Antitrust Law Daily Wrap Up, TOP STORY—Brewers Resolve U.S. Concerns over Merger, Agree to Divest Modelo’s U.S. Business, (Apr 19, 2013)

By Jeffrey May, J.D.

Anheuser-Busch InBev SA/NV (ABI) has resolved Department of Justice Antitrust Division concerns over its proposed acquisition of the remaining stake in Grupo Modelo S.A.B. de C.V. A proposed final judgment was filed in the federal district court in Washington, D.C. that, if approved by the court, would resolve a civil antitrust complaint challenging the combination, which was filed on January 31, 2013.

The Justice Department had contended that the $20.1 billion 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. ABI’s global brands include Budweiser, Bud Light, Stella Artois, and Beck’s. Modelo’s Corona Extra brand is the top-selling import in the United States.

Under the proposed final judgment, the companies would be required to divest Modelo's entire U.S. business to Constellation Brands Inc. or to an alternative purchaser if for some reason the transaction with Constellation cannot be completed. It is intended to create an independent, fully integrated and economically viable competitor to ABI, according to the Justice Department.

The divestiture assets include Modelo's newest, most technologically advanced brewery (the "Piedras Negras Brewery"), which is located in Mexico near the Texas border; perpetual and exclusive U.S. licenses of the Modelo brand beers; Modelo's current interest in Crown—the joint venture established by Modelo and Constellation to import, market and sell certain Modelo beers into the United States; and other assets, rights and interests necessary to ensure that Constellation is able to compete in the U.S. beer market using the Modelo brand beers, independent of a relationship to ABI and Modelo. Further, Constellation was added as a defendant for purposes of settlement and would be required to expand the capacity of Piedras Negras in order to meet current and future demand for the Modelo brands in the United States.

The settlement comes after initial attempts of the parties to remedy the potentially anticompetitive aspects of the transaction were rejected by the Justice Department as inadequate. An original proposal to sell Modelo's stake in Crown to Constellation and enter into a 10-year supply agreement to provide Modelo beer to Constellation to import into the United States was rejected on the ground that it would have eliminated the Modelo brands as an independent competitive force in the U.S. beer market. The federal district court stayed proceedings in the case multiple times while the parties attempted to reach a resolution.

"This is a win for the $80 billion U.S. beer market and consumers," said Bill Baer, Assistant Attorney General in charge of the Department of Justice's Antitrust Division. "If this settlement makes just a one percent difference in prices, U.S. consumers will save almost $1 billion a year."

According to an ABI statement, with this proposed resolution of the Justice Department suit, all necessary regulatory hurdles have been cleared. The Mexican Competition Commission approved the revised transaction with Constellation earlier this month. As a result, the transaction is expected to close in June 2013.

The case is U.S. v. Anheuser-Busch InBEV SA/NV, Civil Action No. 13:127 (RWR).

Attorneys: Michelle R. Seltzer, U.S. Department of Justice, for plaintiff. Steven C. Sunshine (Skadden, Arps, Slate, Meagher & Flom LLP) for Anheuser-Busch InBev SA/NV. Richard J. Stark (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: Anheuser-Busch InBev SA/NV; Constellation Brands, Inc.; Crown Imports LLC; Grupo Modelo S.A.B. de C.V.

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