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Washington - The US Justice Department is poised to approve Anheuser-Busch InBev's [JSE:ANB] takeover of SABMiller [JSE:SAB] in an agreement that may include measures to keep the beer behemoth from edging craft brewers from shelves, according to people familiar with the matter.
US clearance of the $107bn combination is on track for later this month, according to three people familiar with the process. The accord could include limits on the combined company’s ownership of distributors, said one of the people.
US antitrust approval would bring the maker of Budweiser a step closer to completing the industry’s biggest merger ever and redraw control of the global beer market. The merged company will be followed by Heineken and Molson Coors Brewing in the No. 2 and No. 3 spots by market capitalisation. Following divestitures to win regulatory approvals, the deal will keep Budweiser, Beck’s and Stella Artois under AB InBev’s roof, while selling brands including Miller in the US and Peroni and Pilsner Urquell in Europe.
AB InBev rose 0.5% to close at €114.40 (R2 000), after rising as much as 1% earlier in Brussels. SABMiller shares gained 0.6% in London to £43.20 (R974).
Emerging markets
The merger plan, which the two companies reached in November 2015 as a way to gain access to emerging markets, has already won antitrust approval in more than a dozen jurisdictions, including the European Union.
On Tuesday, South Africa’s Competition Commission recommended the deal with conditions, including a sale of SABMiller’s stake in local drinks producer Distell Group. AB InBev is still seeking approval in China, where it has agreed to sell SABMiller’s stake in Snow Breweries to joint-venture partner China Resources Beer.
Aggressive approach
AB InBev took an aggressive approach in offering up asset sales to smooth approvals in an increasingly tough antitrust environment, said Andre Barlow, an antitrust lawyer at Doyle Barlow & Mazard in Washington who isn’t involved in the deal. Other proposed mergers have fallen apart in recent months after challenges by US antitrust officials, including Halliburton’s bid for Baker Hughes and Staples’ attempt to take over Office Depot.
"Right off the bat they came in with structural remedies and that speeds the process along," said Barlow. The Justice Department still should be concerned about protecting competition from craft brewers, he added, by requiring changes to AB InBev’s incentives to distributors.
In the US, AB InBev reimburses wholesalers for marketing expenses on a sliding scale based on the percentage of its brands that are distributed, with those who sell 95% or more of AB InBev brands getting the biggest payouts.
Those rewards effectively curb the sale of competing beers, according to the Brewers Association, which represents 2 800 craft brewers. That system was at the heart of concerns raised by small brewers who complained about the incentives and AB InBev’s ownership of wholesalers during a Senate hearing in December.
"If you want to grow your business as a craft brewer, if you want to get your beer into a chain store, if you want to get your beer into the stadium, you need to use the Anheuser-Busch distributor or the MillerCoors distributor," Bob Pease, the chief executive officer of the association, told lawmakers. "Those are the only two options in most markets that have the horsepower to effectively bring your beer to the retail market."
Spokespeople for the companies and the Justice Department declined to comment.
Change incentives
The Brewers Association has demanded the combined company divest its own wholesalers and change incentives to encourage the sale of competing beers. The smaller brewers don’t appear to be getting much traction in meetings with Justice Department officials about their complaints, said a fourth person familiar with the discussions.
In fact, most of the resources in the section reviewing the deal are dedicated to investigating the two pending mergers in the health-insurance industry - Anthem’s bid for Cigna and Aetna’s deal for Humana - another person said.
The merging companies offered early on to sell SABMiller’s stake in the MillerCoors joint venture to Molson Coors, ceding global control of Miller brands, to resolve any antitrust problems in the US. That makes it harder for the brewers to argue about competitive harm from the merger because AB InBev’s competitive position in the US will be essentially unchanged.
Teamsters’ complaints
The companies have also faced complaints from the International Brotherhood of Teamsters about the planned closure of a MillerCoors brewery in Eden, North Carolina, saying it would lead to higher prices.
AB InBev CEO Carlos Brito told lawmakers in December distribution won’t change as a result of the takeover. He committed to limiting the volume of beer distributed by wholly owned distributors to "around" 10% from between 7% and 8% currently.
Brito said there is no penalty for a wholesaler that carries non-AB InBev brands, adding that the incentive program had been revised to make wholesalers eligible “to receive benefits” regardless of how many competitive brands they carry. He also said there would be no termination of any distributor or renegotiation of contracts with distributors.
