Antitrust Law Daily Wrap Up, ANTITRUST—DDC: Stay Granted in Justice Department’s Case Against Anheuser-Busch InBev-Grupo Modelo Merger, (Feb 25, 2013)

The federal district court in Washington, D.C. has stayed a Department of Justice Antitrust Division action, challenging the proposed merger of beer companies Anheuser-Busch InBev (ABI) and Grupo Modelo. The court granted the parties’ joint motion for a stay of the proceedings through March 19, 2013 (U.S. v. Anheuser-Busch InBEV SA/NV, February 22, 2013, Roberts, R.).

The Justice Department filed suit on January 31, 2013, alleging that ABI’s proposed acquisition of total ownership and control over Corona brewer Grupo Modelo 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. ABI currently holds the largest share of the U.S. beer market, with Modelo holding the third-largest share, and the companies together control about 46 percent of annual sales.

The Justice Department alleged that the merger of these firms would result in higher prices and less choice for consumers. According to the Department, ABI generally acts as the market’s price leader, and implements annual price increases in the sub-premium, premium, and premium plus segments of the market. Modelo, through aggressive pricing of its own products, allegedly puts pressure on ABI to maintain or lower its prices.

The Justice Department considered ABI and Modelo’s initial attempt to resolve the Department’s concerns to be inadequate. Under that plan, Modelo’s existing 50 percent interest in Crown Imports LLC—Modelo’s exclusive U.S. importer—would be sold to its Crown joint venture partner, Constellation Brands, Inc., for $1.85 billion. ABI would also enter into an exclusive agreement to supply Constellation with Modelo beer to import into the United States. ABI could terminate this supply agreement after 10 years and would retain the Modelo brands and its brewing and bottling facilities. The Justice Department claimed that this arrangement would eliminate from the marketplace a sophisticated brewing firm with a long history of success and replace it with an importer which would own no brands and would be totally dependent on ABI for its supply of Corona and other Modelo brands.

On February 14, 2013, ABI and Modelo announced a revised plan under which ABI would transfer perpetual rights in Corona and other Modelo brands in the United States and ownership of Compania Cervecera de Coahuila, Modelo’s brewery in Piedras Negras, Mexico, to Constellation in exchange for $2.9 billion. Constellation would still acquire ABI’s 50 percent stake in Crown, resulting in a total purchase price of approximately $4.75 billion. ABI and Constellation also agreed to a three-year transition services agreement.

When combined with Constellation’s announced plans to invest $400 million in expansion of the Piedras Negras facility to permit it to produce 100 percent of Crown’s beer needs, the transaction would establish Crown as the third largest producer and marketer of beer in the United States. ABI, Constellation, and Modelo claim that the new entity would be capable of independently competing with ABI, thus resolving the Justice Department’s concerns. The present stay is intended to allow the Justice Department time to consider the plan, and for the parties to continue their discussions of a potential resolution.

The case is Civil Action No. 13-127 (RWR).

Attorneys: Mary Strimel for U.S. Department of Justice. Steven C. Sunshine (Skadden, Arps, Slate, Meagher & Flom LLP) for Anheuser-Busch InBev SA/NV. Yonatan Even (Cravath, Swain & Moore LLP) for Grupo Modelo S.A.B. de C.V. Margaret H. Warner (McDermott, Will & Emery LLP) for Constellation Brands, Inc.

Companies: Constellation Brands, Inc.; Crown Imports LLC; Anheuser-Busch InBev SA/NV; Grupo Modelo S.A.B. de C.V.

Cases: Antitrust AntitrustDivisionNews DistrictofColumbiaNews