Anticipated acquisition by InBev NV/SA of Anheuser-Busch Companies, Inc

Affected market: Supply of beer

No. ME/3826/08

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts regarding the parties, the transaction, jurisdiction, third party views, assessment and decision.

The OFT's decision on reference under section 33(1) given on 18 November 2008. Full text of decision published 12 December 2008.

Please note that square brackets indicate figures or text which have been deleted or replaced at the request of the parties for reasons of commercial confidentiality.

PARTIES

InBev NV/SA (InBev), headquartered in Belgium, was formed as a result of the merger in 2004 between the Belgian brewer Interbrew and the Brazilian brewer AmBev. InBev produces and/or distributes a number of beers in over 30 countries. In the UK, foremost among these are the well-known Stella Artois and Beck's brands of Belgian and German origin, respectively. Annex 1 to this decision contains a list of all the parties' beer brands supplied in the UK.

Anheuser-Busch Companies, Inc (Anheuser) is the leading U.S. brewer and owner of the well-known beer brand, Budweiser. Its 2007 worldwide turnover was £9,484 million, £[>100] million of which was generated in the UK.

TRANSACTION

InBev is proposing to acquire the entire issued and outstanding share capital of Anheuser for US$52 billion in cash.

JURISDICTION

As a result of this anticipated transaction, the enterprises InBev and Anheuser would cease to be distinct.

As Anheuser's turnover in the UK is in excess of £70 million, the turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is satisfied. The OFT therefore believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.

Besides the UK, the OFT understands that the proposed merger has received merger control clearance in the United States (subject to divestitures) as well as Germany, Brazil, Mexico, China (subject to commitments), Bosnia, and Serbia and Montenegro.

The transaction was notified to the OFT on 26 August 2008. The OFT's administrative target date by which to reach a decision in this case was 21 October 2008.

THIRD PARTY VIEWS

The majority of customers contacted by the OFT during the course of its investigation were not concerned about the merger.

However, some customers in Great Britain and Northern Ireland did express some concerns. Their concerns generally centred on a potential loss of negotiating power as a result of the proposed merger, particularly in relation to premium lager. However, all concerned customers could identify other, competing, premium lagers to which they could easily switch.

Some wholesalers expressed concerns to the OFT that they may lose wholesaling contracts as a result of the proposed merger. In these instances the OFT did not consider that the volumes involved were sufficient to foreclose competitors to the extent that they created substantial competition concerns.

One third party expressed a concern with regard to the loss of constraint posed on the price of Budweiser in Scotland by the Tennent's and Stella Artois lager brands. However, the OFT has considered, but rejected, the prospect that Scotland should be treated as a separate geographic market to the remainder of Great Britain.

No competitors were concerned about the proposed merger including the effects of the merger on entry barriers for future premium lagers.

ASSESSMENT

In the UK, the transaction transfers Anheuser's key premium lager brand, Budweiser (among others), to InBev's portfolio of premium lager brands, including the UK best-seller in this category, Stella Artois. Budweiser and InBev's Beck's brands are also the two top-selling premium lagers sold in bottled format in the UK on-trade of pubs, bars and restaurants.

As set out in greater detail above, the OFT adopted various candidate market definitions as screens for ruling our unilateral effects concerns, and as platforms for developing and testing several theories of harm that share in common the notion that the merger combines close brands in the eyes of consumers, raising prima facie concerns that a post-merger price increase by InBev would be profitable.

With respect to Great Britain, the OFT's focus (in both the off-trade and on-trade) was to a degree asymmetric, in that Stella Artois was a likelier candidate as a substantial constraint on Budweiser pricing in the UK than the other way around, reflecting their substantially different relative positions in the premium (and all) lager segment. In contrast, in respect of competition for 'fridge shelf space' in the on-trade, the focus was classically symmetric, because both Beck's (#2 with a [10-20] per cent of bottled premium lager sales in the on-trade) and Budweiser (#1 with [20-30] per cent) could prima facie be expected to be close substitutes to one another, based on share of sales data alone.

The overall general conclusion was that, while the parties brands do constrain one another, they are not sufficiently close given consumer preferences for purchasing a substantial range of premium (and other) lagers, and their willingness to switch to equally close or closer substitute brands to those of the parties: notable examples are Kronenbourg 1664, Heineken, Carlsberg Export, Grolsch, Peroni and Miller Genuine Draft, as well as brands with smaller penetration in the UK. Put differently, while Budweiser and Stella Artois may each have a set of loyal customers, the evidence showed that few would rank both brands as their top two choices, so they are not close competitors.

These end-consumer preferences permit both off- and on-trade customers in the UK to leverage switching, or threatened switching, to a substantial number of substitute brands sufficient to discipline InBev and deter post-merger price increases related to the merger. Even adding Corona on a 'worst-case' basis - by treating Anheuser's structural link with Corona's owners as if it were to transfer full control over Corona's UK pricing - did not change the overall conclusion, despite a combined [60-70] per cent share of on-trade supply of premium bottled lager in Great Britain.

The same general conclusion holds true for Northern Ireland, assuming it is a separate market - but if anything, unilateral effects concerns are even weaker, because Beck's is not materially present and various lighter-tasting (North or Latin American-style) lager brands (Miller Genuine Draught, Coors, Sol) are more obvious substitutes to Budweiser than in Great Britain due to their higher penetration.

With respect to other theories of harm, the OFT examined but dismissed the possibility that the merger is likely to create or strengthen coordination between a distribution 'duopoly' of Diageo and InBev in Northern Ireland post-merger. Key to dismissing concerns was the post-merger asymmetry between the two putative duopolists, the lack of obvious mechanisms for reaching and monitoring coordinated outcomes, and the potential for disruption by customers able to procure from other sources, for example, in Great Britain. In Great Britain, a small overall increment in lager (and asymmetries in premium lager, where the increment is more substantial), a lack of transparency in a complicated supply chain, and disruption potential by powerful buyers eliminated concerns. With respect to anti-competitive portfolio effects, tellingly, no alleged competitor victim of such a strategy raised concerns, and the evidence did not otherwise support such a theory.

Consequently, the OFT does not believe that it is or may be the case that the merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.

DECISION

This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.

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