SABMiller and Molson Coors have received clearance from the US Department of Justice to proceed with the combination of their respective US and Puerto Rico operations to form a new company called MillerCoors.

SABMiller and Molson Coors, the second and third largest brewers in the US, expect the transaction to generate approximately $500 million in annual cost synergies. The deal, symbolic of the consolidation taking place in the beer industry, is likely to result in the two largest US brewers holding almost 80% of the market, with Anheuser-Busch having almost 50 per cent share and MillerCoors holding about 29 per cent.

The Department of Justice (DOJ) identified that the cost advantages of streamlining two large companies would outweigh the decrease in competition. “After a thorough, eight-month investigation, during which the Division obtained extensive information from a wide range of market participants — including the companies, rival brewers, beer distributors, and national retailers — the Division has determined that the proposed joint venture between Miller and Coors is not likely to lessen competition substantially,” the DOJ claimed in a statement. “In one of the key parts of the investigation, the Division verified that the joint venture is likely to produce substantial and credible savings that will significantly reduce the companies’ costs of producing and distributing beer. These savings meet the Division’s criteria of being verifiable and specifically related to the transaction and include large reductions in variable costs of the type that are likely to have a beneficial effect on prices.”

Graham Mackay, SABMiller’s Chief Executive, was glad that the DOJ recognised the potential of the joint venture. “Today’s news underscores our strong belief that this combination will not only generate significant growth and cost synergies, but will also create tremendous opportunities for innovations in products and services that will greatly benefit America’s beer distributors, retailers and consumers.”

Leo Kiely, Chief Executive Officer of Molson Coors, added that the clearance was great news but only one step toward their goals. “MillerCoors is quickly moving toward becoming a reality, and I’m looking forward to working with the entire team to build on our momentum and grow our leading brands and consumer offerings,” he said. “While we recognize that regulatory clearance is just one step in creating a dynamic U.S. competitor, it is a critical milestone, and we’re obviously very happy about the outcome. We’re actively engaged in the various planning elements and are ready to get out of the gate smoothly and quickly upon close.”

The closing of the joint venture transaction is expected to take place on or about June 30, 2008. The Miller and Coors businesses will continue to be operated separately and in the ordinary course until completion of the transaction.

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