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09.2014

Massachusetts Beverage Business

OnBeerReport

BIG BEER MERGER FIZZLES

When the news broke last summer that Anheuser-Busch InBev had brokered a $2O billion deal for brewer Grupo Modelo, it was widely viewed as a major coup. But the fizz may have gone out of the deal as the federal government has sued to block the world’s biggest beer maker from spending big bucks to get even bigger. The surprise lawsuit seeks to block AB InBev’s deal with the Mexican company that owns the Corona brand, and came just a day after concession talks with the government broke down. US authorities said they want to prevent any overcharging by the global giants that dominate mass-market brews. Defenders of the companies said consumers have plenty of choice. Beer specialists were divided on whether the merger could survive, with some speculating that AB InBev could relinquish further control over Corona sales in the US to assuage concerns about pricing dominance. Together, AB InBev and Modelo would control about 46% of US sales.

The Justice Department’s 27-page lawsuit portrayed Modelo as an important competitor that puts pressure on AB InBev to maintain or lower prices, especially in California, New York, Texas and some other markets. AB InBev has complained in internal strategy documents about pressure from Modelo’s pricing tactics, the department said, pointing out that when AB InBev raises beer prices, MillerCoors usually follows followed suit, while Modelo has been resistant. AB InBev internal documents “show that it is increasingly worried about the threat of high-end brands, such as Modelo’s, constraining its ability to increase pricing,” the lawsuit said. The lawsuit sets the stage for a major court fight unless the sides can find a way to resolve their differences. Should the acquisition agreement fall apart as a result of the antitrust challenge, AB InBev may have to pay Modelo a $65O million breakup fee, according to the agreement.

This is the latest deal to fall prey to global antitrust regulators as the government has taken a hard line on some recent deals. The Justice Department in 2O11 forced AT&T Inc. to drop its acquisition of rival cell phone provider T-Mobile USA, while European regulators blocked the merger of Deutsche Börse and Euronext last year. And in January, United Parcel Service Inc. abandoned its bid for Dutch delivery company TNT Express after European objections. Some beer-market watchers said AB InBev could offer additional concessions, perhaps giving up or restructuring its 1O-year option to buy the US rights for all Modelo brands from Constellation’s Crown subsidiary. Others said a settlement may be hard to come by, especially given that earlier negotiations faltered.

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