When is an oligopoly not an oligopoly? When it becomes a Monopoly
Molson-Coors and Miller to combine U.S. operations
LONDON (Reuters) - Brewers SABMiller and Molson Coors Brewing have agreed to combine their U.S. operations to create a venture with annual sales of $6.6 billion that will be a strong No. 2 player to Anheuser-Busch.
The venture, MillerCoors, will generate around $500 million of annual cost savings by year three after completion and is subject to obtaining clearance from U.S. competition authorities, the two groups said in a statement today.
"We expect this approval to be forthcoming ... The combination will create a strong number-two player in the U.S. beer market with 30 per cent market share," said analyst Matthew Webb at Cazenove.
The deal brings together the second-largest U.S. brewer with beer brands such as Miller Lite and Miller Genuine Draft and the third-largest, Molson Coors, which brews Coors Light, Molson Canadian and Molson Dry beers.
The companies said final agreement for the deal is expected by the end of 2007, while analysts added that regulatory approval is expected about six to nine months after that date.
SABMiller shares were up 2.6 per cent at 15.04 pounds by 1225 GMT.
Molson Coors Vice Chairman Pete Coors will become chairman of MillerCoors while SABMiller Chief Executive Graham Mackay will be vice chairman. Molson Coors CEO Leo Kiely will be chief executive and Miller Chief Executive Tom Long will become president and chief commercial officer of MillerCoors.
Analysts see a high likelihood of the deal going through as the Molson and Coors families, which control Molson Coors, support the deal, and a precedent was set from a regulatory standpoint by the creation of Reynolds American.
In this strange, semi-regulated world of monopoly capital, there is no longer a life-or-death competition threatening the survival of the mature capitalist enterprise (though mergers in search of greater monopoly power are a common occurrence). Rather, the giant corporations that dominate the contemporary economy engage primarily in struggles over relative market share. Although conventional economics textbooks still tell us that the existence of a perfectly competitive economy guarantees that economic profits are short-lived or nonexistent, in the real world of late capitalism, large firms not only obtain persistent profits, but there is a hierarchy of profit rates between firms. It remains a competitive world for corporations in many respects, but the goal is always the creation or perpetuation of monopoly power—that is, the power to generate persistent, high, economic profits through a mark-up on prime production costs.
The underpinnings of the current massive merger wave can be understood much more fully by examining the way they are financed. Although it is still frequently claimed in textbook economics that the main purpose of both the issue of new stock and borrowing by nonfinancial corporations is to finance investment in productive capacity, this is far from the case. In the 1980s, U.S. corporations borrowed heavily, not in order to finance real investment (which they continued to pay for out of gross profits), but for the purpose of stock buybacks (to boost the value of their shares) and takeovers. This borrowing was thus geared to the speculative purchase of existing assets with the expectation of expanding capital gains, and, in the case of takeovers, the creation of new monopolistic positions through "synergy." In the 1990s, the diversion of corporate funds to Wall Street has intensified, but firms have relied on their own profits increasingly for this purpose rather than debt (though also continued to borrow as a defensive strategy against hostile takeovers).
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