Sightlines — How Craft brewers May Have Won with the AB-Inbev/SABMiller Global Merger

Michael Kiser

THE GIST
Last Wednesday the US Department of Justice gave the necessary approval for a $108 Billon merger between AB-InBev and SAB Miller to go ahead. This merger will create the largest beverage firm in existence — a company that, in their own words the multinational businesses are describing as “the worlds first truly global brewer.” But despite the seemingly negative ramifications this merger could have for the small, yet thriving craft beer industry, the DOJ ruling comes with a set of conditions that on the surface appear to be designed to protect this industry, and represent the biggest issues that the Brewers Association have been lobbying against for years. 

WHY IT MATTERS
When we covered this story on GBH last week we discussed how the Brewers Association took steps to try and block this ruling. In December 2015, BA President Bob Pease gave an address at a US congressional hearing as part of the association’s efforts towards this. In addition to this the President of the American Antitrust Institute, Diana Moss, sent an open letter to the DOJ asking the DOJ to implement restrictions on the transaction. 

While the BA might not have been successful in blocking the merger itself, the DOJ has implemented several restrictions that will see ABI’s wings clipped in the U.S.

1. For starters, as put eruditely by Jason Notte via Twitter, once the merger completes the new firm will need antitrust approval for every single new acquisition from the craft sector it attempts to make.

2. The new corporate entity will not be able to acquire a distributor if more than 10% of its annual volume is distributed through wholly-owned distributorships in the US, essentially putting a cap on their current distribution power.

3. In what’s also very good news for wholesalers, ABI will not be able to terminate any existing distribution agreements as a result of merging with SAB Miller.

4. Perhaps the best piece of news for craft brewers is that the Voluntary Anheuser-Busch Incentive for Performance Program (VAIP), which gave wholesalers significant financial perks if certain targets were met and preference was given to their brands over their competitors, will be terminated has part of the DOJ ruling.

It remains to be seen what the reconfiguration of MillerCoors ownership in the U.S. (a requirement of the DOJ ruling as well) will have for craft brewers. As owners of Tenth & Blake, a substantial craft portfolio in the U.S. as well as imports such as Pilsner Urquell, the diversifying of that ownership brings its own complexities. 

The combination of these rulings essentially hands craft beer an open distribution market that will be key to its continued growth, and a direct line of protest line with regulators for any future acquisitions that may threaten the health of the market. In the face of dealing with this soon to be formed brewing behemoth, the DOJ just dealt out a solid hand to craft brewers. It’s now up to them to make sure they use it to their advantage.

But the saga doesn’t end there. As highlighted by Jeff Alworth, there is still a chance that the merger might not go through due to Brexit. The UK’s decision to leave the EU (which itself may or may not happen) has caused the value of the pound to tank significantly and SAB Miller is a UK registered business. This means that from SAB Miller’s perspective the value of the deal has seen a significant decrease in value, which suddenly makes it a lot less appealing to the firms shareholders. 

— Matthew Curtis