AB InBev wins US approval for £71bn takeover

AB InBev’s £71 billion takeover of SABMiller has been approved by the US justice department on the condition that it divests all interests in MillerCoors and does not acquire further craft brewers without its consent.

Carlos Brito, CEO of AB InBev

The world’s two largest brewers agreed the £71 billion (US$100bn) merger in November, which stands to be one of the biggest takeovers in corporate history. The resulting beer giant is expected to be named Newco.

The Department of Justice’s (DOJ) approval of the deal is dependent on AB InBev divesting itself of all of SABMiller’s entire US interests, including its ownership of MillerCoors, the right to brew and sell certain SABMiller beers in the US and the worldwide Miller beer brand rights.

Should the deal have gone ahead without AB InBev divesting its US interests in MillerCoors, the company would have stood to gain a majority interest in MillerCoors, giving the newly formed company a 70% share of all beer sold in the US.

AB InBev has agreed to sell SABMiller’s US interests in MillerCoors to MolsonCoors in Canada for a reported $12billion, upon the merger’s successful completion – an agreement that was tentatively confirmed in November. 

The settlement also prohibits AB InBev from acquiring beer distributors or brewers – including craft brewer acquisitions – without “allowing for department review of the acquisition’s likely competitive effects.”

The conditions placed upon the brewer, the DOJ said, would “prevent any increase in concentration in the US beer industry” and enable the two largest US brewers, AB InBev and MillerCoors, to remain independent competitors.

“The settlement also preserves the ability of smaller brewers – including brewers of craft and import beers – to compete against ABI by protecting their access to important distribution networks”, the DOJ said in a statement.

While the US Brewers Association – which promotes the interest of small and independent brewers – has welcomed the safeguards put in place by the DOJ to preserve fair competition and access to market for America’s small and independent craft brewers, Bob Pease, president and CEO, reiterated its belief that a merger of the world’s two largest brewers would be “bad for both the beer industry and consumers”.

“The Brewers Association will closely examine the consent decree and compliance with its provisions, as well as monitor ABI’s actions, specifically with regard to the acquisition of independent craft brewers”, he said. “We remain concerned about how past, pending and future acquisitions may shift the dynamics of the current beer market.”

Winning approval in the US is only the latest hurdle to be cleared by AB InBev, which has already had to offload many of its brands, and SAB Millers, to appease competition laws in Europe, China and the US.

AB InBev’s Grolsch and Peroni have already been sold to Japanese brewer Asahi to ease competition concerns in the EU, while SABMiller’s Eastern European assets, including Pilsner Urquell, will also have to be sold. Those assets are up for sale with a price tag of around $5 billion.

AB InBev still needs to win approval from China before they can close the deal. The company has already agreed to sell SABMillers interests in Snow beer, which together with China Resources Enterprises, owns the Snow beer brand. Their stake in the brand is expected to be sold to China Resources Enterprise for $1.6bn.

Winning China’s approval could be the final hurdle for AB InBev to close the mega merger. It has already agreed to sell SABMiller’s interests in Snow for $1.6bn

In total, all of SABMiller’s assets sold in North America, Europe and China have a combined price of around $20 billion.

“As AB InBev’s total outlay was $106 billion for SAB Miller this means they have paid $86 billion for the positions in the growth markets of Africa and Central and South America”, said John Colley, professor of practice in the strategy and international business group at Warwick Business School.

“The extent of divestments to gain competition clearance has come as a shock to AB InBev. This is starting to look like a very expensive purchase indeed and AB InBev may well struggle to justify it.”

AB InBev now expects the merger to be completed in the second half of 2016.

“With today’s agreement, we have taken a significant step forward on the transaction, which will create the world’s first truly global brewer,” said Carlos Brito, CEO of AB InBev. “Our combination with SABMiller will bring more choice to more beer drinkers—and extend the global reach of our iconic American brands, such as Budweiser—in markets outside of the US.”