Anheuser-Busch agrees to DoJ's conditions on its $20.1-bn Grupo Modelo acquisition

Anheuser-Busch InBev, the world's largest brewer, has agreed to conditions laid down by the US Justice Department (DoJ) over its proposed $20.1-billion merger with Corona beer maker Grupo Modelo.

Early this year, the DoJ had filed an antitrust lawsuit to block AB InBev from acquiring the 50 per cent of Grupo Modelo it does not already own on the ground that the deal would hurt competition and raise prices in the US if the makers of Budweiser and Corona Extra beer merged. (See: US govt to block Anheuser-Busch InBev's $20.1-bn Grupo Modelo bid)

AB InBev and Modelo - the largest and third-largest beer firms, respectively - together control about 46 per cent of annual sales in the US.  MillerCoors, the second largest beer firm, accounts for about 29 per cent of nationwide sales.

The DoJ had said that the US beer market is highly concentrated and with Modelo as a competitor, AB InBev was under pressure to maintain or lower prices.

''This lawsuit seeks to prevent AB InBev from eliminating Modelo as an important competitive force in the beer industry,'' the DoJ had said in its lawsuit.

Under the terms of the deal arrived today with the DoJ, AB InBev  will sell Modelo's 50-per cent stake in Crown Imports, the joint venture that imports and markets its brands in the US, to Constellation Brands, giving Constellation Brands 100-per cent ownership of the JV.

AB InBev will also sell Modelo's Piedras Negras brewery in Mexico to Constellation Brands, which will give AB InBev US licensing rights to seven Modelo brands currently sold in the US, including Corona and Modelo Especial, the No 1 and No 3 imported brands into the US, plus three other Modelo brands that are not yet sold in the US market.

Also as part of the condition of the proposed settlement, Constellation will expand capacity of the Piedras Negras brewery in order to meet current and future demand for the Modelo brands in the US. 

''Before the merger, there were two competitors – Modelo and AB InBev – and AB InBev owned a substantial stake in Modelo.  The companies' proposed merger would have reduced those two competitors to one – AB InBev.  The proposed settlement announced today will create an independent, fully integrated and economically viable competitor to ABI,'' said, assistant Attorney General in charge of the antitrust at the DoJ.  

''This is a win for the $80-billion US beer market and consumers. If this settlement makes just a one per cent difference in prices, US consumers will save almost $1 billion a year,'' he added.

The DoJ has forced AB InBev to give up all rights in Crown compared to the brewer's earlier stand of selling Modelo's stake in Crown to Constellation and made it enter into a 10-year supply agreement to provide Modelo beer to Constellation to import into the US.  

The DoJ had rejected this proposal since it would have eliminated the Modelo brands as an independent competitive force in the US beer market.  

Unlike the companies' original proposal, which left Constellation with no brewing assets and at AB InBev's mercy for the supply of beer, the DoJ said that the proposed settlement ensures that Constellation will have independent brewing assets and the ownership of the Modelo beer brands for sale in the US in perpetuity.  

Brussels-based AB InBev said that the agreement is substantially in line with the revised transaction announced in February, where it agreed to sell Modelo's stake in Crown and it would now proceed with closing the deal in June 2013.