AB InBev SAB Miller Merger Tests China’s Competition Watchdogs

November 20, 2015

As AB InBev and SAB Miller deliberate over the latter’s purchase share price as part of a proposed merger between the two beer giants, China’s competition watchdogs will be eagerly watching. A combined AB InBev/SABMiller would command more than 40% of China’s beer market, enough to guarantee that the Ministry of Commerce (MOFCOM), which enforces the mergers and acquisitions provisions of the China’s 2008 Anti-Monopoly Law (AML), will be closely evaluating the potential implications of this contemplated merger for the Chinese market.

InBev are all too familiar with China’s anti-trust regime following their $53 billion purchase of Anheuser-Busch to form AB InBev in 2008. MOFCOM approved that merger, but it prohibited the new group from increasing its stake in domestic beer companies. SABMiller owns 49% share in China Resources Snow (CRS), a joint venture with Beijing-owned China Resources Enterprises (CRE). CRE produces Snow, the nation’s bestselling beer by volume. MOFCOM’s unwillingness to allow SABMiller to turn this minority stake into a majority stake highlights the government’s apprehension at allowing foreign enterprises ownership control of popular local brands. The new deal is likely to concern regulators for different reasons.

Before carrying out a merger, AB InBev and SAB Miller will need to notify the Chinese government (MOFCOM in particular) of the transaction and receive clearance, which can take 180 days or more.

Under China’s AML, a combined 40% market share would raise a red flag. For the proposed AB InBev and SAB Miller merger, it is noteworthy that SAB Miller only owns a 49% stake in CRS (and thus has no control over its business). AB InBev also has stakes in local brands like Harbin哈尔滨, Sedrin雪津 and Pearl River珠江. When considering whether to allow this merger, regulators will likely assess the combined market share on a regional basis given the vast size of the market. Regulators will also likely assess the deal on criteria related to the impact of this merger on the competiveness of local brands such as Tsingtao.

MOFCOM’s reaction to this proposed merger (should it be finalized) will reveal key insights into the evaluation criteria used by authorities. It is widely expected that the merger may be given a conditional green light by MOFCOM with provisions related to the proposed new entity’s maximum shareholdings in local brands. It remains to be seen, however, whether the two sides of the merger would voluntarily propose a carve-out of local brand equity to appease regulators, or wait to see if MOFCOM proactively orders a specific carve-out. A decision to divest some or all of SABMiller’s 49% holding in CRS would spark speculation in the market surrounding CRE’s next move.

In any event, this contemplated merger will set a number of precedents for China’s AML and its implementation in practice. FuJae team will follow this matter closely and update our clients and readers in due course.