would preserve the competitive status quo in the US, the second antitrust attorney said. The DoJ typically defines this market as “all-beer,” while some subcategories can exist such as sub-premium, premium, super premium and high-end, the first and second antitrust attorney said.
Yet the DoJ has also acknowledged that the lines between those subcategories and the various brands are not explicitly clear, the second antitrust attorney said. In the tie-up of AB InBev and Modelo, the DoJ found a lot of switching and competitive interaction between Corona and certain Budweiser products, even though the former was considered more high-end, that attorney explained.
“Then they alleged the all-beer market, as opposed to a separate market for premium beers,” the second antitrust attorney said.
In any case, regulators will examine the extent to which the prices of AB InBev brands and SABMiller brands constrain each other in various US markets, the third antitrust attorney said. “The interesting thing is that drinking habits are all different,” that attorney said. “The short-cut is, what are two or three of your favorite beers? Then, how many of these guys have an interest in them?”