By Tripp Mickle and Brent Kendall
The U.S. Justice Department on Wednesday signed off on
Anheuser-Busch InBev NV's acquisition of rival SABMiller PLC,
removing one of the last major hurdles standing in the way of a
roughly $108 billion deal to create a global beer giant.
The antitrust enforcers, who have blocked several major U.S.
acquisitions lately, took limited action against AB InBev.
They put restrictions on the beer giant's ability to pursue the
fastest-growing part of the U.S. beer market by getting AB InBev to
agree to let antitrust enforcers review any future craft beer and
distributor acquisitions. Normally, many of those transactions
wouldn't be big enough to qualify for such scrutiny.
The Justice Department agreement with AB InBev also limits the
Belgian-based brewer from creating incentive programs that
encourage independent distributors to sell and promote its beers
over rivals. It means AB InBev will have to abandon a new plan that
would financially reward U.S. distributors for focusing on brands
like Budweiser and Stella Artois.
AB InBev Chief Executive Carlos Brito said in a statement
Wednesday that the company would continue "to invest heavily in the
U.S."
AB InBev had agreed to sell SABMiller's U.S. business to Molson
Coors Brewing Co. in a pre-emptive move to win antitrust approval.
That $12 billion sale of SABMiller's 58% interest in MillerCoors
and U.S. rights to brands like Peroni means AB InBev's 45% share of
the U.S. market won't change.
Now, AB InBev faces only one more regulatory hurdle -- China --
and market analysts expect to approve the deal in the coming
months.
The deal then requires shareholder approval. That could prove
trickier than initially expected now that the United Kingdom's vote
to exit the European Union has sent the pound plunging.
SABMiller's board on Wednesday was expected to discuss the
possibility of seeking new terms from AB InBev, according to a
person familiar with the matter.
When the deal was struck in November, AB InBev agreed to pay
GBP44 a share for a majority of SABMiller. For 41.6% of SABMiller's
stock, AB InBev created a partial-share alternative, essentially a
combination of cash and unlisted stock, that translated into a
lower per-share price of GBP41.85.
However, because AB InBev's stock trades in euros -- a currency
that has risen 8.4% over the past month against the pound -- those
shares have become more valuable.
As of July 18, the partial-share alternative was worth about
GBP49.63, or 13% more than the cash offer, according to Stifel
Nicolaus & Co. The difference between the all-cash and
partial-share offers increases the likelihood that certain
shareholders might call on AB InBev to sweeten the cash offer.
It is far from guaranteed that SABMiller would seek better terms
for a deal that already has been signed -- or that AB InBev would
agree to raise its offer. The company expects to close its takeover
of SABMiller in the second half of the year.
The deal is critical to AB InBev's growth. Buying SABMiller
allows AB InBev to reduce its reliance on the U.S., where it has
had trouble getting younger people to drink more Bud, and gives it
access to the growing African market, which is expected to drive
beer-industry sales.
The agreement with the Justice Department will likely put a
crimp in AB InBev's growth path in the U.S., which accounts for 32%
of sales now and will remain its largest market even after the
pending SABMiller transaction. Fast-growing craft and Mexican beers
have cut its market share to 45% from 49% in 2008.
AB InBev last year tried to strike back at competitors in both
arenas by introducing an incentive program that would reward its
500-plus U.S. distributors for focusing on selling the company's
products over beers like Yuengling Traditional Lager or Mirror Pond
Pale Ale.
In December, beer industry representatives called on the Justice
Department to modify that program, saying it would lead
distributors to focus exclusively on one brewer's brands.
The Justice Department's agreement blocks AB InBev from not only
rewarding distributors but also prohibits it from forcing them to
share sales information on rivals and requiring they offer the same
sales incentives on AB InBev brands as competing brews.
It also went a step further, requiring AB InBev to seek approval
of future craft beer acquisitions for the next 10 years. AB InBev
has cut deals with eight craft brewers since 2011, including Goose
Island, 10 Barrel and Golden Road.
Craft brewers say AB InBev's size has allowed it to make and
sell the craft beers it acquires at a lower price than some craft
competitors because it can negotiate better prices for hops, barley
and other raw materials. AB InBev declined to comment.
"It's encouraging that they'll be evaluating it and what impact
it will have on competition out there," said Michael LaLonde,
president of Deschutes Brewery in Bend, Ore.
The Justice Department was less harsh with AB InBev than when it
reviewed its proposed 2012 acquisition of Mexican brewing giant
Grupo Modelo. Regulators forced AB InBev to restructure the $20.1
billion deal and permanently sell U.S. rights to brands like Corona
and Modelo Especial to Constellation Brands Inc., which has become
a fierce competitor.
The Justice Department earlier this year stopped oil-services
giant Halliburton Co. from acquiring rival Baker Hughes Inc. and is
preparing lawsuits challenging two major health insurance deals:
Anthem Inc.'s planned acquisition of Cigna Corp. and Aetna Inc.'s
deal for Humana Inc. The Federal Trade Commission, which shares
antitrust authority, recently won a case blocking the combination
of office superstore rivals Staples Inc. and Office Depot Inc.
Write to Tripp Mickle at Tripp.Mickle@wsj.com and Brent Kendall
at brent.kendall@wsj.com
(END) Dow Jones Newswires
July 20, 2016 19:52 ET (23:52 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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