The European Commission has conditionally cleared AB InBev’s acquisition of SABMiller under the EU Merger Regulation. The transaction is noteworthy since AB InBev is considered the world’s largest brewer and SABMiller the world’s second largest brewer. In order to overcome competition concerns, AB InBev is selling practically its entire SABMiller beer business in Europe. Asahi, a leading brewery of Japan, is said to buy all SABMiller units in France, Italy, the Netherlands and the UK.
The proposed acquisition by AB InBev of SABMiller would create a global market leader in the brewing industry. AB InBev’s brands include Corona, Stella Artois and Budweiser. SABMiller’s brands include Miller, Peroni, Pilsner Urquell and Grolsch. The European Commission has in the past reviewed concentrations in this industry, and its decisional practice and the case law of the Court of Justice of the European Union suggest that the relevant product market is that for the production and distribution of beer which is to be distinguished from other beverages.28 Furthermore, the European Commission has generally considered that a distinction between on-trade distribution (i.e., beer distributed via such outlets as pubs, bars, restaurants, and hotels) and off-trade distribution (that is, beer sold by retails outlets) is relevant.29
Both parties are of the biggest brewers worldwide. In Europe, however, Heineken and Carlsberg are the market leaders. The proposed transaction would bring together the third and fourth largest brewers by volume. Hence, the European Commission was concerned that in the member states where SABMiller was active, the transaction could lead to higher beer prices. The European Commission pointed out that Europeans buy around €125 billion of beer every year, so that even a relatively small price increase could cause considerably harm to consumers. The European Commission also thought that an important competitor would be removed which would make tacit coordination between the leading international brewers more likely.
More specifically, the European Commission found that the transaction would remove an important competitor in Italy, the Netherlands, the UK, Romania and Hungary, either at the level of the overall national beer markets or in important market segments. Taking into account the reduction of competitors, the risk of tacit price coordination would increase significantly. Furthermore, the European Commission emphasised that its investigation showed that European brewers engage in coordinated follow-the-leader type pricing in several member states. Companies set their prices according to the largest competitor. In such market circumstances, the market leader takes the initiative of increasing its price, expecting that all competitors will follow.
In the Czech Republic, Hungary, Romania and Slovakia, AB InBev is active through its licensed bottler and distributor, Molson Coors. The European Commission was concerned that the proposed transaction would result in Molson Coors having fewer incentives to compete against SABMiller. The proposed transaction was also likely to increase tacit price coordination in those countries.
Finally, the European Commission pointed out that the number of multimarket contacts between brewers in the European Economic Area was likely to increase due to the proposed transaction. AB InBev’s acquisition of SABMiller implied that the number of national markets where the merged entity and the two remaining supranational brewers would encounter each other would increase. In a dynamic context in which firms interact repeatedly, and tacit collusion is possible due to the limited amount of market players, an acquisition can affect prices by changing the degree to which coordination on pricing is possible. Multimarket contacts can improve a market player’s ability to sustain high prices by pooling the incentive constraints which limit tacit collusion. Taking into account the oligopolistic structure of beer markets and the results of the European Commission’s investigation showing that brewers consider multimarket retaliation options, the European Commission required certain commitments before clearing the transaction.
In order to overcome the European Commission’s concerns, AB InBev proposed to divest SABMiller’s business in France, Italy, the Netherland and the UK. Japanese brewer Asahi is said to be taking over these businesses. Furthermore, AB InBev has agreed to divest SABMiller’s business in the Czech Republic, Hungary, Poland, Romania and Slovakia. It follows that essentially all the European businesses that AB Inbev planned to acquire from SABMiller’s in Europe are divested, and that the intensity of competition in the European markets would not be negatively impacted by the transaction. The European Commission concluded that the transaction no longer raised competition concerns and approved AB InBev’s acquisition of SABMiller. This is yet another concentration between large market players in which the European Commission and the parties took a pragmatic approach and together resolved the competition issues at the outset, allowing for a timely approval by the European Commission.