Global Beer: The Road to Monopoly

Will the unthinkable happen?

A merger of the world’s top two beer companies into a gargantuan monopoly?

And if a megamerger does materialize between the two giant multinational companies – ABInBev – parent of Anheuser-Busch – and SABMiller Ltd. – parent of MillerCoors and MolsonCoors – will antitrust authorities allow it to happen?

Those are two questions posed by a report released last week by the American Antitrust Institute (AAI).

The report – Global Beer: The Road to Monopoly – was written by Bernard Ascher.

Ascher is an economist who retired from the Office of the U.S. Trade Representative after 42 years of government service. He’s now an AAI research fellow.

Right now, the U.S. beer market is a duopoly, with ABInBev and SABMiller together controlling 80 percent of the U.S. market.

Together they control about a third of the global market.

Is it possible that the unthinkable could happen – a merger of the world’s two top brewing companies into a global monopoly – or at least a virtual monopoly?

Ascher concludes that it’s “conceivable,” despite the fact that, as noted by a TV reporter in St. Louis, a combination of Anheuser-Busch InBev and SABMiller “would be like a merger of Catholics and Protestants.”

Ascher says that “rumors continue to fly about a potential deal and speculation has reached the stage where bankers and analysts are reported to have considered some possible divestitures that would have to be made to satisfy antitrust authorities.”

If this acquisition were to happen, how would U.S. antitrust authorities react? In response, Ascher poses more questions.

Ascher cites a Reuters report quoting a“the banker who worked for one of the big brewers” who believes that ABInBev (or SABMiller) would have to divest $13 billion of holdings “to get around antitrust issues in the U.S. and China.”

To satisfy U.S. authorities, the banker further concludes that this would involve a spin-off of MillerCoors, probably to MolsonCoors.

“Has the banker conferred with U.S. antitrust officials?” Ascher asks. “Why is there another assumption that Chinese officials will require some divestiture? Has the banker met with Chinese antitrust officials? There is more here than meets the eye.”

“These calculations suggest that there is a limit to the market share that U.S. antitrust officials permit for a single company,” Ascher says. “Presumably, the ‘banker’ believes that authorities can tolerate an 80 percent market share for a duopoly, but perhaps not for a single entity. Is there an implicit limit based on market share? Would this be a departure from the current DOJ-FTC merger guidelines? Could the contemplated transaction bring about ‘economic efficiencies’ that will meet requirements of the current guidelines – regardless of the level of industry concentration?”

While the duopoly and possible merger may be good for the beer companies, it’s bad for consumers.

“In the event of a big merger or acquisition, it is likely that the new giant brewer would not pass along any cost savings to consumers,” Ascher concludes.

“It is more likely that it would raise prices, especially when costs of ingredients rise. Consumers will face higher prices. Since the mergers of 2008, both ABInBev and SABMiller have benefitted from higher beer prices with revenues more than needed to cover increased costs of inputs. Increases in profits, dividend payouts, and the image of greater market power have rewarded the corporations with higher stock values. From a consumer standpoint, however, the transactions have resulted in no benefits, but rather in higher prices.”

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