With a $104.2 billion merger agreed to in principle, beer giants Anheuser-Busch InBev and SABMiller could be walking down the aisle soon, creating a company that provides nearly 70% of the beer sold in the U.S. While such a mega-merger might be beneficial to the companies as far as increasing market share and cutting costs, the deal could have some very real consequences for consumers – and other beer producers.
While we can’t know for sure just what the outcome of the proposed merger will be for consumers, AB InBev (ABI), SABMiller and the hundreds of other smaller brewers, antitrust experts provided Consumerist with a few plausible scenarios, none of which really benefit the consumer.
In fact, Diana Moss, president of the American Antitrust Institute, tells Consumerist that virtually no merger scenario between the two companies would benefit consumers. Instead, the deal spells higher prices, fewer choices, and a harder life for smaller craft brewers.
Because ABI and SABMiller control more than 400 brands of beer, it is almost a certainty that the companies will have to divest several products from their portfolios in order to receive regulatory approval.
The brand most likely to kneel at the chopping block is MillerCoors, a joint venture [JV] of SABMiller and Molson Coors responsible for some of the country’s biggest brands, including Miller, Coors, Blue Moon, and Leinenkugel’s.
SABMiller owns 58% of the MillerCoors business, with Molson Coors holding the remaining 42%. Numerous reports have SAB giving up its control of the JV, but to whom?
According to the The Street, Molson can buy 8% of SABMiller’s share of the partnership to immediately bring it to 50% ownership. The company then has first and last offer on SABMiller’s remaining 50%.
But the scenario, while it might make the most sense, is likely to face its own regulatory scrutiny, Moss tells Consumerist.
If Molson gained control of the entire JV, it would have a 26% stake of the beer market. When looked at with ABI’s 50% share after the SABMiller merger, concentration of the market would be “beyond acceptable levels.”
“Putting together a divestiture package that would fully restore competition lost by the merger would be a challenge,” she says. “There are few, if any, divestiture scenarios involving the MillerCoors JV that would not increase market concentration beyond acceptable levels and fully restore competition lost by the merger.”
If the MillerCoors brand were to go to a smaller brewer like Heineken or Crown, it would be less of a problem, but still far from an even playing field, Moss says.
Another possibility is that the MillerCoors brand breaks apart during the deal, with Coors going to Molson and Miller sold to smaller market participants.
But even then, Moss says the question would become: Why would ABI even want SABMiller if it can’t have the company’s largest brand?
She says the answer to that question lies within ABI’s actual motivation for the merger: to control more distribution centers.
While it’s true that ABI stands to increase its international foothold in 24 of the world’s 30 beer markets if the merger goes through, Moss says the domestic motivation is about how products get to consumers.
If the company were required to sell off the MillerCoors brand, it may be able to hold on to the SABMiller’s distribution network that helps many craft brewers get on retailer shelves.
“It’s not about the 70% market share of production,” Moss says. “They want the global market, but in the U.S. they want distribution. That is the pipeline to getting the consumer and a lot of craft brewers use the Miller distribution centers to get to shelves.”
It’s this motivation – to control the arm of the beer business that essentially provides consumers with choice – that worries Moss.
“A merged ABI-SABMiller would be a more powerful ‘gatekeeper’ of the critical distribution channels that craft brewers need to get their products onto retail shelves, jeopardizing the choice, variety, and innovation that consumers benefit from,” she says.
Therefore, any remedy talk would have to include a divestiture of distribution centers.
“We know that ABI has been engaging in distribution swaps, they have hassled smaller brewers,” Moss says. “We know how valuable distribution is to ABI and that is the key question.”
In recent years, ABI has purchased several beer distributors. The company confirmed earlier this month that it was in talks with federal and state regulators over allegations that its purchase of five distributors in New York, California and Colorado was a calculated move to shut the door on increasingly popular craft beers.
Sources close to that matter say the investigation, which is in early stages, was initiated after smaller brewers raised concerns that AB InBev’s purchase of distributors made it more difficult for them to distribute their brews, leading to stalling sales.
The possible merger between ABI and SABMiller only exacerbates these existing concerns.
“ABI’s attempts to swap distributorships in different states in order to consolidate and develop regional strongholds, and to play hardball with rivals over distribution should be a red flag for the potential adverse effects of the proposed merger,” Moss says.
Of course, all of our beer merger speculation could be for naught: ABI has until tomorrow to submit a formal merger proposal to SABMiller and regulators.
