Tuesday, November 18, 2008

Brewers Proceed with Combination After Receiving Regulatory Clearance

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter, and John W. Arden.

Belgium-based InBev N.V./S.A—the second-largest brewer in the world—announced on November 18 that it completed its acquisition of the Anheuser-Busch Companies Inc.—the largest brewer in the United States—creating the “global leader in beer and one of the world’s top five consumer products companies.”

The company, which changed its name to Anheuser-Busch InBev, manages a portfolio of more than 200 brands, including Budweiser, Stella Artois, and Beck’s.

InBev said that it had received all regulatory clearances required to be obtained in order to proceed with completion of the deal. These included approvals from the U.S. Department of Justice, the U.K. Office of Fair Trading, and the China Ministry of Commerce.

DOJ Approval with Divestiture

In order to obtain U.S. antitrust approval of the $52 billion acquisition, InBev agreed to divest subsidiary Labatt USA, along with a license to brew, market, promote, and sell Labatt brand beer for consumption in the United States.

The Justice Department filed a complaint and proposed consent decree in the federal district court in Washington, D.C. on November 14. In its complaint, the government alleged that the transaction, as originally proposed, likely would have led to higher prices for beer in the Buffalo, Rochester, and Syracuse, New York, metropolitan areas. The divestitures, required by the proposed consent decree, would remedy the alleged harm.

According to the complaint, Anheuser-Busch’s Budweiser brands—including Budweiser and Bud Light—and InBev’s Labatt brands—including Labatt Blue and Labatt Blue Light—are the two biggest selling beer brand families in Buffalo, Rochester, and Syracuse. The original transaction would have eliminated competition between Labatt USA and Anheuser-Busch and resulted in higher prices to beer drinkers in those metropolitan areas.

In the large majority of U.S. markets, InBev accounts for less than two percent of beer sales and engages in very little competition with Anheuser-Busch, according to the Justice Department.

A press release, a complaint, and a proposed consent decree in U.S. v. InBev N.V./ S.A., Case: 1:08-cv-01965, appear at the Justice Dpartment Antitrust Division website. Further details will appear in CCH Trade Regulation Reporter.

U.K. Clearance

On November 18, the United Kingdom’s Office of Fair Trading (OFT) cleared the combination. The OFT was concerned about the acquisition because it “adds one significant premium lager brand, Budweiser, to InBev’s portfolio, already the U.K.’s leading premium lager supplier based on Stella Artois and Beck’s (and second largest in overall lager sales).” Estimated market shares of the combination ranged from 25 percent to over 50 percent in various market segments.

Upon closer examination, the OFT had no concerns regarding the “off-trade” market (retail sales), despite InBev’s 40 percent share of premium lager sales. Evidence suggested that it would not be profitable to raise retail prices of any of the InBev or Budweiser brands. Retail chains could switch to competing premium lagers that would “keep InBev’s pricing in check post-merger.”

Focusing on the “on-trade” market (bars and restaurants), the OFT found that InBev would account for more than 50 percent of premium lager sales, with Stella Artois being the leading premium draught lager, Budweiser being the being the leading premium bottled larger, and Beck's being the second most popular bottled lager.

However, the OFT found that “only a fraction of on-trade sales of premium lager are in bottles.” It concluded that bottled Budweiser could not act as a significant pricing constraint on draught Stella Artois, which competes with other premium and standard draught beers.

The agency also dismissed concerns that the merger could eliminate competition for “fridge shelf space” between Budweiser and Beck’s because the two were not close substitutes.

A press release on the clearance appears at the Office of Fair Trading website.

China’s Approval with Restrictions

China’s Ministry of Commerce on November 18 announced its approval of the combination, but placed restrictions on Anheuser-Busch InBev’s investments in China.

The company will not be allowed to increase the 27% stake in Tsingtao Brewery Co. held by Anheuser-Busch or InBev’s 28.56% stake in Zhujiang Brewery.

The company will be barred from purchasing a share of Beijing Yanjing Brewery Co. and China Resources Snow Breweries, which produces Snow Beer and required to report any change in the structure of the new company’s controlling shareholders.

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