The American Antitrust institute presented its arguments regarding the U.S. antitrust review of the ¿71 billion ($102 billion) merger of SABMiller with Anheuser-Busch InBev (BUD) without taking a position that the beer merger should be blocked.
Risk arbitrageurs are more focused on the progress of the deal clearance in South Africa than the U.S., where a labor issue could become the deciding factor for when the merger closes.
The Department of Justice issued a second request regarding the deal in mid-January.
When the deal was announced the parties included the sale of SABMiller's MillerCoors JV interest to Molson Coors Brewing (TAP) to address competition issues in the U.S. where the companies would otherwise have a holding of U.S. beer sales in excess of 60%. Arguments from the craft brewing section of the market and wholesalers have surfaced in recent months complaining that other issues regarding distribution must also be addressed. The AAI argument to the DOJ takes a similar track. AAI raises concerns that MillerCoors makes different and independent decisions in the market and the loss of that independence with the divestiture to Molson Coors could increase the possibility of collusion.
The Antitrust watchdog also takes issues that the divestiture in the U.S. eliminates economies of scale, but the company would still be pressured to realize cost savings.
The distribution issue focuses on AB InBev's contracts that incentivize high-level distributors to limit the carrying of craft brewers to lower volume producers or those in limited distribution areas.
In sum, AAI suggest the DOJ ensure that a consent decree prevents the remaining two major players from control of input resources, such as can and bottle products, and agricultural products used in brewing. The letter urges the DOJ to prevent the companies from any further consolidation of brewing or distribution capacity and ensure an open distribution environment that would restrict the use of incentive programs that constrain the distribution of smaller brewers.
Arbs said the U.S. antitrust review is not a concern for the deal and the AAI, while often weighing in large deals has never been a major factor in the outcome of the completion reviews. InBev will do what it has to maintain a status quo in the U.S. market because that would be a small concession for the global deal, an arb said.
The competition review by the European Commission was recently extended to May 24 to consider concessions offered to sell various assets to Japan's Asahi Group Holdings of SABMiller's European premium brands Peroni, Grolsch and Meantime brands, which InBev said last week was finalized pending the closing of the larger merger. There is a reasonable expectation that the EC review could be completed in its first phase by the end of May.
The deal also requires approval in South Africa, which InBev entered an agreement with the government on April 14 that will be presented to the Competition Commission. InBev offered commitments including maintaining employment levels, an R1 billion commitment to agriculture in South Africa commitments to local production and inputs used in its production.
Last week, it was reported out of Johannesburg that that black South African workers with shares in an SABMiller unit want accelerated rights. InBev has proposed "economic empowerment deal" continue until it matures in 2020 by converting the shares into shares of the new company.
The matter could have an effect on the South African regulatory approval timeline , which arbs think will now be the final approval for the merger, with a close sometime between July and October.
The spread for the ¿44 deal Monday was ¿1.83, or 4.3%.