DOJ Sets Its Tab for AB InBev's Big Beer Deal

AB InBev says it expects to close the $106 billion transaction in the second half of 2016.
By William McConnell ,

Anheuser-Busch InBev (BUD) - Get Report and the Department of Justice on Wednesday announced a settlement that will give the global brewer U.S. antitrust approval for its proposed acquisition of SABMiller.

With nearly all global approvals secured, the company says it expects to close the $106.1 billion transaction, formally announced in November 2015 after months of speculation, in the second half of 2016.

"With today's agreement, we have taken a significant step forward on the transaction, which will create the world's first truly global brewer," said Carlos Brito, CEO of AB InBev. "Our combination with SABMiller will bring more choice to more beer drinkers—and extend the global reach of our iconic American brands, such as Budweiser-in markets outside of the U.S."

As part of the consent decree between AB InBev and the DOJ, the company will divest SABMiller's U.S. interest in MillerCoors to Molson Coors. The company also pledged to distribute no more than 10% of its annual U.S. volume through wholly owned distributorships. ABI also agreed not to terminate any wholesalers as a result of the combination with SABMiller.

Because of the divestiture, the merger will not lead to any concentration among U.S. brewers.

The conditions were imposed in order to prevent ABI from gaining a virtual monopoly on major beer brands sold in the U.S. and to prevent the company from gaining more leverage to keep independently owned distributors from offering imported and craft beers, which the DOJ's sees as critical to keeping a beer prices lower and to making sure U.S. beer drinkers have access to a wider variety of and higher quality of brews.

ABI is the largest brewer both worldwide and in the U.S. Its brands account for 47% of beer sales in the U.S. Combined with the 25% captured by the MillerCoors joint venture, the merger would eliminate competition between ABI and its closest competitor and put a 72% share of the market under control of one company. In the 58 Metropolitan Statistical Areas of the U.S., the merged firm's market share would range from 37% to 94% absent the divestiture. In more than 15 of those local markets, the combined firm would account for more than 70% of beer sales, the DOJ said.

In addition to the 10% cap on in-house distribution, a variety of other restrictions also were placed on ABI's ability to incentivize independent distributors to favor its brands over unaffiliated imports and craft brews. Currently, ABI-owned distributors handle about 9% of the company's beer sold in the U.S.

For instance, ABI would be prohibited from interfering with a distributor's efforts to market or secure retail placement for rival beer brands. The company also would not be permitted to provide incentives or rewards to distributors based on the percentage of ABI beer the distributor sells relative to its sales of rival beers. In addition, ABI would not be able to require that a distributor who provides incentives to its sales staff to promote the beers of ABI's rivals to also offer those incentives for sales of ABI beer.

Lastly, ABI would have to notify the DOJ before making acquisitions of craft brewers in order to let the agency assess the competitive effects first. The DOJ had found that ABI had previously made acquisitions of craft brewers without notifying federal officials first because the size of the transactions were below government reporting thresholds.

The International Brotherhood of Teamsters, which had been pressing the DOJ for restrictions on the merger, was disappointed that the agency didn't go further. The union had focused on MillerCoors' September 2015 announcement that it would close its brewery in Eden, N.C., which the group said indicated ABI and MillerCoors might have been illegally coordinating their business operations prior to antitrust approval.

"MillerCoors simply can't absorb Eden's total production at its other facilities," said David Laughton, Director of the Teamsters' Brewery Conference. "Closing the Eden brewery will introduce significant inefficiencies at the remaining breweries which will force MillerCoors either to reduce the variety of product offerings, jack up prices, or both."

The Eden brewery produced not only MillerCoors brands but was also a major producer under contract for Pabst Brewing Co. In a lawsuit filed against MillerCoors, Pabst alleged that around the same time the Eden closure was announced, MillerCoors told Pabst it would no longer have the capacity to brew Pabst products and that their manufacturing contract would end without renewal unless Pabst paid nearly 3 times as much per barrel of beer. Pabst was the second-highest brand by barrels run at Eden last year behind Miller Lite, at more than 700,000 barrels.

"The Department of Justice may be done with its investigation, but I'm proud that N.C. Attorney General Cooper will proceed with the State's investigation into anti-competitive effects of the brewery closure," said Vernon Gammon, a former Eden brewery worker and Secretary-Treasurer of Teamsters Local 391 which represents the facility's workforce. "In addition to destroying more than 500 good paying jobs in North Carolina and devastating our local economy, the brewery closure will no doubt hurt customers."

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