The latest wave in the ever-changing and often turbulent waters of the beer industry is the potential merger of SABMiller with Anheuser-Busch InBev. This potential combination would create a brewery with nine of the world’s top 20 beers by volume, annual sales of $55 billion, and a combined market value of $276 billion. It would be the largest merger in the history of the beverage industry.
People that follow the beer industry should not be surprised by this news. First, there has been speculation of an Anheuser Busch InBev SABMiller combination for well over a year now. Second, the merger and acquisition activity in this space is escalating, as consolidation is becoming the norm and efficiencies and market share are up for grabs.
Over the last year or so, the merger and acquisition activity in the beer industry has reached its highest levels in history. According to Dealogic, the deal flow has topped $3.2 trillion on a global basis. Just last week, MillerCoors announced an acquisition of Saint Archer and Lagunitas sold a 50% share to Heineken, the world’s third-largest beer maker. Every transaction presents a unique set of circumstances, but when “big” acquires “small”, the parties usually only have to address fairly standard deal terms. On the other hand, when “big” acquires “big”, a set of regulatory issues arise that are simply not present in other transactions.
Given the size and the scope of the potential merger of Anheuser-Busch InBev and SABMiller, United States and international regulators will almost certainly play an active role in this transaction. On a United States federal level, a merger of this magnitude requires careful analysis under the Sherman Antitrust Act and the Clayton Act, drawing the attention of the Department of Justice and the Federal Trade Commission.
In these instances, regulators are concerned about a number of issues, namely: substantially lessening competition, increased and significant market share, unreasonable restraints of trade, anticompetitive advantages in the marketplace, and the improper exercise of market power.
At the end of their respective investigations, the DOJ and the FTC will draw independent conclusions on all of these competitiveness issues. My guess is these companies will be forced to divest certain assets for this deal to move towards a closing, something that is quite common in these types of transactions.
Another interesting facet of the potential Anheuser Busch InBev and SABMiller merger is the downstream impact on the independently owned distributors for both companies. The relationship between these two tiers of the three tier system is governed by state franchise laws, a statutory body of law highly protectionist of the distribution tier that is intended to hedge against monopolization in the market and provide independence between the manufacturing and distribution tiers.
When a merger of this scale occurs in a legally mandated three tier distribution context, monopolization and diminished independence become real risks. The trickle down effect of this merger will almost certainly be further consolidation, and in circumstances the elimination of market participants, within the distribution tier.
