TAPA Molson Coors Brewing Company

AB InBev's $108 billion takeover of SABMiller gets U.S. approval, but with conditions

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 21, 2016 02:48 ET (06:48 GMT)

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