MillerCoors likely to be spun off in SABMiller-AB InBev deal

MillerCoors Milwaukee brewery
The MillerCoors brewery in Milwaukee.

SABMiller and AB InBev have come to an agreement in principal that the companies will merge. But the MillerCoors brewing operations in Milwaukee likely will not be part of that deal because of antitrust regulations in the U.S.

MillerCoors Milwaukee brewery
The MillerCoors brewery in Milwaukee.

London-based SABMiller and Belgium-based AB InBev would have a majority of the market share in the U.S. with the combination, a situation the U.S. Federal Trade Commission would not approve, said Philip Gorham, a Morningstar analyst who covers the industry.

“I cannot see how the FTC would allow the combination of SAB’s stake in MillerCoors and AB InBev, as this would lead to a combined market share of almost 60 percent,” said Philip Gorham, a senior equity analyst at Morningstar Inc. who covers SABMiller. “As a result, it is almost certain that SAB’s U.S. business will be sold, most likely to (Molson Coors Brewing Co.), and that the cash raised will be put towards financing the deal.”

Scott Hansen, an attorney focusing on antitrust law for Reinhart Boerner Van Deuren s.c. in Milwaukee, said the market share of the combined companies could be closer to 70 percent.

“There are two areas of antitrust concern: one is China and one is the U.S. In the U.S., the company will have at least 70 percent market share. Given that there’s nobody even near close to that, it’s likely that the U.S. regulators will ask for a divestiture of one of the brands,” Hansen said.

The joint venture between SABMiller and Denver-based Molson Coors that formed Chicago-based MillerCoors in 2008 is likely the brand that would be sold off. SABMiller currently has 58 percent ownership in the joint venture, and Molson Coors has a 42 percent stake. It’s likely SABMiller would sell its stake to Molson Coors, giving that independent company sole ownership of MillerCoors, he said.

“The most likely scenario in the U.S. is that Molson Coors ends up owning MillerCoors,” Hansen said. “MolsonCoors has an option to buy out the 58 percent interest if the ownership of SABMiller changes.”

Alternatively, SABMiller could put its interest in the joint venture up for bid and a higher bidder could come along, Hansen said. Victor, N.Y.-based Constellation Brands Inc. has been acquiring beer labels and could potentially bid on the stake.

A spokesman for SABMiller reached in London told BizTimes it is too soon to discuss speculative scenarios about how the acquisition might be completed in the U.S.

In China, a similar antitrust process will occur, since SABMiller has a 49 percent stake in the largest brewer in that country, Hansen said.

The deal is likely to take another year to complete, since AB InBev must still make a formal offer and the brewers must surpass antitrust hurdles in both China and the U.S., Gorham said. The integration of the two companies could take two to three years.

There’s a large breakup fee estimated at around $3 billion that would be incurred if the deal falls through, which indicates the two brewers are determined to complete the sale, Hansen said.

“It tells you that they’re very serious about closing the deal and that they strongly believe they can do so in one way or another,” he said.

And since the companies know they’ll have to divest brands in the U.S. and China to get past regulators, it indicates the strategy behind the acquisition, Hansen said.

“They’re interested in SABMiller primarily because of the strength of the SABMiller brands in Latin America and Africa,” he said. “They’re not going to get Miller in the U.S. It’s just not going to happen.”

The divestiture of MillerCoors is not likely to have a major impact on operations in Milwaukee, where the company has been brewing a large portion of its beer, Hansen said.

“The scenario I think is most likely is that Molson Coors goes from a 42 percent owner to a 100 percent owner,” he said. “Since they’re already a part owner, my guess is that they’re not likely to change how the business operates—at least not very dramatically.”

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Molly Dill, former BizTimes Milwaukee managing editor.

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