Anheuser-Busch InBev (NYSE:BUD) may have just received approval to make its biggest acquisition ever as the Justice Dept. signs off on its $107 billion merger with SABMiller (NASDAQOTH:SBMRY), but it's also likely made its last. Antitrust regulators have loaded their agreement with so many conditions that the world's biggest beer maker isn't likely to be able to buy a pint off another brewer in the future.
All your beer are belong to us
Under the terms of the agreement, Anheuser-Busch will sell the Miller brand to MillerCoors and shed Miller's stake in the joint venture with Molson Coors (NYSE:TAP). Together, the two brewers account for 70% of the beer sold in the U.S., and in some areas, it runs as high as 90%.
In a statement announcing its signing off on the deal, the Justice Dept. said, "The two largest U.S. brewers -- ABI and MillerCoors -- will now remain independent competitors after the deal." Perhaps it would be more appropriate to say the duopoly has been institutionalized.
In its bid to gain regulatory approval in other countries, though, Anheuser-Busch also agreed to shed other Miller brands and partnerships, including Peroni and Grolsch in Europe and CR Snow in China, the largest brewer in the country. While it was already willing to separate Miller's U.S. assets to get the antitrust agency on board here -- it sees Miller's business in Africa and Latin America as the real jewels of the portfolio -- the Justice Dept. added some stipulations that throw cold water on Anheuser-Busch's hot pursuit.
Right of first refusal
In particular, Anheuser-Busch InBev:
- Cannot buy another brewer, even a craft brewer, without prior approval of the Justice Dept.
- Cannot buy any distributors without prior approval.
- Must end its practice of incentivizing distributors to carry only its brands.
It's true, the craft beer market in the U.S. is slowing, and Boston Beer (NYSE:SAM), arguably the face of the industry, just reported that second-quarter and first-half 2016 depletions dropped 5% year over year as its flagship Samuel Adams brand continued to lose market share. Yet craft beer still remains one of the few growth segments in the overall beer industry, and Anheuser-Busch has been on a bender, buying up small brewers by the dozen.
Since 2011, AB InBev has acquired Goose Island Brewery, Blue Point Brewing, Elysian Brewing, Breckenridge Brewing, and seven others. It previously launched its own "crafty" Shock Top beer in 2006 as a response to MillerCoors' Blue Moon.
Because of the craft brewers' size, and the fact that there are now more than 4,600 craft breweries operating in the U.S., according to the Brewers Association industry trade group, the small acquisitions haven't registered on the antitrust scales before. With the agreement hammered out with the Justice Dept., though, that spending spree has just come to a halt.
Similarly, craft brewers have complained to the Justice Dept. that AB InBev was trying to drive them from package store shelves by both acquiring distributors and having them drop most craft beers from their routes, and also offering incentives to distributors worth as much as $1.5 million if they would virtually exclude all brands other than its own. The Justice Dept. put an end to both of these practices as well.
Better than nothing
The Brewers Association still thinks the merger is a bad idea for the beer industry and for consumers, but it says the stipulations inserted, coupled with "effective enforcement of the provisions," ought to ensure the craft beer industry is fully diluted by the mega brewer.
While the Justice Dept. said, "This settlement will prevent any increase in concentration in the U.S. beer industry," hinting that no further approvals will be granted, we all know that times change, and people change. When InBev bought Anheuser-Busch, Chinese regulatory authorities also inserted provisions (they were something similar to what the Justice Dept. said) that would have seemingly thwarted its attempt at acquiring Miller today. Yet by making divestitures, AB InBev got China's go-ahead to acquire Miller.
Some of the latest stipulations only enshrine law that already exists. For example, any acquisition of a big brewer would already need the Justice Dept. to sign off on the deal; that doesn't change. It's in the realm of craft beer where the biggest obstacles were placed, though again, it doesn't mean the regulatory agency won't sign off on a deal, it just says it has to approve it first.
Moreover, while the trade group essentially endorsed the stipulations, some craft brewers may not appreciate them. Because brewing beer, especially craft beer, is a labor of love and passion, those that have already been acquired by AB InBev undoubtedly appreciate the opportunity to have their beers made available to more people. It's not always evil when a mass brewer buys one of the small guys.
For the foreseeable future, anyway, there's not likely to be any further approvals of acquisitions by Anheuser-Busch, and beer lovers will at least be assured they'll continue to be able to find their favorite brands on store shelves.