Newsroom

OFT clears Stella Artois/Budweiser merger deal

134/08    18 November 2008

The OFT has today cleared the acquisition of the leading US beer company, Anheuser-Busch Companies Inc (Anheuser), by global brewer InBev N.V./S.A. (InBev) of Belgium.

The transaction, worth $52 billion, is the largest ever all - cash acquisition in corporate history, and will consolidate InBev's position as one of the leading brewers in the UK as well as globally.

Anheuser's EU-wide sales of its Budweiser brand are heavily concentrated in the UK, where it is the top-selling premium bottled lager in pubs, bars and restaurants (known as the 'on-trade' channel). Significant volumes are also bought by UK consumers from supermarkets and other retail outlets (the 'off-trade' channel).

The transaction therefore adds one significant premium lager brand, Budweiser, to InBev's portfolio, already the UK's leading premium lager supplier based on Stella Artois and Beck's (and second-largest in overall lager sales). On various market segmentations, post-merger shares ranged from a low of around 25 per cent to a high of over 50 per cent, leading to intensive OFT scrutiny.

On closer analysis, the OFT had no concerns regarding the off-trade channel, despite InBev's 40 per cent or more of premium lager sales. The OFT reviewed compelling evidence, including existing Anheuser surveys on the preferences of UK buyers of Budweiser, to suggest that it would not be profitable to raise off-trade prices of any of the parties' brands. 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. Instead the evidence suggests that retail chains, who were not concerned by the merger, could easily attract sales by switching to competing premium lagers such as Kronenbourg 1664, Carlsberg Export, Heineken, Grolsch, Peroni and Miller Genuine Draft, which would keep InBev's pricing in check post-merger.

The OFT's preliminary concerns therefore focused on the on-trade channel, where InBev would account for over 50 per cent of premium lager sales. Stella Artois is the leading premium draught lager, while Budweiser is the leading premium bottled lager, with Beck's as number two in bottle sales. However, only a fraction of on-trade sales of premium lager are in bottles, and the OFT concluded that bottled Budweiser does not act as a significant pricing constraint on draught Stella Artois, whose primary competitors are other premium and standard draught beers sold in large volumes.

The OFT then probed concerns that the merger could eliminate competition for 'fridge shelf space' between Budweiser and Beck's, the top two selling bottled premium lagers, which could lead to increased prices. However, after closer analysis, the OFT concluded that this concern was not realistic for the following reasons:

• focusing on bottled lager only without some consideration of constraints from sales of draught lager was questionable
• evidence regarding Beck's (a 'Continental' import) and Budweiser (an 'American' import) indicates that they were not close substitutes relative to other choices to which customers could readily switch, and
• an overall lack of significant concern about the acquisition from UK pub, bar and restaurant groups.

Simon Pritchard, OFT Senior Director of Mergers, said:

'In a merger case featuring products like Stella and Budweiser, the intuitive temptation is to assume we know the answers based on personal consumer preferences. Instead, at the OFT, we analyse internal documents, customer views, and economic evidence before forming a judgment. The evidence in this case showed that despite some high shares on certain candidate market definitions, there was no realistic prospect that drinkers of Stella, Beck's or Bud would pay more as a result of this merger. Given the reassuringly extensive evidence to support this view, the right answer is therefore to clear this acquisition.'

NOTES

1. The Reference Test - The OFT has a duty to make a reference to the Competition Commission if the OFT 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, and the creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.

2. Under the Enterprise Act 2002 a relevant merger situation is created if two or more enterprises have ceased to be distinct enterprises, and the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million, or as a result of the transaction, in relation to the supply of goods or services of any description, a 25 per cent share of supply in the UK (or a substantial part thereof) is created or enhanced.
 
3. The full text of the decision will appear in the mergers section.

Back to:Press releases