and then there were two

In a tacit admission that they lack the wherewithal to reclaim market share from hegemon Anheuser-Busch, SABMilller and Molson/Coors have announced that they are merging their US operations. From Rick Lyke's blog:

Miller Brewing Co. and Coors Brewing Co. will have annual combined beer sales of 69 million barrels and net revenue of $6.6 billion. The joint venture, to be called MillerCoors, will allow the brewers to cut costs by $500 million and compete more strongly in the U.S. market.

It's important to note that this merger occurs only in the US, and that an opt out is prohibited for five years, and that a complete merger is prohibited for ten years. From the SABMiller press release:

The joint venture will be effected through the contribution by both parties of their U.S. and Puerto Rico operations into a limited liability company to be formed under Delaware law. Each of the parties has agreed that all its U.S. business will be conducted exclusively through the joint venture.

The international operations of Miller and Coors will not be contributed to the joint venture and will be managed separately by the respective companies. The parties will agree to appropriate brand management arrangements to protect the cross border integrity of brands in different territories. The parties will enter into appropriate contract brewing and service arrangements with the joint venture for the production of these brands for export to markets outside the U.S. and Puerto Rico.

SABMiller and Molson Coors will enter into a mutual standstill agreement which will prevent SABMiller and Molson Coors from making an unsolicited offer for the shares of the other party for a period of 10 years following completion of the transaction.

The parties have agreed to appropriate rights of first offer and last refusal in the event of either party wanting to sell its interest in the joint venture after an initial no sale period of 5 years.

Even with the merger, Anheuser-Busch remains as the larger entity. August Busch IV's reaction was posted on SABMiller's blog. Now, how did Miller get its hands on that, I wonder.

August Busch IV, the president and CEO of Anheuser-Busch, on Tuesday said in a memo that the MillerCoors joint venture “represents an attempt by these companies to better compete against us.”

The memo, sent to all A-B wholesalers and employees, said: “This new entity does not match our size or portfolio of beers, yet there are undoubtedly synergies that this new company will eventually realize.”

Busch claimed the deal also represents an opportunity for the A-B system. “There will be significant transition confusion from this change, and it’s up to us to capitalize on this disruption now.”

And then there were two. With the remaining brewing giants, there is no innovation, but only repackaging, re-positioning, and rapacity. The sad long death march of American breweries that began with Prohibition is nearing its inevitable conclusion.

[UPDATE: more thoughts on this merger.]