MegaBrew receives regulatory approval with conditions
Finally, on 20 July 2016, AB-InBev received US antitrust approval to merge with SABMiller. The approval by the Department of Justice (DOJ) was seen as a major obstacle towards the eventual merger, expected to be completed later this year.
Commentators say that the antitrust enforcers, who have blocked several major US acquisitions lately, showed leniency and took limited action against AB-InBev.
As was expected, the DOJ settlement requires AB-InBev to divest SABMiller’s entire US business – its stake in MillerCoors – to Molson Coors.
But the DOJ also insisted on several caps to maintain competition in the US beer market and protect wholesalers as well as craft brewers.
For one, The DOJ put restrictions on AB-InBev’s ability to buy craft brewers and wholesalers. The DOJ got AB-InBev to agree that regulators will review any such acquisitions in the future. Normally, many of those transactions wouldn’t be big enough to qualify for such scrutiny.
AB-InBev also pledged to distribute no more than 10 percent of its annual US volume through wholly owned distributors. Currently, AB-InBev-owned distributors handle about 9 percent of the company's beer, it was reported.
For another, the DOJ limited AB-InBev from creating incentive programmes, that encourage independent distributors to sell and promote their beers over rivals’. Furthermore, the DOJ agreement blocked AB-InBev from asking distributors to share sales information on rivals in an attempt to rein in open book practices.
The agreement between the DOJ and AB-InBev will run for ten years.
Expectedly, the benign settlement disappointed the Teamsters, a union, which had been pressing the DOJ for restrictions on the merger. The union’s objections to the merger had focused on MillerCoors’ September 2015 announcement that it would close its brewery in Eden, North Carolina, which the union said indicated AB-InBev and MillerCoors might have been illegally coordinating their business operations prior to antitrust approval.
The union argued that MillerCoors simply cannot absorb Eden’s total production (over 8 million hl in 2014) at its other facilities. The Eden brewery manufactured not only MillerCoors brands but was also a major contract brewer for Pabst.
Media reported that in a lawsuit filed against MillerCoors, Pabst alleged that around the same time the Eden closure was announced, MillerCoors told Pabst they would no longer have the capacity to brew Pabst products and that their manufacturing contract would end without renewal unless Pabst paid nearly three times as much per barrel of beer. Pabst was the second-biggest brand by barrels produced at Eden last year behind Miller Lite, media say.
Craft brewers were unhappy with the settlement too. They pointed out that AB-InBev’s size has already allowed them to sell the craft beers they acquired at a lower price than some craft competitors because AB-InBev can negotiate better prices for hops, barley and other raw materials.
The Brewers Association, however, did not issue a damning verdict on the settlement. “While we continue to believe that the merger of the world’s two largest brewers is bad for both the beer industry and consumers, the DOJ’s significant requirements, including the termination of incentive programs such as the Voluntary Anheuser Busch Incentive for Performance Program (VAIP), a cap on ABI’s self-distribution volume and other measures to protect distributor independence, appear to address some of our major apprehensions with the merger,” said Bob Pease, President and CEO of the Brewers Association in a statement.
“With effective enforcement of these provisions, small brewers can rely on their independent distributor partners to access the market. This will help ensure that beer enthusiasts can continue to enjoy a vast variety of options from the more than 4,600 breweries in the US.”
