Proposed beer merger falls flat

St. Louis Post-DispatchJanuary 31, 2013 

Anheuser–Busch InBev

Bud Light beer is shown in the aisles of Elite Beverages in Indianapolis, Monday, Jan. 28, 2013. (AP Photo/Michael Conroy)

MICHAEL CONROY — AP

— Calling it a “bad deal for consumers,” the Justice Department sued Thursday to block Anheuser-Busch InBev’s proposed $20 billion purchase of Mexican brewer Grupo Modelo.

The suit in federal court in Washington will certainly stall, and may kill, a deal that would have given the big brewer an even bigger chunk of the $80 billion U.S. beer market and the rights to sell Corona Extra – one of the most popular import beers in the world – to consumers all over the planet.

The Justice Department, which reviews all large mergers for antitrust concerns, has been investigating the deal since it was announced in June. It interviewed not only A-B InBev, Modelo and U.S. distribution partner Constellation Brands, but also a wide range of wholesalers, craft brewers and industry experts.

In the end, said Bill Baer, the Justice Department’s top antitrust official, regulators grew concerned that buying Modelo – an aggressive competitor that has kept prices down in recent years – would give A-B too much power over the cost of a six-pack, and that that would hurt consumers.

“If you have even a very slight increase that occurs as a result of this deal, American consumers are going to pay billions of dollars more a year,” Baer said. “This is a pocketbook issue.”

The concentrated nature of the U.S. beer industry was a driver behind the decision to sue. In the lawsuit, the government said the two largest players – Anheuser-Busch and MillerCoors – already control 65 percent of sales nationwide. Adding Modelo’s 7 percent market share to Anheuser-Busch’s existing 39 percent market share would eliminate competition and further concentrate the industry, according to the Justice Department.

“Beer prices have gone up in recent years because of this high concentration,” Baer said. “We took this action today because we believe the acquisition is a bad deal for American consumers.”

Perhaps anticipating antitrust worries, A-B had originally structured the deal to sell Modelo products in the U.S. through a third party – Constellation – with a 10-year contract that included price controls. It appears that structure was not enough to satisfy regulators, however.

Baer said Justice Department lawyers and A-B InBev have had “frank and candid” conversations in recent weeks over possible other solutions.

“At the end of the day, we were too far apart,” he said.

So Thursday morning, the agency called the brewer and notified them of the lawsuit.

In a statement, A-B InBev vowed to “vigorously” fight back, saying the suit “is inconsistent with the law, the facts and the reality of the marketplace.” But it acknowledged that the deal will no longer close in the first quarter of 2013, as originally planned. The company said it would comment further after it had time to review the lawsuit.

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