Beverage News / Beer

AB InBev, Constellation Brands respond to DOJ lawsuit

On Jan. 31, the U.S. Department of Justice (DOJ), Washington, D.C., filed a civil antitrust lawsuit challenging Leuven, Belgium-based Anheuser-Busch InBev’s (AB InBev) proposed acquisition of total ownership and control of Grupo Modelo, Mexico City. On June 29, 2012, AB InBev announced an agreement under which it would acquire the remaining stake in Grupo Modelo for $20.1 billion. Tangentially, Constellation Brands Inc., Victor, N.Y., which in a joint venture with Grupo Modelo currently owns 50 percent of Crown Imports LLC, Chicago, signed an agreement with AB InBev to purchase the remaining 50 percent interest in Crown Imports for $1.85 billion.

The department said that the transaction would substantially lessen competition in the market for beer in the United States as a whole and in 26 metropolitan areas across the United States, resulting in consumers paying more for beer and having fewer new products from which to choose.

According to the department, AB InBev’s Bud Light is the best-selling beer in the United States and Grupo Modelo’s Corona Extra is the best-selling import beer. Because of the size of the beer market in the United States, even a small increase in the price of beer could result in billions of dollars of harm to American consumers, the department said.

The department’s complaint also alleges that AB InBev and Grupo Modelo efforts to remedy the anticompetitive aspects of their transaction are inadequate. The complaint states that AB InBev has agreed to sell Grupo Modelo’s existing 50 percent interest in Crown Imports to its joint venture partner, Constellation Brands. AB InBev also would enter into an exclusive agreement to supply Constellation Brands with Grupo Modelo beer to import into the United States, although AB InBev can terminate this supply agreement after 10 years and would retain the Grupo Modelo brands and its brewing and bottling facilities.

AB InBev responded to the lawsuit, saying: “The U.S. Department of Justice’s action seeking to block the proposed combination between AB InBev and Grupo Modelo is inconsistent with the law, the facts and the reality of the marketplace. On [June 29], the companies announced an agreement under which AB InBev will acquire the remaining stake in Grupo Modelo that it does not already own. We remain confident in our position, and we intend to vigorously contest the DOJ’s action in federal court. Given today’s development, we no longer expect the deal to close during the first quarter of 2013. We will comment further once we have reviewed the DOJ filing.”

Constellation Brands also responded saying it believes the DOJ’s action demonstrates its incomplete understanding of the proposed transaction for three reasons. First, Crown Imports, not Grupo Modelo, is AB InBev’s competitor in the United States, it says. Corona and the other Grupo Modelo brands are sold in the United States by Crown Imports, a joint venture currently owned 50/50 by Constellation Brands and Grupo Modelo. Second, the proposed transaction will enhance Crown Imports’ status as an independent and competitive entity and will strengthen its position as a growing competitor to AB InBev in the U.S. beer market, it says. Crown Imports will have complete, autonomous control as the brand owner in the United States with respect to its distribution, marketing, promotion and pricing of Corona and the other Modelo brands, it adds. Critical to Crown Imports’ success is its independent judgment in selecting and collaborating with the best distributor option available in each of its markets, it says. Third, Crown Imports will have even greater flexibility in responding to competitive factors in each of its markets, Constellation Brands says. The new contract ensures that Crown Imports will benefit from both long-term stability in costs of goods provided by AB InBev and from the operational excellence and global scale of the world’s leading beer producer, it says. As a result, Crown Imports and consumers can benefit from the efficiencies that are expected to be achieved by the AB InBev/Grupo Modelo transaction. Additionally, Crown Imports will immediately have access to several more Mexican beer brands to sell in the United States, and is guaranteed supply of a certain number of new products each year upon request, it adds. In terms of shipment priority, Crown Imports will be on parity with the Mexican domestic market. Finally, Crown Imports is empowered to freely innovate and supplement its offerings in the United States beyond the Grupo Modelo portfolio at its sole discretion, it concludes.

The DOJ lawsuit, filed in the U.S. District Court for the District of Columbia, seeks to prevent the companies from merging and to preserve the existing head-to-head competition between the firms that the transaction would eliminate, it states.

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