$104B beer merger faces fierce scrutiny

$104B beer merger faces fierce scrutiny

The principal players in a $104 billion beer mega-merger are prepared to take some lumps from Congress and give away major concessions to U.S. regulators in exchange for a sizable bounty: A shot at a third of the global suds-sipping market.

Anheuser-Busch InBev, or ABI, the world’s largest brewer, is making moves to buy the second-largest beer company, London-based SABMiller, which sells its products in the United States through a joint venture known as MillerCoors.

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ABI — famous for its Budweiser and Bud Light brands — holds 45 percent of the U.S. beer market, with MillerCoors tapping a 25 percent market share. 

In order to help smooth the deal with federal antitrust lawyers, SABMiller appears ready to sell off its U.S. business, which includes the brands Miller Lite, Coors Light and Blue Moon. In exchange, the combined company would get expanded access to emerging markets in Africa and China.

Success depends on convincing regulators — both in the U.S. and abroad — that the blockbuster deal won’t undermine competition at the expense of consumers. Despite the scope of the merger, industry insiders say the companies have a well-honed strategy.

In 2013, the brewer merged with Grupo Modelo, which makes Corona, but sold the company’s business in the American beer market to avoid competition issues. 

“ABI has been down this process before, and quite recently. The company and their lawyers have a pretty good read on the regulator’s view of the industry already,” said Darren Tucker, who leads the antitrust group at Morgan, Lewis & Bockius. “They’re not just going in cold, and that will help them here.”

Unlike in other very public combinations, such as Comcast’s recently thwarted bid to purchase Time Warner, ABI has not yet beefed up its team of lobbyists.

Though it already has a formidable roster of 15 firms on retainer, including powerhouses Peck Madigan Jones, Forbes-Tate, Akin Gump Strauss Hauer & Feld, Gephardt Group and the Hobbs Group, companies facing scrutiny from Capitol Hill often tack on more help.

One industry lobbyist said that not making any waves is a strategy for the company, which hopes to sail through the U.S. regulatory gauntlet.

The beer giant has its consultants “keeping their heads down for now,” said the lobbyist, who asked for anonymity in order to speak freely. “They think it will go through and expect a certain amount of black eyes from the Hill — easier to not fight and let the story die quickly.”

MillerCoors has three firms to lobby on its behalf, including Democratic public affairs firm Subject Matter and the GOP-dominated Fierce Government Affairs.

“You don’t hire lobbyists to influence [the Department of Justice] in a merger review. You hire antitrust lawyers,” said Tucker, who formerly worked on antitrust issues at the Federal Trade Commission. “If a lobbyist ever tried to meet with me [at the FTC], I probably would have laughed in his face.”

This is a deal, however, that has Washington heavily involved. A number of top antitrust firms contacted by The Hill, for instance, were unable to lend expertise on the record because they had client conflicts in some way.

Even though the proposed fix in the United States is relatively simple — SABMiller selling off its American portfolio — the devil could be in the details, some lawyers say.

The Justice Department has been aggressively vetting divestiture plans, they say. If any plan raises competition issues of its own, for example, it could be shot down.

“Because it affects so many consumers’ pocketbooks, there will be a lot of scrutiny of ABI’s proposed fix,” Tucker said.

In Congress, Sens. Mike LeeMichael (Mike) Shumway LeeGOP requests update on criminal referrals prompted by 2018 Kavanaugh probe McConnell warns Trump against withdrawing troops from Syria The American people deserve a debate about Ukrainian military aid MORE (R-Utah) and Amy KlobucharAmy Jean KlobucharKlobuchar takes shots at health and education plans supported by Sanders and Warren O'Rourke campaign says path to victory hinges on top 5 finishes in Iowa, Nevada O'Rourke raises .5 million in third quarter MORE (D-Minn.) have already announced a hearing to make sure that any new configuration among brewers would not hamper smaller operations from getting their products into the market. 

Lawmakers and some small breweries have concerns that the deal could have negative implications on distribution, ultimately making it harder for craft brewers to reach customers. But other executives at small breweries appear undaunted by the potential merger.

Belgian-based ABI says it has an “open line of communication” with the various players on the federal level.

“As we have said previously, we will work proactively with the relevant authorities to meet any concerns they may have and to bring all potential regulatory reviews to a timely and appropriate resolution,” a spokesman on behalf of ABI wrote in an email.

The beer behemoth is also betting that regulators all over the world will ultimately sign off on the takeover, which could take 12 months or more to complete.

As part of its initial proposal, the company has also included a $3 billion “reverse termination fee,” which means that ABI will pay SABMiller if the deal falls apart.

Together, the two companies control roughly 30 percent of the worldwide market for beer. 

ABI has a Wednesday deadline to come up with a formal offer to purchase its rival or request an extension from U.K. regulators.

The merger could face antitrust challenges in China and some countries in Latin America, and shareholders in South Africa are voicing concerns about how the merger could affect employment and the economy in Africa’s most industrialized nation.

“This is a complicated deal. They are going to have to make competition filings in potentially dozens of countries — even where there are not serious competition problems, and respond to a lot of information requests,” Tucker said. “Some of these agencies are not very fast. Even where there’s not a requirement of the divestitures, it can take a lot of time.”