- AB InBev not seen as gaining US distribution clout from merger
- Possible JV divestiture would likely maintain competitive status quo
- Distribution issues more a reflection of state regulations - lawyers
The antitrust investigation into whether Anheuser-Busch InBev (NYSE:BUD) is hurting craft brewers by acquiring distributors will likely not materially impact the review of its potential merger with SABMiller (LON:SAB), industry sources said.
The Department of Justice (DoJ) and the California attorney general’s office are reviewing AB InBev’s proposed acquisition of two California wholesalers. In a statement AB InBev said: “It is a misconception that craft growth is being inhibited in the marketplace. That could not be further from the truth, and it is very evident that craft brands are prospering in California and have been for years.”
The DoJ’s potentially concurrent scrutiny of AB InBev’s distribution power and the tie-up with SABMiller indicates that the beer giant may need to give up distribution power, Bloomberg News has claimed. AB InBev, the number one producer of beer in the country, in recent years has been acquiring wholesale businesses, drawing the ire of much smaller craft brewers.
However, the DoJ’s antitrust analysis of the proposed SABMiller acquisition should remain largely untainted by the recently launched conduct investigation as the issue with craft brewers is separate from the SABMiller transaction, said Andre Jaglom, partner at Tannenbaum HelpernSyracuse & Hirschtritt. There is likely no merger-specific effect to be considered, he said. Jaglom specializes in distribution, with particular experience in the food and beverage industry.
The expectation is that SABMiller will likely have to divest its interest in MillerCoors to its joint venture partner Molson Coors Brewing Company (NYSE:TAP), Jaglom said. The distribution structure for current brands would also remain unchanged, as SABMiller has no distribution network in the US apart from the joint venture, Jaglom said. The expected divestiture would therefore preserve the competitive status quo in the US.
Belgium-based AB InBev and London-based SABMiller announced Tuesday that they had in principle agreed to a possible all-cash offer of GBP44 per SABMiller share. A deal with AB InBev would give the combined company a market share of more than 70% in the US. AB InBev would have to pay SABMiller USD 3bn if the transaction failed to close for antitrust reasons.
SABMiller currently owns a majority stake in the MillerCoors joint venture, which brews beers under Miller and Coors brands in the US.SABMiller 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).
Because “regulators are human beings,” the issue with craft brewers might have “some coloration” on the antitrust review, said an antitrust attorney with knowledge of the industry. Foundationally, regulators still must figure out what they will argue if they have to go in front of a judge to challenge the deal, that attorney said.
That said, the investigation into AB InBev’s distribution clout “has nothing to do with the acquisition,” said Mike Mazzoni, senior partner at consultancy Seema International.
Distribution as it relates to craft brewers is more a question of how state-level regulations impact craft brewers’ access to the beer market,Jaglom said. One example is Colorado, where both AB InBev and MillerCoors own their distributors, Jaglom said. The market is vibrant for craft brewers, in part because of state regulations that allow craft brewers access to the market via routes other than distribution systems owned by AB InBev and MillerCoors, Jaglom said.
Some states, such as Colorado, regulate “near beer,” or beer with an alcohol level of 3.2% or less, differently than full-strength beer, Jaglomsaid. Near beer can be distributed by beer distributors and sold more widely, whereas full-strength beer can only be sold in liquor stores,Jaglom said. The result is that liquor distributors, which handle spirits and wine, can distribute strong beers to liquor stores, Jaglom said.
“So there are several other routes to market for craft brewers. In a market where there’s only AB InBev or only MillerCoors, I suspect that’s where the question is about access to market for craft brewers,” Jaglom said.
If AB InBev acquires SABMiller and in turn divests the joint venture interest in MillerCoors to MCBC, “you’re left with the same two sets of brands with the same two sets of distribution networks, where not much has changed and the access to market question remains the same,”Jaglom said.