WASHINGTON -- No. 2 U.S. beermaker SABMiller's move to combine American operations with No. 3 Molson Coors will likely be approved even though it will increase market concentration, antitrust experts said.
According to a Reuters report, the approval may be a reflection of how much easier it has become for companies to merge under the Bush administration, antitrust lawyers said.
"I would frankly expect that they will [get approval], in part because it's the Department of Justice," said Ben Sharp of Perkins Coie LLP, reflecting a view among some experts that the department challenges [image-nocss] few mergers. "I doubt very much that it would have got approval under the Clinton administration," he added.Michael Keeley of Axinn, Veltrop & Harkrider, LLP agreed: "I'd be stunned if they did anything to stop this deal."
Anheuser-Busch, which brews Budweiser, Busch and Michelob, is the longtime U.S. market leader with just under half of all U.S. beer sales. Miller holds 18.7% of the market and Coors 11%, according to Reuters, citing Michael Scherer of Harvard's Kennedy School of Government.
The rest of the market is shared by imports and microbrewed beers.
The proposed merger would give Anheuser-Busch and the new MillerCoors joint venture control over nearly 80% of the U.S. beer market.
According to the Herfindahl-Hirschman Index used by antitrust experts, the U.S. beer market is already concentrated and the joint venture would push the index up by more than 300 points. Deals that raise the index by more than 100 points in concentrated markets "presumptively raise antitrust concerns," according to the Justice Department's merger guidelines.
"This is one that clearly violates the anti-merger guidelines," said Scherer, who follows the beer industry. "So it seems to me that the government should take a hard look at it."
The joint venture, announced in October, would have annual sales of $6.6 billion. Ownership would be split with each company holding a 50% voting interest, but the larger SABMiller would take a 58% economic interest compared to Molson Coors' 42%.
The deal could hurt Pabst Brewing Co, which has 3.38% of the U.S. beer market, since Miller brews most of Pabst's beer and could opt to shut down that plant, said Scherer. "This could put them in a very squeezed position," he said.
Despite a second request for information from the U.S. Justice Department, both companies say they expect to win approval and close the deal by mid-2008.
Miller and Coors have argued that the deal will be good for the average American beer drinker since it will lead to some $500 million in savings, mostly in administrative costs. But some antitrust experts were skeptical. "The claimed efficiencies at transaction are seldom achieved," said Sharp.
And Miller and Coors may use their combined clout with wholesalers to squeeze competitors, meaning that some smaller brewers could lose their distributors. Anheuser-Busch's wholesalers handle only their beers in most markets, except for a the occasional import. Miller and Coors sometimes share wholesalers.
"It is virtually certain that Miller and Coors will take some of the wholesalers that they had separately and drop one of them," Scherer told Reuters. "If the wholesaler just shuts down, then you have a lessening of competition at the wholesale stage."
It also means that smaller brewers, which depend on a wholesaler dropped by MillerCoors, could lose access to their market.
Scherer argued that the money saved by the MillerCoors joint venture would not lead to lower bar bills. "If there's no increase [in price], it means that Joe Shareholder gets higher dividends because Miller and Coors have reduced their costs," he said. "For Joe Sixpack, my first impression is that it may not have much impact on price," he said.
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