InBev/Anheuser-Busch Merger (OFT, DOJ, MOFCOM)
Advisory Services
The Situation
On 14 July 2008, global brewer InBev of Belgium announced its proposed acquisition of the leading US brewer Anheuser-Busch. The transaction, worth $52 billion, was the largest all-cash acquisition in corporate history.
Of the more than 30 countries in which InBev produces and/or distributes its large range of beers, the UK (Office of Fair Trading – OFT), the US (Department of Justice – DOJ), and China (Ministry of Commerce - MOFCOM) subjected the proposed acquisition to particularly close antitrust scrutiny.
In the UK, InBev controlled the popular Stella Artois and Beck's brands, while Anheuser-Busch owned the well-known Budweiser brand. Anheuser-Busch's European sales of Budweiser were heavily concentrated in the UK, where Budweiser was the top-selling premium bottled lager in pubs, bars, and restaurants (the "on-trade" channel). Significant volumes were also bought by UK consumers from supermarkets and other retail outlets (the "off-trade" channel). The transaction therefore added a significant premium lager brand, Budweiser, to the portfolio of InBev, which was already the UK's leading premium lager supplier and second-largest in overall lager sales.
In the US, the merger amounted to the increment of InBev's brands to Anheuser-Busch's leading market position.
The Chinese overlap primarily arose from Anheuser-Busch's 27% equity stake in the second largest and InBev's 28.56% share in the fourth largest Chinese beer producer.
NERA's Role
NERA Economic Consulting provided economic advice to InBev on a global basis, working closely with InBev staff and their legal advisors. A team from NERA's London and San Francisco offices advised throughout the OFT investigation, conducting economic analyses, and assisting in the preparation of submissions and responses. Experts from NERA's US offices advised on the investigation by the DOJ, and on the Chinese merger process before MOFCOM.
Given the complex nature of the beer production, distribution, and supply arrangements, a wide range of different issues arose, particularly in relation to the UK market.
As the OFT began to focus on unilateral effects concerns, NERA undertook a detailed econometric analysis of the demand for lager in the UK, directly estimating the own and cross price elasticities for the top selling brands. This analysis used a large AC Nielsen dataset made up of millions of supermarket scanner data points, which recorded the price and sales volumes for different brands of lager in various regions, on a weekly basis over a three-year period. The econometric study measured the closeness of competition between these top brands, and the degree of competitive constraint that they exerted on one another.
NERA had to anticipate and respond to a number of questions from the OFT in relation to its analyses, in order to ensure that the econometric estimates were sufficiently robust and correctly interpreted, so as to allow the OFT to rely on them.
The Result
Following approval from the DOJ in the US on 14 November 2008, on 18 November MOFCOM and the OFT announced that they would also not oppose the merger.
The OFT's detailed decision considered various market segmentations, resulting in post-merger shares from a low of around 25 percent to a high of over 50 percent. However, on the basis of a range of different types of evidence, including internal documents, customer views, and econometric analysis, it concluded that Budweiser and Stella Artois were not close competitors, and further that Beck's and Budweiser were not close substitutes relative to other choices to which customers could readily switch.
In reaching the decision to clear the acquisition unconditionally, the OFT said that the evidence had been "reassuringly extensive."
In the US, the DOJ required InBev to divest its Labatt brand, to preserve competition in upstate New York (Buffalo, Rochester, and Syracuse).
In China, in its first published merger decision under the Anti-Monopoly Law, MOFCOM required InBev to obtain its consent before acquiring any further interests in specific Chinese brewers.
