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InBev-SABMiller said near US nod for mega beer merger

Thursday, June 2, 2016 - 10:02
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The US Justice Department is poised to approve Anheuser-Busch InBev NV's takeover of SABMiller Plc 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.

[WASHINGTON] The US Justice Department is poised to approve Anheuser-Busch InBev NV's takeover of SABMiller Plc 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 US$107 billion 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 NV and Molson Coors Brewing Co. in the No. 2 and No. 3 spots by market capitalization. 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 per cent to close at 114.40 euros, after rising as much as 1 per cent earlier in Brussels. SABMiller shares gained 0.6 per cent in London to £43.20.

The merger, 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 Ltd.

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 (Holdings) Co.

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 PLLC 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 Co's bid for Baker Hughes Inc and Staples Inc's attempt to take over Office Depot Inc.

"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 per centage of its brands that are distributed, with those who sell 95 per cent 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." Spokesmen for the companies and the Justice Department declined to comment.

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 Inc's bid for Cigna Corp and Aetna Inc's deal for Humana Inc - 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.

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 chief executive officer 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 per cent from between 7 per cent and 8 per cent currently.

Mr 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.

BLOOMBERG