Vice Squad: Brewers Bounce After DoJ Gives Nod to SABMiller Takeover

 | Jul 20, 2016 | 4:45 PM EDT
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This article is part of a Real Money series on a dozen companies investors should consider adding to their watch list of so-called "vice stocks."

Shares of U.S. brewers bounced Wednesday after the Justice Department finally gave the OK to Anheuser-Busch InBev's  (BUD)  roughly $108 billion takeover of London-based SABMiller.

AB InBev's agreement with regulators prompted shares to close up about 1.5% Wednesday and simultaneously cleared the way for a separate Molson Coors'   (TAP)  megadeal: the $12 billion acquisition of the 58% stake in MillerCoors that Molson Coors doesn't already own in a joint partnership with AB ImBev. Shares of Molson Coors, a member of Real Money's Vice Squad watch list, also jumped about 3% on Wednesday.

The settlement will require AB InBev to divest SABMiller's entire U.S. business and will prevent "any increase in concentration in the U.S. beer industry." The Justice Department also said the deal will limit AB InBev's ability to block independent distributors from promoting rival brands, including craft and imported beers. 

"The remedy we secured will help preserve and promote competition in the multibillion-dollar U.S. beer industry," Deputy Assistant Attorney General Sonia Pfaffenroth said in a statement. "The two largest U.S. brewers -- AB InBev and MillerCoors -- will now remain independent competitors after the deal."

The European Commission gave its nod of approval to the AB InBev-SABMiller deal in May, contingent on AB InBev's sale of roughly $8 billion in SABMiller businesses across Europe. BUD's $106 billion bid to acquire the U.K.'s SABMiller took another step closer to becoming a reality after regulators with the European Commission gave the tie-up a nod of approval Tuesday.

Concessions in the May agreement with European regulators included AB InBev's sale of of brands including Peroni, Grolsch and Meantime, which operate primarily in Italy, the Netherlands and U.K. InBev also agreed to the sale of SABMiller's broader operations in Hungary, Romania, Czech Republic, Slovakia and Poland.

Molson Coors has said the combined company will be "a game-changing opportunity" to broaden its share in the U.S. beer market and expects to pull in sales of nearly $14 billion pro forma after the acquisition, up from just $5.1 billion at Molson Coors alone. Meanwhile, net income is projected to climb by about 29% from last year at Molson Coors to roughly $461 million.

Molson Coors CEO Mark Hunter told Real Money in a June interview that the company now stands to "set the agenda" for craft beers as a much larger player in the U.S. market, noting Molson Coors is on track to have its expanded portfolio of beers available in over 70 countries internationally and that the Coors trademark "is absolutely on fire" in Latin America.

"We'll be ready to go on day one," he added, noting that Molson Coors' business will roughly double in size, placing the company as the world's third-largest brewer by sales.

Real Money's Vice Squad Watch List

Alcohol:

  • Diageo (DEO)
  • Molson Coors (TAP)
  • Constellation Brands (STZ)

Tobacco:

  • Reynolds (RAI)
  • Altria Group (MO)
  • Philip Morris (PM)

Firearms:

  • Vista Outdoors (VSTO)
  • Smith & Wesson (SWHC)
  • Sturm Ruger (RGR)

Casinos:

  • WYNN Resorts (WYNN)
  • Churchill Downs (CHDN)
  • Las Vegas Sands (LVS)

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