Bud-Miller merger threatens cheap beer, will spark more deals: Phila alcohol lawyer

WEDNESDAY: Alva C. Mather, alcohol lawyer at Griesing Law in Philadelphia ( @Alcohollawyer , for real), writes us these 5 predictions for the planned $106 billion AB InBev-SABMiller deal:
 -- "The US Department of Justice is unlikely to approve a full merger," so SABMiller will likely end up selling the Miller brands and holding onto the acquired companies' foreign lines.
 -- "This merger will likely lead to other consolidations and mergers within the industry, with potential buyers such as MolsonCoors, Constellation Brands and potentially other foreign brands such as Heineken" going after Miller and other industrial brewers.
 -- The merger will force changes in suplier control, and in each market "the new supplier will seek to move the brands to their network of distributors wherever possible. Many states have franchise laws in place that limit these moves." So it's a good time to be a beer lobbyist or a brewery lawyer or dealmaker; there will be "a lot of money changing hands between distributors buying and selling their interests."
 -- Even without Miller, the combined companies will have "huge purchasing power which may allow them to be more aggressive in acquiring and diversifying their portfolio with smaller, craft brands," as Anheuser-Busch has already acquired in the U.S., and SABMiller abroad.
 -- "The average consumer is unlikely to see a big change as both companies will like seek to maintain each brands identify and following." But "lack of competition" could mean fewer bargain prices "at the bottom end" of the cheap beer list.

TUESDAY: Anheuser-Busch InBev says it has a tentative deal to buy SAB Miller for $106 billion, combining the two biggest U.S. industrial brewers and dozens more beer brands worldwide, at a time when resurgent regional breweries have won growing share of a flat beer market in the U.S. and other developed countries. Read the deal statement here. -- But won't they have to sell Molson's? asks Bloomberg here.

MONDAY: Altria, the U.S. tobacco giant formerly known as Philip Morris (it owns Marlboro cigarettes and Skoal chaw), will walk away with many of the benefits of the proposed acquisition of London-based SABMiller (they own Miller Beer) by Belgium-based AB InBev (they own Budweiser, Michelob, Rolling Rock and many more), while drinkers and brewery workers help share the $100 billion cost, writes John Colley, former executive managing director of French building-materials giant Saint-Gobain (whose U.S. headquarters is near Malvern) and now a professor of mergers & acquisitions at Warwick Business School in England.

That's because Altria is SABMiller's largest owner and collect more than one-quarter of what AB InBev eventually pays. AB InBev upped its offer just this morning. The buyer has "clearly been structuring the offer to suit" Altria and other large owners "through constantly raising the price" and offering stock instead of cash to reduce the owners' tax burden, Colley points out.

"AB InBev's determination to do this deal may ultimately be a problem for them," Colley adds. Investment banker and lawyer fees "will run to hundreds of millions of pounds," he notes. "How much impartial advice do you get when the stakes are so high? Management will expect to benefit as they will preside over a much greater business resulting in greater pay, power and status. Customers are unlikely to benefit and shareholders' ultimate prospects are distinctly risky."

So why does AB InBev persist, and how does it expect to squeeze huge profits from SAB Miller? "The global beer market overall is largely flat and in some regions is declining as other beverages such as wine continue to penetrate. Micro-brewers and their highly differentiated cask ales also continue to make progress," warns Colley." So shutting big industrial breweries and force-merging distributors "become an attractive way of increasing shareholder returns."