U.S. sues to stop beer deal to unite Bud and Corona

Thu Jan 31, 2013 5:38pm EST
 

By Diane Bartz and Martinne Geller

WASHINGTON/NEW YORK (Reuters) - The U.S. government has filed a lawsuit seeking to stop Anheuser-Busch InBev SA (ABI.BR: Quote) from buying the half of Mexican brewer Grupo Modelo (GMODELOC.MX: Quote) that it does not already own, saying the $20.1 billion deal could mean higher U.S. beer prices.

The government's move calls into question the future of one of the biggest deals of 2012 and a related deal that was set to change the fortunes of the world's largest wine company, Constellation Brands Inc (STZ.N: Quote). Shares of all three companies fell sharply on the news.

Despite a huge array of beers on store shelves, the beer market is dominated by two big players.

The top seller is AB InBev, which has 200 brands ranging from big names like Budweiser and Stella Artois to craft-style beers like Shock Top and Goose Island. The No. 2 player is MillerCoors, a joint venture between SABMiller Plc (SAB.L: Quote) and Molson Coors Brewing Co (TAP.N: Quote).

This market dominance would seem to give the big companies the power to raise prices. But, when they did, the smaller Modelo, with its popular Corona beer, often refused and took market share, the Justice Department said.

For example, Modelo declined to raise prices in California in 2010 and was "eating (Budweiser's) lunch," according to an AB InBev document quoted in the Justice Department complaint aimed at stopping the proposed transaction on the grounds that it breaks antitrust law.

AB InBev, which announced the deal for Modelo in June, said it will fight the Justice Department in federal court and called its decision to sue "inconsistent with the law, the facts and the reality of the market place."

Trading in Constellation Brands, which would have become sole owner of the company that distributes Modelo beers, was halted after it dropped 23.8 percent. It later resumed and closed down 17.4 percent at $32.36.   Continued...

 
View of Anheuser-Busch InBev logo outside the brewery headquarters in Leuven June 25, 2012. REUTERS/Francois Lenoir