Antitrust Scrutiny of Major Stocks Has Big Implications

Let's start with that icon of American marketing, BUD. If two of the world's three largest competitors in a given industry proposed merging, you'd think there'd be an outcry from antitrust enforcers worried about possible collusion or diminished competition. Yet there was nary a peep — with the exception of Missouri's governor — in reaction to InBev's proposed takeover of Anheuser Busch, which would combine the number two and three brewers in the world.

Of course, Missouri's governor is hardly a disinterested observer (given that BUD is based there). Who can blame him for trying to interest the FTC? If it was willing to block the Whole Foods merger, then anything's possible. But the agency got its wrists slapped by a federal judge for that fruitless effort, so it may not be so eager to try novel theories of antitrust law. And that's what it would take to stop InBev.

Traditional antitrust standards define the relevant geographic market as the U.S., where there's little or no threat to U.S. consumers from the InBev-Anheuser combination. BUD dominates the U.S. beer market with about 50% of the market, but InBev's biggest brands, Beck's and Stella Artois, are a negligible percentage. The U.S. beer industry is basically an oligopoly of Anheuser, SABMiller (SBMRF), and Molson Coors (TAP), with Anheuser the acknowledged leader.

InBev presumably knows a thing or two about price "leadership," having been one of several brewers slapped with a combined 91 million euro fine for cartel pricing in Europe back in 2001. (The company was then known as Interbrew.) It's only rational for oligopolists to engage in tacit price leadership (no one likes to use the word "price fixing," with its criminal connotations, but the result is pretty much the same). It isn't illegal, though years ago the FTC tried a novel case against the oligopolistic cereal industry contending that it was. It failed then, and I doubt the agency would want to revive the discredited theory to block InBev.

As an investor I like oligopolies and their high profit margins, so is InBev a buy if it gets the prize? I wouldn't be in any rush. Given InBev's small presence in the U.S., and Anheuser's negligible market share in Europe, the additional economies of scale aren't that impressive.

I don't see many viable options for BUD. It's puzzled me for years that Anheuser hasn't been able to use its market clout to better lift profits. Evidently, craft brews have been nipping at its heels and it's been keeping a wary eye on SABMiller, fearful of raising prices. The stock has gone nowhere until the recent takeover bid. There's been talk that InBev can slash advertising costs, modestly raise prices, and still hold market share. Maybe. But with grain and transportation prices soaring and the heavy beer-drinking customer strapped by high gas prices, now isn't the time to be investing in a brewer, no matter how big it is.

I don't own Anheuser shares, but I am an Intel shareholder. Because of its dominant market position in semiconductors, Intel has faced antitrust scrutiny for most of its existence. But unlike Microsoft (MSFT), it has never spawned a massive assault from federal regulators, despite constant pleas from rival AMD (AMD). But now the FTC is weighing in, announcing on June 6 that it was launching a formal investigation. A New York Times editorial applauded the move, calling Intel a "goliath" and noting that the European Commission had already ruled that Intel was offering "big rebates" to customers.

Imagine that — "rebates." Isn't that another word for price cuts? I thought that was the essence of competition. Aren't consumers benefiting with better and cheaper computers? As for the European Commission, has it ever met a big U.S. technology company it liked? As an Intel shareholder, I wish the company would stop this vicious price competition with AMD and raise prices. I'm sure that would make AMD happy, too, since its margins would rise. The day AMD stops complaining about Intel is the day the antitrust regulators should really go into action. Maybe there are facts I'm not privy to, but it looks like the FTC is headed for another humiliating defeat in U.S. courts.

Yahoo (YHOO) and Google (GOOG) are delaying their search accord for several months to let antitrust regulators pore over it. I've already said that it makes no sense to force Yahoo to run its own search advertising program when Google can do it better and cheaper. The alternative is for Yahoo to continue to lose money and market share until it withers away. Still, this will be a precedent-setting decision with enormous implications. Given its recent track record, the FTC may find blocking the deal to be irresistible. If so, Yahoo and Google should go to court. As a shareholder of both companies, I'm a big fan of the arrangement, which could prove to be one of the few joint ventures that actually does deliver the promised synergies for both sides.

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