InBev, Grupo Modelo Merger Halted by U.S. Justice Department

Jan 31, 2013 04:22 PM EST

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View of Anheuser-Busch InBev logo outside the brewery headquarters in Leuven
(Photo : Reuters / Francois Lenoir)

Anheuser-Busch InBev NV (ABI)'s $20.1 billion purchase of Grupo Modelo SAB was halted by a suit in federal court. AB InBev already owns shares of Modelo, but the deal would give total control to the beverage giant.

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The Justice Department's filing came on the heels of talks between both companies and the government. The lawsuit stated that the merger significantly endangers competition and could result in harming consumers:

"Today, Modelo aggressively competes head-to-head with ABI in the United States.  That

competition has resulted in lower prices and product innovations that have benefited consumers

across the country.  The proposed acquisition would eliminate this competition by further

concentrating the beer industry, enhancing ABI's market power, and facilitating coordinated

pricing between ABI and the next largest brewer, MillerCoors, LLC."

The filing invoked the Clayton Act, and cited high barriers of entry and limited competition in the beer industry. In fact, the top two firms account for approximately 65% of sales. It names InBev as the largest and Modelo as third-largest brewers of beer sold in America.

Acquisitions, Global Market

Modelo produces Corona Extra, which is the top imported beer in America. It also owns specialty brands Modelo Extra and Pacifico. The deal would have given AB InBev a tremendous bridge to the Mexican beer market, which is dominated by Modelo with about 60 percent of market share.

AB InBev would have also increased its lead over number two SABMiller as the world's largest brewer. It cited global production cost savings as a benefit of the deal.

ABI's existing stake in Modelo results from its $52 billion takeover of Anheuser-Busch in 2008. However, it currently only has 43 percent of the voting interest in the company.

Preserving Competition

AB InBev has aggressively pursued the Modelo's market space, even creating a distinctive beverage called "Bud Light Lime" in 2008 to compete with Modelo's Corona beer. It is alleged that this type of innovation and price competition would be stifled by a deal between the two brewers.

In a statement, AB InBev called the DOJ's action "inconsistent with the law, the facts and the reality of the market place." The company expressed confidence, and vowed to contest the suit while tempering expectations on the timing of the deal: "Given today's development, we no longer expect the deal to close during the first quarter of 2013."

The DOJ filing noted that the top two brewers, AB InBev and MillerCoors, tend to follow one another's pricing to maximize profits. It noted that Modelo, the third-ranked brand, has typically not shied away from competing on prices, which rankled the AB InBev management.



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