We are increasingly aware of how mergers often cost consumers and the economy in less competition, higher prices and less choice. Fortunately, the Antitrust Division of the Justice Department (“DOJ”) has been more willing to go to court and block deals that will harm consumers. The DOJ should remind itself of the vital role of tough merger enforcement when it looks at the proposed merger between ABI and SABMiller.
A straightforward merger between the two would raise antitrust alarm bells that would awaken the dead. Together, the companies control over 70% of the U.S. market by volume and 65% of the market by sales value. Recognizing such a deal would be a nonstarter, ABI has suggested that any competitive concerns in the United States will disappear because MolsonCoors will acquire control of the MillerCoors joint venture. Of course, the DOJ has become increasingly skeptical of negotiated attempts to restructure a market to resolve competitive concerns for deal approval – recently rejecting a massive divestiture in Comcast/Time Warner — and as we explain below they should do the same in this deal unless there are substantive amendments.
There is a tremendous amount at stake in this merger. The increased size and scope of ABI on a global basis will likely have effects in the U.S. market. Molson Coors taking over the control of the MillerCoors portfolio may also result in significant changes in how the business operates today. Moreover, economic studies have shown a simple truth – increased beer consolidation leads to higher prices. The recent expansion of the high end U.S. craft beer market is remarkable in light of the 2007-2008 big brewer (ABI and MillerCoors) mergers thanks to a robust and independent distribution market which has facilitated the explosion of craft beer entry. But the craft beer segment is increasingly threatened by ABI’s acquisitions of independent craft brewers and increasing efforts to cut off distribution of competition brands within the ABI aligned distribution channels. Not only is ABI the largest U.S. brewer, it is also the largest U.S. distributor – currently controlling over 135 million cases with $3 billion in sales across distributorships in multiple states.