US Authorities Sue to Stop $20 Billion Beer Deal to Unite Bud and Corona Reuters
go to original February 1, 2013

If Anheuser-Busch owned Grupo Modelo, makers of Corona, the company would control 46 percent of annual US beer sales. (Joe Raedle/Getty Images)

US antitrust authorities sued Thursday to block the US$20.1 billion takeover of Mexican brewer Grupo Modelo by Belgian-US giant Anheuser-Busch InBev, saying the combined firm would have too much power over the US beer market.

The move put on hold the takeover announced last June that would bring together brands like Budweiser, Stella Artois and Corona in the world's largest beer company, and give it a 46 per cent hold on the US market and a bigger lock on Mexico's.

ABI, which had revenues of some US$40 billion in 2011, already owns about 50 per cent of Modelo, but the all-cash deal would give it strategic control of the Mexican company, which reported 2011 sales of US$7.2 billion.

The US Department of Justice said the suit "seeks to prevent the companies from merging and to preserve the existing head-to-head competition between the firms that the transaction would eliminate."

The action is geared towards protecting consumers in the US$80 billion-a-year US beer market, said assistant attorney general Bill Baer. The proposed deal could mean that US consumers pay billions of dollars more for beer, he said.

"This is the sort of product that matters to consumers," Baer said on a conference call with reporters. "We believe the acquisition is a bad deal for US consumers."

In a statement, ABI criticized the suit as "inconsistent with the law, the facts and the reality of the market place."

"We remain confident in our position, and we intend to vigorously contest the DOJ's action in federal court. Given today's development, we no longer expect the deal to close during the first quarter of 2013."

A short statement from Modelo reported that the company was notified by ABI that it intends to contest the Justice Department's action. "Due to this fact, we do not expect the transaction to close in the first quarter of 2013," Grupo Modelo said.

A note from Citigroup research characterised the Justice Department's move as "disappointing news" and said it shows that "there is a real chance" the deal will fall apart.

When they announced the deal last June, ABI and Grupo Modelo touted the combination as a means for ABI to get exposure to developing markets and for positioning Corona as "a global flagship brand alongside Budweiser" Stella Artois and Beck's, according to a joint press release announcing the deal.

"Consumers in Mexico would benefit from the increased choice offered by AB InBev's extensive portfolio," the June statement said.

The Justice Department's complaint argues that the US beer market is already highly concentrated.

It said that Modelo currently acts as a strong counterweight to efforts by ABI, the world's top brewer, and number-two US beer maker MillerCoors, to jack up prices.

The result is "Modelo gaining market share at" the expense of" ABI and MillerCoors, according to the complaint.

The complaint quotes from internal ABI strategy documents in which company officials complain about price competition with Modelo brands.

In one case in California, ABI rescinded a September 2010 price increase because of competition from Modelo's Corona.

The proposed merger quickly raised worries over consolidation in the beer market when it was announced last June.

To address antitrust concerns, ABI had proposed selling Modelo's 50 per cent interest in Crown Imports, which currently imports Modelo beer into the US, to US group Constellation Brands.

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