Could Branches Come Into Play?


Dear Client:

The DOJ and AB InBev are proceeding with talks on the ABI - Modelo deal, according to Bloomberg citing people familiar with the matter. The company now must decide whether to give the government more concessions, fight the lawsuit in court, or walk away from the deal.

Bloomberg says ABI may have to "give up more control of U.S. beer distribution or even sell a brewery." It is said that ABI will not concede to give up the new Nava brewery in Piedras Negras. But company-owned distribution? WODs? Branches?

Of the 26 metro markets that the DOJ identified in its lawsuit as having too high of ABI and Modelo concentration increases -- what they call the HHI index -- six of them are serviced by A-B branches. By volume it's even a larger percentage. And the market with the highest HHI increase, Oklahoma City, is an A-B branch. Here are the 'problem' markets according to the DOJ. The ones with dashes are serviced by A-B branches:

--Oklahoma City, OK
Salt Lake City, UT
Tampa/St Petersburg, FL
Houston, TX
Jacksonville, FL
Minneapolis/St Paul, MN
--Denver, CO
Birmingham/Montgomery, AL
Memphis, TN
Las Vegas, NV
Dallas/Ft Worth, TX
Orlando, FL
--Los Angeles, CA
Phoenix/Tucson, AZ
Raleigh/Greensboro, NC
Miami/Ft Lauderdale, FL
Hartford, CT
Springfield, MA
Richmond/Norfolk, VA
Chicago, IL
--New York, NY
Atlanta, GA
Sacramento, CA
--Boston, MA
--San Diego, CA
Baltimore, MD/Washington, DC
San Francisco/Oakland, CA United States

Put another way, nearly half of A-B's branches are in DOJ's high HHI problematic markets, and much more in volume percentage. Will A-B part with branches to save the deal? And who would be the buyer?

The fact is, there are no easy concessions to get this deal done, and it's unclear which variety of concessions -- 10 year buyback, a brewery, a brand or two, WODs -- will persuade the Justice Department.

SIDEBAR: But here's another tidbit from a policy wonk in Washington: This lawsuit from the DOJ says the U.S. government is viscerally opposed to higher alcohol prices for consumers... that should make a nice talking point against excise tax increases.

Have a nice weekend, Harry

"If you are a dog and your owner suggests that you wear a sweater, suggest that he wear a tail?
-Fran Lebowitz

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