Sightlines — $108 Billion Merger of AB-InBev and SABMiller Sanctioned by DOJ

Michael Kiser

THE GIST
The US Department of Justice yesterday approved of the merger between global beer giants AB-InBev and SAB Miller. This was the last hurdle standing in the way of the deal, thought to be worth around $108 Billion, which is expected to close in the second half of 2016. The approval comes with a number of strict conditions from the DOJ, which appear to be designed to protect smaller brewers. 

WHY IT MATTERS
This merger was coming. While previous attempts had failed, we all felt like this one was oddly inevitable from the moment the first rumors began to circulate. At the state of the industry address at this year's Craft Brewers Conference in Philadelphia, Brewers Association President, Bob Pease, stood in front of the members present and told them that he would “march on Capitol Hill” to prevent this merger. In December Pease gave an address to the US senate on the negative ramifications that the craft brewing industry would face if this deal went through. But even then you might suspect that deep down he knew that the merger was going to happen. Pease released this statement on approval after yesterday's DOJ ruling. 

The fallout from this deal will be wide reaching, and the U.S. market is only one piece of it. It will take time before we begin to see its effects on the industry overall, and there are hundreds of deals to unravel as the process takes hold. Importantly, the DOJ has implemented strict, non-competition guidelines to prevent any damage being done to the craft beer marketplace — specifically with an eye towards distribution. Crucially, the ruling states that the new company will not be allowed to acquire a distributor if it will result in more than 10% of its annual volume being distributed through wholly-owned distributorships in the U.S., which may be a chip worth obtaining in the deal for craft brewers looking for access to market that's increasingly under threat. Because let's be honest, this deal doesn't change that fact that 1 in 5 beers sold in the U.S. is still a Bud Light. So if craft brewers get distribution protections out of the deal, it may satisfy more pressing concerns. While the aim of this legislation is to protect the taps and shelves occupied by smaller brewers —that 10% output rule of a newly merged AB-InBev SAB Miller is still an astronomical amount of beer.  

Flatly, what this deal means is that the newly formed company will control a third of the global beer marketplace. However this deal also creates fragmentation, and possibly opportunity for others. In Europe, Miller are being forced to sell off all of their assets. Peroni, Grolsch and Meantime have already been snapped up by Asahi in Japan. Another key Miller asset, Pilsner Urquell, one of the few big lager brands currently experiencing year on year growth, are also up for grabs, but only as part of a deal that includes 9 other Eastern European breweries. 

In the US this means that Coors will suddenly become a lot smaller after their relationship with Miller comes to a close. This will see a significant impact to the Colorado brewing giant’s revenues and strategic options, and it will be fascinating to see how they react. 

— Matthew Curtis