Mexican standoff as US moves to block beer deal
The US Justice Department this week moved to block Anheuser-Busch InBev's $US20.1 billion ($19.3 billion) deal to buy Grupo Modelo, the Mexican maker of Corona beer, saying the merger would cement Anheuser-Busch InBev's control of the market and enable it to continue to raise beer prices. Grupo Modelo is the third-biggest beer company in the US.
"This is the sort of product that matters to consumers," said the head of the Justice Department's antitrust division, William Baer. "[Even] if you have a very slight price increase that happens because of this deal, it could mean that consumers will pay billions of dollars more."
The lawsuit is the first major roadblock in a decade of consolidation by brewers around the world, which has reduced the industry to only a few major players, primarily multinationals that own a majority of big brands.
At the top is Anheuser-Busch InBev, itself the product of a 2008 merger between a US and a Belgian-Brazilian brewing juggernaut. To compensate for slow growth in developed economies, the company has been seeking significant footholds in emerging markets like Mexico.
Since the middle of 2008, the brewer has announced more than 15 takeovers, according to Capital IQ.
Anheuser, the acquisitive SABMiller, and Grupo Modelo have 72 per cent of the $US80 billion US beer market, giving them enormous power over pricing.
Despite the explosion of smaller breweries in recent years, analysts say that the craft beer market makes up just 6 per cent of beer sales.
Anheuser, which brews Budweiser and Stella Artois, has raised its prices with regularity every year, with MillerCoors following suit, the Justice Department said.
Anheuser has promised a fight. In a statement, the company said: "We remain confident in our position, and we intend to vigorously contest the DOJ's action in federal court."
But behind the scenes the two sides will try to reach a settlement.
Analysts were divided over how significant a hurdle the lawsuit posed. In a research note on Thursday, analysts at UBS wrote the case was not a "deal breaker", expecting Anheuser to give up what they called "reasonable" concessions.
Anheuser has long pursued the benefits of consolidation, including opportunities to cut costs. Last year, the company agreed to buy the 50 per cent that it did not already own in Modelo, a deal that would give it full control of Corona, the US's top imported beer brand.
"In this case, there are pretty significant synergies," the editor of Beer Business Daily, Harry Schuhmacher, said. "Anheuser can afford to overpay for Modelo and is eager to."
But he believed the Modelo deal would be the end of beer deals for a long time, especially among the giant brewers.
The Justice Department contends that taking over Modelo would give Anheuser overwhelming control both nationally and in markets like California, Texas and New York.
Mindful of potential antitrust issues, Anheuser has proposed selling Modelo's 50 per cent stake in Crown Imports, the main importer of Corona in the US, to Constellation Brands for nearly $US1.9 billion. Anheuser has said that Crown is what dictates the prices of Modelo products and that selling the stake removes any say that it would have in the matter.
But the Justice Department called that offer a "facade", arguing that Crown's dependence on Modelo products makes it subject to Anheuser's wishes. The government's lawsuit highlighted an email from Crown's chief executive, Bill Hackett, to employees that read: "Our No.1 competitor will now be our supplier."
The New York Times
Frequently Asked Questions about this Article…
The U.S. Justice Department filed a lawsuit this week seeking to block Anheuser-Busch InBev’s proposed $US20.1 billion purchase of Grupo Modelo (the Mexican maker of Corona), saying the merger would cement Anheuser-Busch InBev’s control of the U.S. beer market and risk higher prices for consumers.
The DOJ argues the deal would give Anheuser-Busch InBev overwhelming market power nationally and in key states like California, Texas and New York, enabling it to raise beer prices. Regulators say even small price increases could cost consumers billions over time.
According to the article, Anheuser (Anheuser-Busch InBev), SABMiller and Grupo Modelo together control about 72% of the roughly $US80 billion U.S. beer market, leaving relatively little share to smaller brewers.
Anheuser-Busch InBev proposed selling Modelo’s 50% stake in Crown Imports (the main importer of Corona in the U.S.) to Constellation Brands for nearly $US1.9 billion, saying that would remove any ability to dictate Modelo product pricing.
The Justice Department called the offer a "facade," arguing Crown’s dependence on Modelo products would still leave it subject to Anheuser’s influence. The lawsuit highlighted internal Crown communications suggesting a buyer-supplier conflict.
For investors, the case highlights regulatory risk around large brewery mergers. The suit could force concessions or divestitures, slow future consolidation among the giants, and affect expected cost synergies and valuations. Some analysts (e.g., UBS) say concessions could resolve the case, while others expect this to chill big beer deals for a long time.
Despite the rise in small breweries, analysts cited in the article note craft beer makes up only about 6% of U.S. beer sales. That means major brewers still dominate market pricing and competition, which is why regulators worry consolidation among the big players.
Anheuser-Busch InBev said it intends to vigorously contest the DOJ’s action in federal court. Meanwhile, both sides may try to reach a settlement behind the scenes; analysts expect possible "reasonable" concessions or divestitures could be negotiated, but the outcome remains uncertain.
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