AB InBev also debuted its new website and logo at www.ab-inbev.com .  Brito sent upbeat letter to employees, saying the “main strength of our company will be our people.”  But a number of disgruntled employees have already been posting comments on St Lou Post Dispatch blog called Lager Heads, forecasting large upcoming layoffs with comments like “the gutting has started.”   Brito touts “tremendous opportunites” of combo to achieve “dream” to become “Best Beer Company in a Better World…. To guide all of us in the pursuit of this dream, we have developed a set of principles for Anheuser Busch-Inbev,” said Brito which can be viewed by employees only at www.welcometoabinbev.com.  

In interview AB InBev released today, Brito reiterates that strategy over next 2 yrs will be threefold: “First… to integrate the companies as quickly as possible; second to deliver on the announced synergies of $1.5 bil in three years; and thirdly to quickly deleverage the capital structure.”  So there’s the roadmap, with “lots of upside for all stakeholders, including our shareholders.”  Then Brito adds: “But of course when you think in broader terms our priorities continue to be to grow the top line… The key priority for any consumer goods company is to really continue to grow the top line year after year.”

Brito commented on planned $7 bil in asset sales:  “We have a list of five assets that are prized assets.  From what we see today we only need to sell two or three to get to the $7 billion.  We already have some people in spite of the credit crunch, that have consistently approached us, people who are interested in the assets that we could have on our disposal list.”  Despite doubts during depths of financial crisis, InBev clearly got dough to do deal (as it said it would all along), about $55 bil in debt.  As far as $10 bil in new stock issue (postponed in Oct), “the Board will decide on the best time to do it.” 

On integration: “My management team has been through three integrations over the last eight years.  We have delivered on those plans; we have normally overdelivered on those plans…. There will be bumps in the road and we should be ready for those.”   Has “strategic rationale” changed because of economic climate?   “No, no, no,” said Brito.  All that changes with the new economic environment, he added is “we will have to work harder.”  

It's official. AB InBev announced closing, as expected, as soon as it got regulatory clearances. China's Ministry of Commerce also ok with AB InBev deal but put restrictions on future acquisitions. Can't add to AB's 27% stake in Tsingtao or InBev's 28.56% stake in Zhujiang Brewery and can't take stakes in Beijing Yangjing or China Resources Snow. To go against any of these conditions, AB InBev must ask Ministry of Commerce first, Dow Jones reported. New ticker symbol will be ABI on the Euronext Brussels stock exchange, starting Thurs.

As if they don’t have enough on their plate over next few mos, folks at InBev got small window from Justice Dept to “divest” LUSA.  If deal not done in 90days, DoJ can grant up to 90 days extension. If still no deal, trustee will be appointed by US Dist Ct in DC “selected by the United States” (presumably someone at Justice) who would be tasked to sell biz. 

Turns out increased mkt concentration in Buffalo/Rochester and Syracuse mkts in upstate NY put Justice over the edge.  In Buffalo/Rochester, AB has 24 share, LUSA 21, according to Nielsen supermkt scanner data. MillerCoors has 26 share.  So top-2 concentration would go from 50 to over 70.  In Syracuse, AB has 28 share, LUSA 13 and MillerCoors has 28.  So top 2 goes from 56 to 69 share.  Justice considers these “significant increases” in mkt share, based on a long-used but little-known formula called Herfindahl-Herschman Index.  The HHI adds up squared mkt shares of competitors to measure concentration. 

Increase in concentration, “combined with the loss of head-to-head competition” between AB and Labatt brands, “is likely to substantially lessen competition in violation of Section 7 of the Clayton Act, resulting in higher prices for beer for consumers” Justice concluded.  DoJ also determined that “responses” from current competitors or possible new mkt entrants “not likely to prevent the likely anti-competitive effect of the proposed acquisition.”   Not enuf competition left to “prevent a small but significant and non-transitory price increase implemented by” combined AB InBev Labatt USA “in those markets from being profitable.”  So Justice Dept considered lawsuit to sue to stop AB InBev.  Indeed, complaint already drafted seeking preliminary and permanent injunctions.  But ultimately it crafted “Final Judgment” instead, “satisfied that the divestiture of assets…will preserve competition for the provision of beer in the relevant markets.” 

The “final judgment” raises several key questions.  First, who is a likely buyer of approx 1.4-1.5 mil bbls of Labatt brands, highly concentrated in a handful of northeast and Midwest mkts, selling most of their volume at parity to Bud prices?  (Irony of course is that a significant portion of Labatt volume will still be sold side-by-side with Bud by AB distribs, including Buffalo!)   Would big importers HUSA or Crown want to bolt lower-margin LUSA brands on to their current portfolios? Would Diageo Guinness USA be interested?  Labatt brands about same volume as DiGUSA’s dwindling FMB biz.  But Diageo doesn’t have brewery in North America and agreement stipulates brands eventually be brewed in US or Canada.  Would Justice okay new owner to contract brew Labatt brands?  Would that make Pabst potential buyer?  A more intriguing possibility: a craft brewer with extra capacity.  Or City Brewery, which has plenty of capacity but tiny volume of its own brands.  How about a wholesaler or group of wholesalers?  And what are these brands worth to any of these possible buyers?  That valuation will be very interesting.

Finally, why is Justice Dept so concerned here?  It was prepared to seek injunction vs. deal based on increased concentration in 3 mkts.  Based on that HHI calculation, concentration increased by 1020 points in Buffalo/ Rochester, 750 points in Syracuse.  (Under HHI, any increase of more than 100 points in already concentrated mkts, which virtually all relevant mkts are in US for beer, raises “antitrust concerns” at DoJ.)  But MillerCoors sailed thru Justice not that long ago. On a national basis, MillerCoors increased concentration of top 5 players by approx 400 pts, and much more than that in mkts where Miller or Coors had outsized shares.  In Pennsy, for example, MC boosted Herfindahl index by nearly 800 pts.  

Fascinating late-breaking development on way to closing biggest beer deal ever. Dept of Justice decided to require InBev to sell lion's share of its Labatt USA unit as part of its clearance of InBev to purchase AB. InBev has to do three things, after completion of acquisition: 1) grant "to an independent 3d party a perpetual exclusive license to market, distribute and sell" Labatt brands in US; 3d party will also eventually have to brew those brands in US or Canada and "use relevant trademarks and intellectual property to do so"; 2) sell to that licensee "assets or stock" of Labatt USA, hq'd in Buffalo, NY; 3) Labatt Canada can brew/supply licensee with Labatt brands for "interim period of no more than" 3 years. Deal does not include Kokanee or other non-Labatt branded products sold by LUSA, or Labatt brands sold outside US. Closing date for AB InBev not set yet, but "InBev expects to complete the transaction as soon as practicable," it sez in release announcing DoJ's final judgment.

Why this requirement? Justice "said InBev's original transaction would have likely led to higher beer prices in the Buffalo, Rochester and Syracuse, NY metro areas," Marketwatch reports. As INSIGHTS reported some time ago, Justice had taken close look at upstate NY mkt, where AB/Labatt has high share. Labatt USA sold approx 1.55 mil bbls in 07 and had just 0.7 share in US. But has double-digit share in some upstate NY and Mich mkts. Obviously, this requirement no deal stopper. Question is: who will want to buy LUSA? This decision basically orphans Labatt brands, already in tuff competitive position.

CNBC reported earlier today (before approval announced) that deal expected to close by end of next week. And "cash strapped banks will fund" InBev's "massive $45 billion syndicated loan next week," reported Reuters. Not all banks happy about it. "Some banks would prefer not to be drawn but it is inevitable, they signed up and had to meet the obligation," banker "close to the deal," told Reuters. InBev will get total of $54.8 bil, the $45 bil, plus $9.8 bil bridge loan towards stock issue. InBev still plans to "launch" equity issue before end of yr, sez Reuters.

That didn’t take long. Looks like bill already in hopper to halt all direct shipments by retailers in Mich when we reported possibility of legislative “fix” on Wednesday.  Bill barring all direct shipments passed Mich House Reform Committee quickly and unanimously next day, reports AP today.  Won’t reach House floor tho until Dec.  Recall US Dist Ct tossed Mich law that banned out-of-state retailers from shipping direct to Mich consumers, noting discrimination since in-state retailers could ship direct.  Official for Mich alc bev commission said “if this isn’t done… the situation would be totally out of hand in terms of effective regulation, tax collection and accountability.”  Mike Lashbrook, prexy of Mich beer & wine wholesalers assn, “spoke in favor of the bill,” AP reported.  Out-of-state shipments would “tear down any meaningful regulation,” said Mike.  Retailer rep from Sacramento, Calif not happy.  Called move the “sort of shameful pay-to-play politics that creates the extraordinary cynicism Americans have toward the political process.” 

Cost hikes and consumer trends hittin' big global brewers in different ways. Looks like AB's solid recent performance in US gave it edge over SABMiller and InBev on some key metrics so far this yr. For example, AB worldwide volume up 3.2% in Q3, up 2.3% for 9 mos. InBev's global beer volume basically flat for both periods. Similarly, SABMiller up 1% in most recent qtr; it eked out just 0.4% "organic" gain for 6 mos thru Sep 08.

AB also seems to have managed cost hikes much better than peers. AB costs/bbl in US up just 3% in most recent qtr, and it expanded beer margins. But InBev said its costs/hectoliter jumped nearly 10% in same qtr and operating margins flat. SABMiller margins narrowed last 6 mos, even tho it got healthy rev/bbl increases, as did all big brewers. CFO MalcolmWyman said he expects "cost of goods sold for the full year" thru Mar 09, "to be in the low double-digits and our raw materials would remain also in line with our guideline of low double-digits." Going out farther, SABMiller execs said that despite recent drops in some commodity costs, brewer "would not see a big effect from lower prices for another year or so," Reuters reported. MillerCoors execs made similar point in their conference call last week. InBev execs declined to give specific cost guidance until Feb 09, but did acknowledge commodity costs have been dropping and it was "likely we should benefit" by less rapidly rising costs in 09.

With new $$ rollin' in from first qtr of MillerCoors JV, US was bright spot for SABMiller for 6 mos thru Sep. North American revs up 5% to $2.9 bil, and earnings before exceptional items and amortization of intangible assts (EBITA) jumped 18% to $355 mil with JV profits. That improved SABMiller's EBITA margin in region to 12.2 vs. 10.8 for same period last yr, much closer to overall group EBITA margin which shrunk by 1.3 to 15.6. But reported Miller volumes pretty soft for 6 mos in North America, -3%.

Top SABMiller execs remain confident about JV goin' forward. CFO Malcolm Wyman cited 2 reasons: 1) "Operationally, I think they're doing things right" and "positioning themselves very well" in the mkt; 2) Synergy benefits coming with "$50 mil in integration synergies" in yr ending Jun 09, $400 mil in 12 mos following and $500 mil in 12 mos after that. "Now we get our 58% share of those particular synergies so going forward over the next 3 years, we would expect to see very good performance" in North America. Chief exec Graham Mackay made similar comments. Said integration planning for JV "done impeccably." Believes too Miller Lite and Coors Light can "co-exist in the same portfolio" and "putting them through a common wholesaler system will be to the advantage of both of them."

Tho Crown didn't choose DBI Sacramento in Capital Bevs deal and instead selected Markstein Bevs and surrounding AB distribs, it chose DBI in nearby Stockton deal, where same Ingram arm will buy 2-mil-case San Joaquin Bev, about 1-mil cases Crown. So tho DBI Sacramento couldn't get prize portfolio in its home locale, got nod 60 miles away. Go figure. Many different dynamics could be at work here. Markstein Bevs strong in Sac and has worked well with Crown in its other location near San Diego. Crown perennially unwilling to go with AB branch, it seems. Since AB has branch in Stockton, that could have been a factor. Maybe Crown wanted to send a message to DBI (which is its wholesaler in SF) and its network-at-large that it's not shifting allegiance to AB network. But perhaps most important, if you accept Crown's "market-by-market" rationale, could just be DBI made best case for Crown portfolio in this locale.

Not so hot goin' against very easy comp of -11% in Sep 07. But import shipments did post gain, just barely. Up 4,000 bbls, 0.2% in Sep 08. Mexican shipments continued down 2-3% even tho last Sep was big hit, -16%. Dutch shipments didn't improve either. In fact, got worse, -3.7% vs. -2.1% drop YTD. Canadian shipments continued down too. Big gains in Sep: UK (+46%), Ireland (+18%), Belgium (+58%), Germany (+17%), Italy (+41%). Tiny Sep gain obviously didn't move YTD needle. Import shipments -606,000 bbls, 2.6% for 9 mos. With domestic taxpaid gain of 1.9 mil bbls, 1.4%, means US shipments up 1.3 mil bbls, 0.8% Jan-Sep.