Almost everything about the potential merger of Anheuser-Busch InBev (BUD) and SABMiller, the world's two largest brewers, would be enormous, including the regulatory risks.
Combining the two companies would create a $245 billion global company. AB InBev, which is based in Belgium, is the corporate parent of 200 beer brands including Budweiser, Stella Artois and Corona. London-based SAB owns 150 brands including Miller Genuine Draft, Pilsner Urquell and Peroni Nastro Azzurro. Both companies have confirmed that buyout overtures have been made.
According to antitrust law experts, U.S. regulators likely would reject the deal without major divestitures because the merged company would control about 30 percent of the world's beer market. Its share of the U.S. market be about 75 percent. The companies also would have to address concerns about the deal's potential impact on the craft brewing sector, where growth has outpaced that of the major brewers.
"Seventy-five percent is way, way above any threshold that the DOJ (Department of Justice) would use," said George Hay, a professor at Cornell Law School, in an interview with CBS MoneyWatch. "The parties obviously know that, and I'm assuming that what they plan to do is not acquire the U.S. assets (of SABMiller) or acquire them and spin them off to another company. Alternatively, they would have to propose to spin off a very large number of the brands to somebody else."
AB InBev and SABMiller will also have to assure regulators that their deal wouldn't lead to higher prices. Before giving any approval, regulators might demand that SAB unload its 58 percent stake in MillerCoors, home to Coors Light, Miller Lite and Redd's Apple Ale, and that AB InBev sell its 49 percent stake in CR Snow, China's largest brewery, according to a note issued to clients today by Bernstein analyst Trevor Stirling. He rates AB InBev and SAB as "market-perform."
"As we have often written, we are not surprised that ABI would be interested in buying SAB to create MegaBrew," he wrote. "And we believe it highly likely that there have been various approaches over the course of the last decade. Furthermore, given that SAB's share price has been so weak in the last 12 months, it makes a deal much more affordable. However, the offer has still taken us by surprise."
Shares of Molson Coors (TAP) soared 14 percent today amid expectations that it would buy out SAB's stake in MillerCoors, a U.S. joint venture between Molson Coors and SABMiller. Beijing-based CRE would be the likely buyer of AB InBev's post-merger interest.
However, those aren't all of this deal's complications.
"There are 150 countries around the world that have merger laws and can claim jurisdiction if they want to," Cornell's Hay said. "Even if they plan to not acquire the U.S. assets or acquire them and immediately spin them off, they still have a problem with the rest of the world."
As for craft brewers, the association that represents the sector has many questions that it wants answered about the potential merger, according to Paul Gatza, director of the Brewers Association. "(O)ne of the first things I think about is what will the impact be to the distribution network," he wrote in a blog post on the association's site.
"Will brands change distributor houses or not? ... There have been an increasing number of craft brewer transactions inside and outside of craft lately. To what degree will this giant merger and other deals, some of which may impact beer drinkers' relationships to specific brewers, impact perceptions of beer to where it becomes less of an item of personal passion or more of an item of personal passion? Will future transactions in and from the craft space hurt the brand of craft? Time will tell all."