There was substantial fear over how the AML would be interpreted. I was just excited about the AML because of the clearer guidelines for M&A approval. Here's a comparison of the terms for deal approval imposed on InBev by MOFCOM in China, and by the Justice Department in the US.
In China:
The Commerce Ministry said Anheuser-Busch is barred from increasing its 27 percent stake in the Tsingtao Beer Ltd. InBev is barred from adding to its 28.5 percent stake in Zhujiang Beer Ltd.In the US:
The companies are barred from linking up with two leading Chinese breweries, Huarun Snow Beer Ltd. and Beijing Yanjing Beer Ltd., the ministry said.
The U.S. Justice Department agreed to InBev's purchase of Anheuser-Busch on condition the Belgian brewer sell its Labatt USA brand to reduce its market dominance.I have no idea whether these restrictions are comparable because I'm not in the business of valuing breweries. However, InBev did claim that the sale of Labatt USA would have "no material impact on its earnings." But, Tsingtao had a net income growth of 15.87% to RMB 410.46 million for 2007. Financial info on Zhujiang Beer, Huarun Snow, and Beijing Yanjing are much more difficult to find, but the large China breweries had a revenue growth of 16.37% for 2007. And, by way of comparison to Tsingtao's 15% market share, Zhujiang has a 12% market share. Gut reaction: ownership limits in Tsingtao and Zhujiang would cause me to lose more sleep than being forced to sell Labatt USA.
9 comments:
This should be good for us Americans. InBev has some good beers and with Bud's distribution network we the consumer should benefit.
I find the forced sale of Labatt silly, beer is pretty competitive with lots of substitutes.
I bet the Department of Justice is still using those silly Herfindahl index.
I'm always struck by how tasty Stella Artois actually is. But, I almost always forget about it because I tend to go for those overhopped ales. If the price goes down, I might just taste it more often.
Yeah, Labatt USA Herfindahl calcs had to have been off. Their sole market seems to be upstate New York. Maybe they were calculating it based on market share of Canadian brew importers...
Stella is great.
I found the DOJ complaint against InBev here. Relevant points in the complaint are: Upstate NY would have a highly concentrated beer market with AB's share in the Syracuse Metro area jumping from 28% to 41%; AB's Rochester share from 24% to 45%. Note Miller has about 26% of the Rochester/Buffalo market and 28% of the Syracuse market. Also using the Herfindahl-Herschman Index the proposed acquisition would produce an HHI increase of approximately 1,020 and a post-acquisition HHI of approximately 2,790 in the Buffalo and Rochester markets. In Syracuse, the proposed acquisition would produce an HHI increase of approximately 750 and a post-acquisition HHI of approximately 2,580.
The complaint also argues that beer is a highly differentiated product, hence entry would not result.
I am skeptical that this takeover would translate into any serious adverse price effects for the consumer. With the exception of malt, demand for beer and other liquors are relatively elastic. So increasing price would not be a way to increase revenues. At some point wine, liquor, and even soda would be a substituted if prices rise too high.
Also since beer demand is elastic, InBev may be exploiting greater economies of scale by purchasing AB. Thus they can lower the price to increase quantity sold and obtain a higher overall profit.
With respect to entry, microbrews generally have better tasting beer. So if InBev tries to raise prices they may find people switching to the better tasting micros.
Finally, I think for any profitable product entry is inevitable, and it is best to let the market forces work.
This complaint represents the schizophrenia of the American legal system. There are so many restrictions on alcohol that inflate its prices, and now the DOJ is worried about having too high a price. Oh well.
Thanks for the actual numbers, I had seen something like 60% in Upstate NY and 1% over the rest of the States. Those are freaking ridiculous. Imposing the sale of the whole business unit because of HHI 7 points above the moderate concentration in such a limited geographic and populated area is a waste.
I agree that the DOJ is being silly in their demands. Like Dan said, the government has a heightened sense of paranoia when it comes to any intoxicant hitting the market, even beer. But most importantly, Stella Artois is delicious and should be consumed frequently. Even for ale drinkers such as yourself Will.
I concur - the InBev beers are fantastic (especially Becks). Will, I recall you drinking Becks in Germany. DOJ is just trying to make themselves appear important.
It's cracking me up that your post on the Beer industry has mobilized your readers into responding rather than merely reading your always insightful posts! Yum, Beer!!!♥
Though ENL does not endorse drinking beer and doing math, we wholeheartedly endorse drinking beer and discussing math.
NOTE: I wrote this before, but I was gonna add to it, but now I'm not gonna, but the system doesn't allow me to delete a deletion. Argh . . .
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