World-wide footprint of the two brewers means any deal would face tough scrutiny
Anheuser-Busch InBev NV is attempting to forge a global brewing juggernaut by acquiring chief rival SABMiller PLC, but a proposed tie-up would face intense antitrust scrutiny and send shock waves far beyond beer.
Regulators likely would press for major concessions from AB InBev, particularly in the U.S. and China, to put the brakes on two brewers that together already produce nearly a third of the world’s beer and span hundreds of brands including Budweiser, Corona and Peroni. AB InBev and SABMiller had 20.8% and 9.7% world-wide market shares by volume last year, respectively, Euromonitor International estimates.
An intricate web of corporate alliances at AB InBev and SABMiller, including competing bottling operations for soda rivals Coca-Cola Co. and PepsiCo Inc., only heightens the complexity of negotiations. Also factoring into any potential deal: U.S. cigarette giant Altria Group Inc., which owns a 27% stake in SABMiller.
Because of the global reach of AB InBev and SABMiller, they will likely have to seek antitrust clearance from jurisdictions around the world, a process that could easily take a year, antitrust experts said.
“A lot of different enforcers are going to want to look at this. You could have some surprises here and there,” said Darren Tucker, an antitrust lawyer at Morgan Lewis & Bockius LLP.
In Latin America some divestitures could be required. SABMiller has a 95.1% market share in Peru, while AB InBev has 4.1%, according to Euromonitor. In Ecuador, SABMiller controls 92% of the market; AB InBev has 7.7%.
The biggest regulatory hurdle, though, is in the crucial U.S. market, where Belgium’s AB InBev already has a roughly 45% market share and U.K.-based SABMiller controls a further 25% through its MillerCoors LLC joint venture with Denver-based Molson Coors Brewing Co. AB InBev and MillerCoors also control the only two U.S. beer-distribution networks.
The likely outcome? AB InBev would have to sell SABMiller’s 58% stake in MillerCoors, whose brands include Coors Light and Miller Lite. It might have to settle for a discount because Molson Coors has the right to boost its stake to 50% and name MillerCoors’s chief executive if SABMiller is acquired. Molson Coors also has the right of first refusal for the remaining 50%, and the brewer’s share price surged more than 10% Wednesday in anticipation of a deal.
AB InBev already had to dramatically restructure its $20.1 billion acquisition of Mexican brewing giant Grupo Modelo SAB in 2013 after the U.S. Justice Department sued to block the deal. AB InBev eventually agreed to sell an additional $2.9 billion in assets to U.S.-based Constellation Brands Inc.
Another potential regulatory headache is China, where AB InBev had an estimated 14% volume market share last year, according to Euromonitor. Chinese authorities could require the brewer to exit SABMiller’s joint venture with China Resources Enterprise Ltd. , which has 23% of the market and produces the top-selling Snow brand.
While the companies’ combined market share in Europe would be lower than in the U.S. or China, antitrust experts don’t expect an easy ride in Brussels.
Margrethe Vestager, the European Union’s new antitrust chief, has repeatedly warned that mergers shouldn’t happen at the expense of consumers. Her agency filed formal charges against Google Inc. and Gazprom within a single week in April.
“The argument goes that we need to protect companies, to help them become bigger companies, otherwise they can’t take on international rivals,” Ms. Vestager said in March. “I’m not convinced about these arguments.”
Diana Moss, president of the American Antitrust Institute, a group that favors strong antitrust enforcement, said a merger would likely spell higher prices for U.S. consumers and could also make life harder for smaller craft brewers. Given the already-concentrated U.S. beer market, it would be hard to find a buyer for divested assets that would be able to fully restore competition lost by the merger, she added.
Carbonated soft drinks further complicate merger negotiations. AB InBev and its Brazilian unit AmBev have agreements to make and distribute drinks for PepsiCo across much of Latin America, including Brazil, Argentina, Uruguay, Bolivia and parts of Peru. SABMiller, meanwhile has bottling partnerships with Coca-Cola in 23 African markets as well as in El Salvador and Honduras.
Coke is believed to have contractual rights that would allow it to shift bottling to new partners if there is a change of control at SABMiller. SABMiller and Coke declined to comment, but SABMiller has disclosed in regulatory filings that a change of control at the company would give Coke “certain rights” under their bottling agreements.
AB InBev’s bottling agreements with PepsiCo are set to expire at the end of 2017. The agreements are automatically extended for another 10 years unless either company gives written notice at least two years before they expire.
Altria, the largest U.S. tobacco company, will also have a big say in any deal. The Marlboro maker was left with 27% of SABMiller after its predecessor company Philip Morris Cos. sold Miller Brewing Co. in 2002 to South African Breweries PLC for $3.6 billion in stock.
Altria declined to comment Wednesday on AB InBev’s approach to SABMiller.
Colombia’s Santo Domingo family owns 14% of SABMiller and also will play an important role in clinching any deal. SABMiller bought the family’s controlling stake in Grupo Empresarial Bavaria SA, South America’s second-largest beer producer, in a $5.6 billion cash-and-share deal in 2005.
Mike Esterl, The Wall Street Journal. Brent Kendall, Tom Fairless and Saabira Chaudhuri contributed to this article.