Friday, February 15, 2013

If It Keeps Moving

Last year, the world's largest brewer, Anheuser-Busch InBev, announced that it would increase its ownership stake in Mexican beer maker Grupo Modelo from 50% to 100% in a 20 billion dollar deal. A few weeks ago, the Justice Department filed suit in Federal court to block the merger, citing potential anti-competitive actions. Yesterday, AB Inbev has floated the idea of selling an additional 2.9 billion dollars in an effort to salvage their acquisition of the rest of Modelo.

The action filed by Justice is a complete farce. Beer is not a natural monopoly. Nor does it have any strategic importance to the country. There is no conceivable "anti-competitive" measures that AB Inbev could try in order to increase their profits. I hope the case gets thrown out of court, but most likely it'll be settled out of court. I think this is a mistake. It would be easy to convince any jury that it's impossible for a brewer to raise the price of its product and be able to make a huge profit.

Beer is not the only game in town. And its consumption has actually been decreasing relative to other alcoholic drinks. Increases in price for popular brands like Corona and Bud Light will simply drive consumers to try craft beers, wine, liquor, or even a competitor like Coors and Miller. The best part is, juries would actually be swayed by this argument. We're talking about a consumer staple. Everybody drinks alcohol. And it would be impossible for any Federal prosecutor to argue that this merger would hurt competition.

Go out to any bar and see what people are drinking. There will be no clear choice. You'll see a variety of beers such as Bud, Coors, Miller, Yuengling, Sam Adams, Sweetwater, locally distributed microbrews. And you'll also see people shooting vodka, sipping whiskey, drinking wine and everybody has their favorites.

This case is nothing more than some US Attorney trying to make a name for himself by stirring up the pot. And he knows that AB Inbev is gonna settle because although they would most likely prevail in court, it would take years to resolve and hundreds of millions of dollars in legal fees to litigate. It simply makes much more business sense for a public company to settle out of court than to fight it out.

This is the regulatory state run amok. Where government employees care more about furthering their own ambitions than implementing optimal public policy in order to keep the gears of the US economy turning. And these silly legal fights have real consequences on the economy.

Because these are huge companies that make billions of dollars in profits per year, everybody assumes that they have money to spare. This is especially the attitude that prevails in the public sector. The end result is a bruised and battered private sector that limps along until it completely collapses under the weight of the overbearing regulator.

If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.

Truer words were never spoken.

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