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The Justice Department contends that Anheuser-Busch's planned acquisition of Grupo Modelo would hurt competition in the U.S. beer market.

Brewhaha: Justice Department sues Anheuser-Busch over Modelo acquisition

by Nicole Marsh
Jan 31, 2013

Federal antitrust regulators on Thursday asked a U.S. court to block Anheuser-Busch InBev’S proposed $20.1 billion buyout of Corona beer-maker Grupo Modelo S.A.B. de C.V., saying the combination “would substantially lessen competition.”

Currently, Anheuser-Busch, known for its Budweiser and Bud Light brands, is the largest player in the $80 billion U.S. beer market with a 39 percent share, the government’s lawsuit says. Rival MillerCoors LLC has a 26 percent share, while Mexico’s Modelo is a distant third with a 7 percent stake.

“The department is taking this action to stop a merger between major beer brewers because it would result in less competition and higher beer prices for American consumers,” said Bill Baer, assistant attorney general in charge of the DOJ’s antitrust division, in a press release.

Damage to competition would be severe, the government lawsuit contends, because MillerCoors tends to follow Anheuser-Busch’s pricing -- while Modelo “has resisted Anheuser-Busch-led price hikes.”

According to the lawsuit, Anheuser-Busch internal documents say that the company has felt “increasing pressure” from Modelo as the Mexico City-based company follows a competitive pricing strategy “directly at odds” with Anheuser-Busch’s strategy of guiding prices upward.

Last June, Anheuser-Busch, which currently holds a 35.3 percent direct interest in Modelo, announced it would pay $20.1 billion dollars to acquire the portion of Modelo that it doesn’t already own.

At the time, Anheuser-Busch CEO Carlos Brito praised the “tremendous opportunity from combining two leading brand portfolios and further expanding Grupo Modelo’s brands worldwide.”

The Justice Department sees the deal a little differently. In the lawsuit, the government says that the proposed transaction would “enhance the ability of Anheuser-Busch to unilaterally raise the prices of the brands” and “diminish Anheuser-Busch’s incentive to innovate with respect to new brands, products and packaging.”

Anheuser-Busch issued a statement contending the lawsuit is “inconsistent with the law, the facts and the reality of the market place.” The company also said it intends to “vigorously contest” the DOJ’s action.

Nonetheless, the brewing giant acknowledged Thursday that it no longer expects to close the deal during the current quarter.

The proposed acquisition follows a continuing consolidation trend within the beer industry as the largest brewers in the world have decided that bigger is better. In 2008, Belgium-based InBev purchased St. Louis.-based Anheuser-Busch for a hefty $52 billion. And Chicago-based MillerCoors is a joint venture between two other companies, London-based SABMiller PLC and Molson Coors Brewing Co. of Denver.

Concerns that the Modelo deal could fall through sent Anheuser-Busch shares down $5.54, or 5.9 percent, to a New York Stock Exchange close of $88.60, while Modelo’s shares tumbled $7.50, or 6.5 percent, to close at $108.50 in U.S. over-the-counter trading