Trustbusters might challenge possible union of brewing giants

Roger Fillion, Rocky Mountain News

Published October 11, 2007 at midnight

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Trustbusters may balk at Molson Coors and SABMiller's plan to merge U.S. operations, fearing it would cut competition and drive up beer prices.

Not everyone agrees with that argument. But industry experts warned that a joint venture would shrink three big U.S. beer rivals - No. 1 Anheuser-Busch, No. 2 Miller Brewing and No. 3 Coors - down to just two powerful players: Anheuser-Busch and the new MillerCoors.

"This is what's called a three-to-two merger. More often than not, three-to-two mergers are challenged by the antitrust folks," said F.M. Scherer, professor of public policy at Harvard University's Kennedy School of Government and chief economist at the Federal Trade Commission in the 1970s.

"It's an open question on whether they'll challenge it or not. If I had to bet, I'd bet on the challenge."

Scherer argued that the chief beers produced by all three brewers are "pretty homogenous" rather than diverse - making regulators all the more wary about the potential concentration of market power.

Molson Coors and SABMiller announced their proposed joint venture Tuesday. It would have $6.6 billion in annual sales, with Coors Brewing and Miller Brewing producing each other's beers. The duo said the venture would allow them to better compete in the U.S.

The FTC, the Justice Department or state attorneys general could take the deal to court - or approve it, perhaps after ordering changes.

Authorities are expected to look at the potential impact on beer prices and wholesale beer distributors.

Molson Coors and SABMiller are counting on trustbusters for an OK so they can close the deal by mid-2008.

"We're confident of clearance, based on our belief that this is a pro-competitive transaction. It's got benefits for consumers, retailers and wholesalers," Molson Coors CEO Leo Kiely told the Rocky Mountain News.

"But nonetheless, we've got to respect the regulatory process. We'll obviously cooperate fully."

Based on 2006 data, Anheuser-Busch controls 48 percent of the U.S. beer market while a combined MillerCoors would control 29 percent. Miller has an 18 percent share and Coors an 11 percent share.

Antitrust regulators "hate it when you have three players and they reduce it to two," said Tom Pirko, president of the California-based beverage consulting firm Bevmark. "It's too cozy."

Pirko, who has testified before regulators on such matters, suggested trustbusters would frown on two competitors - Anheuser-Busch and MillerCoors - controlling nearly 80 percent of the U.S. market.

"What this combination does is lessens competition," said Pirko, adding it puts the two top players "into a position where it's much easier for them to conspire on prices."

Said John Holcomb, associate professor at the University of Denver's Daniels College of Business: "It seems to me this should encounter difficulties."

But others disagreed. Some Wall Street analysts, for example, said a combined MillerCoors would give the larger Anheuser-Busch a competitive run for its money.

"The combination involves two majors, but it does not create a market leader and may be viewed as a positive in terms of offsetting A-B's leading market share," wrote Stifel Nicolaus analyst Mark Swartzberg.

William "Buz" White, a Los Angeles attorney who has represented brewers, agreed, saying regulators would smile on increased competition for Anheuser- Busch.

"I just don't think competitively there's any other market force that might provide a real challenge to Anheuser-Busch. They've just gotten too big," said White, an antitrust attorney at Hill Farrer & Burrill.

Regulators could still demand changes and strike a deal with Molson Coors and SABMiller.

"I could see them tinkering with it a little bit to make it work," White said.

Pro and con

• At issue: Would Molson Coors and SABMiller's plan to merge U.S. operations help or hurt competition? Antitrust authorities must decide.

• Argument for hurt: Deal would create two big rivals - Anheuser-Busch and MillerCoors - that control nearly 80 percent of the U.S. beer market and would be in a position to push up prices.

• Argument for help: A bigger No. 2 in the form of MillerCoors would give No. 1 Anheuser-Busch a better competitive run for its money.

fillionr@RockyMountainNews.com or 303-954-2467

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