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DealBook: Antitrust Agreement in Merger of Anheuser-Busch and Brewer of Corona

April 20, 2013 by Leave a Comment

Constellation will get rights to make and sell Corona.Victor Ruiz Garcia/ReutersConstellation will get rights to make and sell Corona.

7:26 p.m. | Updated

WASHINGTON — Anheuser-Busch InBev, the country’s largest brewer, agreed on Friday to sell the United States rights to several foreign brands, including the top-selling Corona, in a deal that regulators say will ensure competition in beer prices.

The settlement of the Justice Department’s antitrust lawsuit means that Anheuser-Busch InBev, which controls 39 percent of the American beer market, can go ahead with its $20.1 billion takeover of Grupo Modelo of Mexico, the brewer of Corona.

But as part of the agreement, Anheuser will sell Modelo’s 50 percent stake in Crown Imports, which distributes Corona and other Modelo brands in the United States, to Constellation Brands, which already owned the other half.

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For American consumers, the agreement will help keep beer prices down, government officials say, although there will be little practical effect on what beer buyers will see when they go shopping.

“This is an $80 billion market,” said William J. Baer, an assistant attorney general who oversees the Justice Department’s antitrust division. “Even a 1 percent price change would cost consumers $1 billion a year. This agreement will help to keep the market competitive, dynamic and quite healthy.”

The Justice Department’s antitrust division filed a lawsuit in January to block the merger. The government’s opposition was a big blow to Anheuser-Busch InBev, which saw the acquisition as vital to its push to expand in Mexico and the rest of Latin America. In February, the two sides announced they were in talks to resolve the antitrust concerns.

The settlement will leave Constellation — one of the country’s largest wine producers — with full and permanent rights to make and sell Corona, Corona Light, Modelo Especial, Pacifico and six other brands in the United States.

“Ultimately, nothing will change for consumers in the U.S. as a result of this transaction,” said Laura Vallis, a spokeswoman for Anheuser-Busch InBev. “The proposed combination with Grupo Modelo has always been about Mexico, and making Corona more global in markets other than the United States. Beers that Mexican consumers enjoy and appreciate will now get a larger worldwide presence.”

Constellation will pay $5.5 billion for Modelo’s share of Crown and for the Piedras Negras brewery, a new production and bottling plant in Mexico near the border with Texas.

Rob Sands, president and chief executive of Constellation, called the deal “the most transformational event in the history of our 68-year-old company,” one that would double sales and significantly increase profits and free cash flow.

Anheuser-Busch InBev is itself the result of a $52 billion merger in 2008 between the maker of Budweiser and a Belgian-Brazilian brewer. It was looking to expand internationally, and wanted to secure the rights to sell Corona and Modelo’s other Mexican brands around the world, particularly in Europe and South America.

Corona is the top-selling imported beer in the United States and the fifth-largest seller over all. Few imports to Europe, analysts say, have a greater potential for growth there.

But the Justice Department decided that in the United States, joining the marketing of Corona with that of Bud Light, the country’s biggest seller, and other top brands would result in too much consolidation and too little price competition.

A merger of the 39 percent market share of Anheuser-Busch InBev, also known as ABI, with Modelo’s brands, which account for 7 percent of the United States market, would put 46 percent of the market in one company’s hands.

That would essentially make the United States beer market a duopoly, because MillerCoors, the second-largest brewer of beer sold in the United States, controls 26 percent of the market. The next largest company would be Heineken USA at 6 percent.

But even those large market shares understate the effect of the market power of the two largest companies, which tend to “engage in significant levels of tacit coordination” in pricing, the Justice Department said. Anheuser would usually raise prices in the fall, and shortly thereafter MillerCoors would follow suit, often with the same increase, the regulators said.

In certain geographic market areas, however, Modelo accounts for as much as 20 percent of sales, and that gives it a unique ability to enforce price competition on the larger companies in those markets.

From 2010 to 2012, the Justice Department said in its lawsuit, aggressive pricing by Modelo in California, Texas and New York City kept Anheuser from raising prices, forced it to lower prices or caused it to lose market share.

The new arrangement will keep the Modelo brands competing with Anheuser-Busch InBev’s products in the United States. Constellation has never brewed beer, however, making the deal a new direction for the company. Currently, it produces and markets wine and spirits, including Robert Mondavi and Clos du Bois wines and Svedka vodka.

Constellation will gain control of a new, state-of-the-art brewery that is about at the midpoint of the 1,240-mile border between Texas and Mexico. The company plans to nearly double the plant’s capacity to take over the brewing of Modelo products for the United States.

Article source: http://dealbook.nytimes.com/2013/04/19/anheuser-busch-reaches-deal-with-antitrust-regulators/?partner=rss&emc=rss

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DealBook: Anheuser-Busch Reaches Deal With Antitrust Regulators

April 19, 2013 by Leave a Comment

Grupo Modelo makes Corona.Matt Rourke/Associated PressGrupo Modelo makes Corona.

2:20 p.m. | Updated

Anheuser-Busch InBev announced on Friday that it had received government approval for for its $20.1 billion deal to buy control of Grupo Modelo, the maker of Corona beer.

The Obama administration sued on Jan. 31 to block the takeover, arguing that the deal would give Anheuser-Busch InBev too much control over the American beer market, potentially reducing choices.

The agreement filed with the court on Friday resolves the regulatory concerns. Under the deal, Constellation Brands will pay about $5 billion to buy Anheuser Busch InBev’s 50 percent stake in Crown Imports, the company that imports Corona into the United States, as well as some breweries and operations. Constellation, one of the world’s largest wine companies, already owns half of Crown alongside Modelo.

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The Mexican Competition Commission approved the revised transaction in early April, the companies said.

Analysts have largely expected Anheuser-Busch InBev and the Justice Department to reach an accord on reasonable terms, The settlement makes clear, however, that for Anheuser-Busch InBev, the acquisition of Modelo was never about expanding its lead in the American beer market.

The prize for the largest American beer company was control of Modelo outside of the United States, which would give InBev the ability to grow Corona’s presence in Europe and to expand internationally all of Modelo’s nine other brands, which also include Pacifico, Modelo Especial and Negra Modelo.

Corona is the best-selling imported beer in the United States and overall is the No. 5 brand here. But there are few brands that are so well known in the Western Hemisphere that also have the potential for widespread growth as an import in the European market, analysts say.

American consumers are unlikely to see much of a change in the beer aisle. The proposed settlement, which still must be cleared by the United States District Court for the District of Columbia, will maintain Corona’s independence as a competitor to Budweiser and other Anheuser-Busch brands.

That was very important to the Justice Department. In its lawsuit to block the deal, regulators pointed to internal Anheuser documents in which company officials said that Modelo’s pricing strategy was “eating our lunch.”

William J. Baer, assistant attorney general in charge of the Justice Department’s antitrust division, said the settlement maintains Corona and other Modelo brands “as effective and aggressive price competitors.”

In the $80 billion American beer market, “even a 1 percent to 3 percent price change would have a huge consumer impact,” Mr. Baer said. Anheuser-Busch has consistently raised its prices in recent years, the department said, and losing Corona as a competitor could reach deep into Americans’ pockets.

Anheuser-Busch InBev, the world’s largest brewing company, was created in 2008 through the $52 billion merger of Anheuser-Busch and the Belgian-Brazilian brewer InBev. The $20.1 billion deal for Grupo Modelo would be the second-largest takeover in the beer industry after that merger, according to Thomson Reuters.

Article source: http://dealbook.nytimes.com/2013/04/19/anheuser-busch-reaches-deal-with-antitrust-regulators/?partner=rss&emc=rss

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DealBook: Anheuser-Busch Merger Deal Clears an Antitrust Hurdle

April 5, 2013 by Leave a Comment

The purchase of Grupo Modelo, the maker of Corona beer, would give Anheuser-Busch InBev greater access to emerging markets like Mexico.Associated PressThe purchase of Grupo Modelo, the maker of Corona beer, would give Anheuser-Busch InBev greater access to emerging markets like Mexico.

8:46 p.m. | Updated Anheuser-Busch InBev said on Friday that it had reached an agreement in principle to win government approval for its $20.1 billion deal to buy control of Grupo Modelo, the maker of Corona.

The Obama administration sued on Jan. 31 to block the takeover, arguing that the deal would give Anheuser-Busch InBev too much control over the American beer market, potentially reducing choice while raising prices.

Anheuser-Busch did not immediately disclose details of the agreement but said “the proposed resolution is substantially in line” with revised terms announced in February. It offered then to sell its 50 percent stake in Crown Imports, the company that imports Corona into the United States, to Constellation Brands for $2.9 billion. Constellation, one of the world’s largest wine companies, already owns half of Crown alongside Modelo.

Anheuser also agreed to sell the rights to Corona and other Modelo brands to Constellation, as well as a brewery close to the United States-Mexico border currently owned by Grupo Modelo.

The government’s opposition threatened to stymie a merger that Anheuser-Busch InBev has deemed important for its growth. Buying full control of Modelo, of which it already owns 50 percent, would help solidify its footprint in fast-growing markets in Mexico and elsewhere in Latin America.

Such a deal would be a crowning achievement of Anheuser-Busch InBev’s chief executive, Carlos Brito, who built the company into a global colossus through a relentless series of takeovers.

The government had argued in its lawsuit that Anheuser-Busch InBev, which already makes Budweiser and Stella Artois, would only solidify its hold over the American market. Together, the company and Modelo would control about 46 percent of beer sales in the United States.

The government’s lawsuit detailed how, in California, a price war among the biggest brewers had led Anheuser to complain in internal documents that Modelo’s strategy was “eating [Budweiser’s] lunch.”

The lawsuit reflected a tougher stance by the Obama administration toward industry-changing mergers. The Justice Department sued to block ATT’s proposed $39 billion takeover of T-Mobile USA, forcing the telecommunications companies to abandon their merger.

Analysts have largely expected Anheuser-Busch InBev and the Justice Department to reach an accord on reasonable terms. The company has long regarded holding onto the United States rights to Corona and other brands less important than keeping control of Modelo’s operations elsewhere.

Anheuser and the Justice Department have asked the federal district judge overseeing the antitrust lawsuit to extend a stay of proceedings until April 23, to let them complete details of the agreement.

“As we have said all along, any settlement would have to fully protect U.S. consumers by preserving the competition that Grupo Modelo currently provides, while giving a divestiture buyer the freedom and capability to compete vigorously going forward,” Gina Talamona, a spokeswoman for the Justice Department, said in a statement.

The transaction is also subject to approval by Mexican regulators.

Article source: http://dealbook.nytimes.com/2013/04/05/20-billion-beer-deal-reaches-agreement-to-clear-antitrust-hurdle/?partner=rss&emc=rss

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DealBook: Anheuser-Busch InBev Revises $20.1 Billion Takeover Plan

February 15, 2013 by Leave a Comment

Grupo Modelo of Mexico is the maker of Corona beer.Victor Ruiz Garcia/ReutersGrupo Modelo of Mexico is the maker of Corona beer.

7:20 p.m. | Updated

Anheuser-Busch InBev moved on Thursday to rescue its $20.1 billion proposed takeover of Grupo Modelo of Mexico, the maker of Corona beer, by offering concessions aimed at persuading American antitrust authorities to let the deal proceed.

Under the revised terms, Anheuser-Busch InBev would sell the rights to Corona and other Grupo Modelo brands in the United States to Constellation Brands, one of the world’s largest wine companies, for $2.9 billion.

The agreement would also include the sale of a brewery close to the United States-Mexico border that is currently owned by Grupo Modelo, as well as the perpetual licensing rights to Grupo Modelo’s brands in the United States. If the revised deal goes through, Anheuser-Busch InBev will gain greater access to emerging markets like Mexico.

Anheuser-Busch InBev’s decision to sell Compañía Cervecera de Coahuila, the Mexican brewery that produces Corona, Corona Light and Modelo Especial, is an effort to satisfy regulators after the Justice Department sued last month to block the deal.

The lawsuit signaled a more aggressive approach by antitrust officials. It was the biggest deal to be opposed by the Justice Department since 2011, when the government sued to stop ATT’s proposed $39 billion takeover of T-Mobile USA, and the first major roadblock in a decade of consolidation by brewers around the world.

United States authorities had said the original Grupo Modelo merger proposal would increase Anheuser-Busch InBev’s control of the American beer market, enabling it to raise prices while reducing choice for local consumers.

Six packs of Anheuser-Busch's Budweiser and Grupo Modelo's Corona Extra beers.Joe Raedle/Getty ImagesSix packs of Anheuser-Busch’s Budweiser and Grupo Modelo’s Corona Extra beers.

Grupo Modelo is currently the third-largest beer company in the United States. Anheuser-Busch InBev is the largest, ahead of MillerCoors.

Anheuser-Busch InBev hopes the moves will resolve the antitrust issues raised by American authorities. “We decided to restructure the transaction to address the concerns from the Justice Department,” the company’s chief executive, Carlos Brito, said in an interview. “We are focused on getting this to the finish line.”

Mr. Brito declined to comment on the continuing negotiations with the Justice Department.

Carlos Brito, chief of Anheuser-Busch InBev.Sebastien Pirlet/ReutersCarlos Brito, chief of Anheuser-Busch InBev.

A Justice Department spokeswoman declined to comment on Anheuser-Busch InBev’s efforts to reduce its operations in the United States, but said the authorities would give any proposal serious consideration. “At the same time,” she said, “we would continue to prepare for litigation.”

Anheuser-Busch InBev, the world’s largest brewing company, was itself created in 2008 through the $52 billion merger of Anheuser-Busch and the Belgian-Brazilian brewer InBev. The proposed $20.1 billion deal for Grupo Modelo would be the second-largest takeover in the beer industry after that merger, according to Thomson Reuters.

In the last five years, Anheuser-Busch InBev has announced more than 15 additional takeovers, according to the data provider SP Capital IQ. In a series of multibillion-dollar deals in the beer and liquor sector, a small number of companies like SABMiller and Diageo have gained control of many top brands.

But authorities seem to have drawn the line at more mergers. The Justice Department’s lawsuit quoted internal documents from Anheuser-Busch InBev to demonstrate that the company’s prices had been undercut by Grupo Modelo. The authorities contend that the proposed deal would eliminate competition in the domestic beer market.

“This is the sort of product that matters to consumers,” William J. Baer, head of the Justice Department’s antitrust division, told reporters on Jan. 31. “If you have a very slight price increase that happens because of this deal, it could mean that consumers will pay billions of dollars more.”

With the concessions, Anheuser-Busch InBev maintains its focus on gaining access to the fast-growing Mexican market, which could help offset a slowdown in more mature markets like the United States and Western Europe.

“The quick settlement is no doubt surprising, but also shows practicality from the Anheuser-Busch InBev side,” Pablo Zuanic, an analyst at Liberum Capital, wrote in a note to investors on Thursday.

Anheuser-Busch InBev said it had increased its projected annual cost savings from the Grupo Modelo deal by 67 percent, to $1 billion, from estimates provided when the deal was announced last year. For Grupo Modelo, the terms of the takeover are unchanged, according to a company statement.

Anheuser-Busch InBev’s shares rose 6 percent, to $69.59, in trading in Brussels on Thursday, and Constellation Brands’ stock price jumped 37 percent, to $43.75, in trading in New York.

The agreement will give Constellation greater access to the American beer market. Under the original terms of the deal, it had agreed to pay $1.85 billion for the 50 percent stake that it did not already own in Crown Imports, a joint venture with Grupo Modelo.

Under the new terms, Constellation would gain control of the Corona brand across the United States, and it plans to invest $400 million in the brewery being sold by Grupo Modelo.

“These are favorable terms to gain control of an iconic brand in the U.S.,” Constellation’s chief executive, Robert S. Sands, said in an interview.

Lazard is advising Anheuser-Busch InBev on the deal, and Morgan Stanley is advising Grupo Modelo.

Article source: http://dealbook.nytimes.com/2013/02/14/anheuser-busch-inbev-revises-deal-for-grupo-modelo/?partner=rss&emc=rss

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