Anheuser-Busch InBev, DoJ near antitrust agreement on Grupo Modelo acquisition

Anheuser-Busch InBev and the US Justice Department (DoJ) have asked a court to delay an antitrust lawsuit hearing until 23 April as both sides appeared to have reached an agreement over the $20.1 billion proposed acquisition of Mexican brewer Grupo Modelo by Anheuser-Busch InBev.

The DoJ had early this year filed an antitrust lawsuit in order to block AB InBev from acquiring the 50 per cent of Grupo Modelo it does not already own for $20.1 billion 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)

The deal "would result in less competition and higher beer prices for American consumers …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.

"At this time, the parties have reached an agreement in principle on a resolution of this litigation," the DoJ and AB InBev said in a joint filing with the US District Court for the District of Columbia.

In June 2012, AB InBev, the maker of Budweiser and Stella Artois beers, said that it would buy the remaining 50-per cent stake that it does not already own in Grupo Modelo for $9.15 per share in cash or $20.1 billion. (See: Anheuser-Busch InBev to buy remaining Modelo stake for $20.1 bn)

Anticipating antitrust issues, Grupo Modelo was to sell its existing 50-per cent stake in Crown Imports, the joint venture that imports and markets its brands in the US, to Constellation Brands for $1.85 billion, giving Constellation Brands 100-per cent ownership of the JV.

As a result, Grupo Modelo's brands would continue to be imported, marketed and distributed independently in the US through Crown Imports on the existing financial terms, while AB InBev will continue to supply Modelo's beer brands.

The DoJ was opposing the sale since AB InBev and Modelo together control about half of the US beer market. It says that the US beer market is highly concentrated and since Modelo is a competitor, AB InBev is under pressure to maintain or lower prices.

''If AB InBev fully owned and controlled Modelo, ABI would be able to increase beer prices to American consumers.  This lawsuit seeks to prevent ABI from eliminating Modelo as an important competitive force in the beer industry,'' the DoJ had said in its lawsuit.

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.

According to the DoJ, the US beer market is already highly concentrated, and prices are increased by strategic interactions among the largest brewers, including AB InBev and MillerCoors.  It said that AB InBev generally acts as the price leader, implementing annual price increases in the sub-premium, premium and premium plus segments of the US beer industry.

''MillerCoors and other brewers have typically joined the ABI price increases, while Modelo has not.  By pricing aggressively, Modelo - through its importer, Crown Imports - puts pressure on AB InBev to maintain or lower prices, especially in certain parts of the country.  As a result, Modelo has become a particularly important competitor in the US market,'' it said.

The world's top five brewers control nearly 50 per cent of the global beer market, with ABI, the world's largest brewer, holding an 18-per cent global market share, followed by SABMiller Plc with 9.8 per cent, Heineken with 8.8 per cent, Carlsberg with 5.6 per cent and Kirin Holdings Co. with 4.8 per cent.

"Any settlement would have to fully protect US consumers by preserving the competition that Grupo Modelo currently provides, while giving a divestiture buyer the freedom and capability to compete vigorously going forward," said Gina Talamona, a spokesperson for the DoJ in an statement.