InBev agrees to sell Labatt's U.S. arm to get Anheuser-Busch

InBev S.A. has agreed to shed its Labatt USA subsidiary to win Washington's approval of a $52-billion US takeover of beer giant Anheuser-Busch.

InBev, which bought Labatt in 1995, said Friday it will get rid of the American operations of the formerly Canadian-owned brewery to avoid an antitrust law suit that would prevent the buyout of Busch by the Belgian suds conglomerate.

InBev needs Anheuser-Busch to boost U.S. suds sales(CBC)

The U.S. Department of Justice, which acts as the government's monopoly watchdog, demanded the divestiture of Labatt's U.S. arm because the agency was worried about beer prices in three cities in upstate New York.

"The transaction, as originally proposed, would likely have led to higher prices for beer in the Buffalo, Rochester and Syracuse, N.Y., metropolitan areas," the Justice Department said in a release.

Buffalo-based Labatt USA is a big seller in those three urban areas, as is Busch's suds. The Justice Department worried that InBev, as owner of both labels, could unfairly raise beer prices in those cities.

InBev did not say whether it already has a potential purchaser of its Labatt wing in the United States. As well, the government order doesn't mention the other operations of Labatt, one of Canada's two largest beer makers.

InBev, which produced 271 million hectolitres of beer in 2007, said "the impact on earnings of the actions to be implemented is not material to InBev's overall business."

Labatt USA sold 1.7 million hectolitres in 2007, 17 per cent of Labatt's total beer production of 9.8 million hectolitres.

Busch adds value

InBev, the world's second-largest beer maker, made a deal to buy Anheuser-Busch earlier this year as a way of gaining a bigger share of the U.S. beer markets.

In its latest quarter, InBev sold only about five per cent of its output in the United States and Canada.

With beer consumption shrinking in Central Europe and Asia, InBev's North American growth rate of 0.5 per cent could stand improvement, experts say.

Anheuser-Busch accounts for about one out of every two beers consumed in the United States and sold $16.6 billion worth of beer in 2007 from its 12 U.S. plants.

Initially, the St. Louis-based brewery resisted InBev's corporate wooing back in July and managed to turn a bid of $65 US a share into a $70 offer in the summer.

The takeover will allow the two companies to save about $1.5 billion in annual cost reductions starting in 2011, InBev and Anheuser-Busch have said in past statements.