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Labatt to shed U.S. business

The owners of Canada’s storied Labatt Breweries will cut loose their Labatt Blue business in the U.S. to hitch up to the Budweiser Clydesdales.

And Toronto-based Labatt has been pledged to continue to make Labatt Blue and Blue Light for the U.S. market for up to three more years on behalf of whoever buys the U.S. business.

Belgian brewer InBev — whose heritage firm Interbrew bought Labatt in 1995 and then merged with Brazil’s AmBev in 2004 — announced Friday that it will sell Labatt’s U.S. business in order to meet U.S. antitrust requirements for its takeover of Anheuser-Busch, the U.S. makers of Budweiser beer.

Shareholders in St. Louis, Missouri-based Anheuser-Busch voted Wednesday in favour of InBev’s US$70-per-share all-cash bid, worth a total of US$52 billion. The two companies, which will merge under the name Anheuser-Busch InBev, agreed to the deal in principle in July.

But the U.S. Department of Justice (DOJ) on Friday filed a civil antitrust lawsuit in Washington to block the merger and at the same time issued a proposal that would end that suit.

Quickly agreeing Friday to the DOJ’s proposal, InBev said it will sell its Buffalo, N.Y.-based Labatt USA subsidiary and grant a “perpetual and exclusive” license to brew, market, distribute and sell the Labatt beer brands in the U.S. to an “independent third party.”

Labatt Brewing in Canada will be allowed to brew and supply the Labatt brands to the U.S. licensee for an interim period of up to three years, InBev said.

Upstate N.Y.

The DOJ said Friday that the merger, as InBev originally proposed, “would likely have led to higher prices for beer in the Buffalo, Rochester and Syracuse, N.Y., metropolitan areas.”

Specifically, the DOJ said Budweiser, Bud Light, Labatt Blue and Labatt Blue Light make up the two biggest-selling beer brand families in those three upstate New York cities. An unchecked merger, the DOJ said, would have “eliminated” competition there.

Elsewhere, in the “large majority” of U.S. markets, the DOJ noted, InBev brands account for less than two per cent of beer sales and engage in “very little” competition with Anheuser-Busch.

InBev, in a separate statement Friday, agreed, noting about 1.7 million hectolitres of Labatt-branded beer were sold in the U.S. in 2007 and the impact on earnings from divesting Labatt USA is “not material to InBev’s overall business.”

InBev, which also owns the Stella Artois, Beck’s and Bass brands among many others worldwide, said the plan to shed Labatt USA will not affect any other InBev brands sold in the U.S., nor the brewing, marketing or sale of Labatt-branded beer in Canada or any other country.

Nor will Friday’s agreement affect Kokanee or any other non-Labatt-branded beers made by Labatt Brewing in Canada for distribution in the U.S., InBev said.

Labatt’s brewing operations in Canada include its plant at London, Ont., where John Labatt founded the company in 1847, and breweries at LaSalle, Que., St. John’s and Edmonton. Labatt also owns the Columbia Brewery, the makers of Kokanee, at Creston, B.C., and Halifax’s Oland Brewery, maker of Alexander Keith’s.

The InBev and Anheuser-Busch merger, to be financed with US$45 billion in debt, is expected to create the leading beer company and one of the five largest consumer products companies in the world, the two firms said in July. The combination is meant to yield annual cost “synergies” of at least US$1.5 billion by 2011.

“In light of the limited overlap between the InBev and Anheuser-Busch businesses, the combination should not encounter any significant regulatory issues, and is expected to be completed by the end of 2008,” Anheuser-Busch said at the time.

“A closing date has not yet been announced, but the brewers expect to complete the transaction as promptly as practical,” Anheuser-Busch said Friday.

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