US sues to block brewery merger
The US Justice Department on Thursday moved to block Anheuser-Busch InBev's $US20.1 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 William Baer, head of the Justice Department's antitrust division. "[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 setback in a decade of consolidation by brewers globally, which has reduced the industry to 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 such as Mexico.
Since the middle of 2008, the brewer has made more than 15 takeovers, according to Capital IQ.
The government's lawsuit details how in California, a price war among the biggest brewers had led Anheuser to complain in internal documents that Modelo's strategy was "eating (Budweiser's) lunch". According to the suit, a sales executive said that "California is a burning platform" for Anheuser.
The Justice Department is again flexing its aggressive antitrust muscle. It is the biggest deal to be opposed since 2011, when the government sued to stop AT&T's proposed $US39 billion takeover of T-Mobile USA. (Those companies abandoned the deal.)
The antitrust action is in an industry where previous administrations allowed waves of consolidation. Anheuser-Busch InBev, 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 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.
Like AT&T, which ferociously battled the case for months, 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 that the case wasn't 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 top imported beer brand in the US.
"In this case, there are pretty significant synergies," said Harry Schuhmacher, the editor of Beer Business Daily. "Anheuser can afford to overpay for Modelo and is eager to."
He said he believed the Modelo deal would be the end of beer deals for a long time, especially among the giant brewers.
The Justice Department's lawsuit is the first high-profile antitrust action on the watch of Mr Baer, who just took over as President Barack Obama's top antitrust lawyer.
The 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 United States, to Constellation Brands for nearly $US1.9 billion. Anheuser has said that Crown dictates the prices of Modelo products and that selling the stake removes any say it would have in the matter.
But the Justice Department called that offer a "facade", arguing that Crown's dependence on Modelo products made it effectively subject to Anheuser's wishes. The government's lawsuit highlighted an internal email from Crown's chief executive, Bill Hackett, to employees that read, "Our No. 1 competitor will now be our supplier."
Frequently Asked Questions about this Article…
The Justice Department filed suit saying the deal would give Anheuser-Busch InBev overwhelming market control and let it raise beer prices. DOJ antitrust chief William Baer warned even small price increases from consolidation could cost consumers billions, and the suit notes the merger could cement dominance nationally and in key states like California, Texas and New York.
According to the article, Grupo Modelo is the third-biggest beer company in the US and, together with Anheuser-Busch InBev and SABMiller, accounts for roughly 72% of the estimated $US80 billion US beer market. For investors, that concentration matters because further consolidation could affect competition, pricing power and future profit margins across major brewers.
Anheuser-Busch InBev proposed selling Modelo's 50% stake in Crown Imports — the main US importer of Corona — to Constellation Brands for nearly $US1.9 billion. The company argued Crown controls Modelo product pricing, so the sale would remove Anheuser's influence. The DOJ called that proposal a 'facade,' citing Crown's dependence on Modelo products and internal communications suggesting the supplier relationship would still favor Anheuser.
The article notes Anheuser-Busch InBev has regularly raised prices each year and pursued aggressive consolidation—making more than 15 takeovers since mid-2008. For investors, that history suggests the company seeks scale and price-setting power to boost margins, but it also raises regulatory risk when deals could lessen competition.
The article outlines a few likely paths: a court battle if Anheuser-Busch InBev contests the suit, or a negotiated settlement that could include divestitures or concessions. UBS analysts suggested the case might not be a 'deal breaker' and expected Anheuser to make 'reasonable' concessions. A prolonged legal fight could create uncertainty for brewer shares, while an approved deal with remedies could be seen as positive for industry consolidation and cost synergies.
The DOJ action is the biggest merger opposition since the 2011 US attempt to block AT&T's takeover of T-Mobile USA. It signals a tougher antitrust stance that could slow or reshape future mega-deals in industries where a few firms dominate—something investors should watch when valuing companies that pursue large acquisitions.
Analysts are divided. UBS wrote the case wasn't necessarily a 'deal breaker,' expecting Anheuser-Busch InBev to agree to reasonable concessions. Industry commentator Harry Schuhmacher suggested the Modelo deal could mark the end of large beer mergers for a while. Overall, views range from an eventual settlement to a contested court battle.
Investors should note that major consolidation plans can face significant regulatory risk and that outcomes can affect pricing power, margins and stock volatility. The suit highlights antitrust scrutiny of concentrated markets—especially where a few global brewers control most sales—so investors should factor regulatory exposure into valuations of large brewers and track developments closely.
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