If beer merger happens, would MillerCoors leave Chicago?

Bud fan? Miller fan? If SABMiller accepts AB-InBev's offer, you'll be both.

Anheuser-Busch InBev’s potential takeover of SABMiller — joining the world’s two largest beer companies — would create a $275 billion brewing behemoth, but it could also spell the end of MillerCoors’ stay in Chicago.

Rumored for months, AB InBev’s unsolicited pitch was confirmed publicly Wednesday by both companies. AB InBev has until Oct. 14 to make an offer and, from there, the complex deal could take a year or more to close.

Shares of AB InBev rose 6.84 percent to close at $115.43 a share Wednesday, while shares of Molson Coors closed at $82.98, up 14.23 percent from Tuesday’s close.

For a deal of such magnitude to clear U.S. antitrust law, AB InBev likely would need to divest Chicago-based MillerCoors, a joint venture between SABMiller and Molson Coors established in 2008, said Philip Gorham, a Morningstar senior equity analyst.

The most likely suitor in such a deal would be Molson Coors, which already owns 42 percent of MillerCoors. That leaves an uncertain future for MillerCoors and its 450 employees. The company moved into 250 S. Wacker Drive, on the banks of the Chicago River, with the help of more than $20 million in city and state economic incentives.

Chicago won the headquarters because it was considered a neutral site, in between Molson Coors’ Denver-based U.S. operations and Miller’s in Milwaukee.

“The bad news for Chicagoans is the only sort of margin upside for Molson Coors would be to take out the back-office location in Chicago … and relocate them to Denver or Canada,” where Molson Coors has its headquarters, Gorham said.

Jonathan Stern, MillerCoors spokesman, declined to comment and referred questions to Molson Coors and SABMiller representatives, who also declined to comment.

Together, AB InBev and SABMiller represent about 70 percent of the beer market in the U.S. AB InBev produces beers like Budweiser, Corona, Stella Artois and Beck's. Likewise, SABMiller’s portfolio includes beers with domestic and global appeal, like Miller Genuine Draft, Coors Light, Peroni Nastro Azzurro and Grolsch.

On Wednesday, SABMiller issued a statement confirming that AB InBev “intends to make a proposal to acquire SABMiller” but that no proposal has yet been received.

AB InBev responded with its own statement saying it intended to work with SABMiller’s board of directors “toward a recommended transaction.”

Rumors of this acquisition were rife 12 to 18 months ago, Gorham said, and globally, the impact would be tremendous, creating a combined beer company that produces four times the production volume of Heineken, which would be the second-largest competitor.

“This would build a monster of a firm,” he said.

Globally and in the U.S., it’s been a robust year for mergers and acquisitions. It’s only September and M&A activity has totaled $1.65 trillion in the U.S., the highest year on record, according to data provided by Dealogic. Globally, M&A has amounted to $3.31 trillion worldwide.

An acquisition of SABMiller by AB InBev would create a company valued at around $275 billion with annual sales of $73.3 billion, more than three times its closest rival, Heineken.

In beer alone, the two companies produced more than 550 million barrels last year, according to data provided by Beer Marketer’s Insights, and made an additional 100 million barrels of soft drinks.

That’s “in another ecosystem” than craft beer breweries like Revolution Brewing, said Revolution owner Josh Deth, whose operation made 50,000 barrels of beer last year. But it also “strengthens the resolve to do what we do every day” as an independently owned brewery, he said.

“Our business is not just about economics and efficiency,” he said. “We relate to people in a much more human way — from our mug club to getting to know people who visit the brewery.”

Deals like a potential AB InBev and SAB Miller hookup — or the recent 50 percent sale of Lagunitas to Heineken — provide Revolution with an important point of distinction in the marketplace, he said.

“My No. 1 competitor (Goose Island) was sold to Budweiser, and my No. 2 competitor sold to Heineken,” he said. “We don’t have to scream it from the rooftops. People get it, and I get business from people who want to support an independent brewery.”

Deals of such size trigger review by the U.S. Justice Department to ensure that they don’t create a monopoly, and the burden then falls on the company to justify any efficiencies it can achieve through the acquisition, said John McGinnis, a Northwestern University law professor and an expert on antitrust law.

“In general, divestiture is one of the remedies the Justice Department insists upon when there’s too much concentration in the industry,” McGinnis said.

If MillerCoors were divested, Molson Coors certainly appears to have the inside track.

According to the terms of the MillerCoors operating agreement, Molson Coors has the right to increase its share in MillerCoors from 42 percent to 50 percent in the event of a change in control. Molson Coors would also have the right to make the first and last offer in a bidding process for the remaining 50 percent stake, according to the agreement.

Eric Shepard, executive editor of Beer Marketer’s Insights, a trade publication covering the beer industry, agreed that Molson Coors would be the “most logical buyer” of MillerCoors. But he wasn’t convinced that it meant the end of the Chicago headquarters.

“They’re pretty well entrenched there,” Shepard said. “I’d be surprised if they move out of Chicago.”

But Shepard said he believed the deal would get done, noting InBev’s 2008 acquisition of Anheuser-Busch. That deal created the world’s largest beer company, which appears on the brink of further dominating the global market.

“When they set their sights on something, they’ve been fairly successful,” he said.

Josh Noel contributed.

gtrotter@tribpub.com

Twitter @GregTrotterTrib

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