Beer o’clock

Published On 07/02/2013 | By Peta Stevenson | Mergers

As we reported in November 2012, Anheuser-Busch InBev’s proposed acquisition of the balance of Mexico-based Grupo Modelo (of which is already owns 50%), continues to face considerable anti-trust scrutiny.  On 31 January 2013, the US Department of Justice commenced proceedings in the US District Court  for the District of Columbia to prevent the merger.

The merger parties had already agreed that Modelo would sell its stake in Crown Imports, the exclusive importer of Corona into the US.  Corona is exported to the United States by Crown Imports, a 50-50 joint venture of Modelo and Constellation Brands.  Under AB InBev’s proposed deal, Constellation would buy out Modelo’s share in Crown, but the merged entity would remain its supplier and have the right to buy back the whole of Crown every 10 years.

The DOJ has stated that this proposed concession is insufficient to remove concerns that the deal would remove Modelo, which acts as an effective rival to the Budweiser brewer, thereby substantially lessening competition and increasing prices in the market for beer in the US as a whole and in 26 specific metropolitan areas.

AB InBev and Modelo are the largest and third largest beer firms in the US, collectively controlling approximately 46 percent of annual sales. The DOJ’s complaint states that prices in the US beer market are already set as a result of strategic interactions between the largest brewers, with AB In-Bev acting as price leader and MillerCoors and other brewers generally following suit.  It is the fact that Modelo has not typically followed the leader, and has instead continued to price aggressively, that makes Modelo a particularly important competitor (similar to the requirement under the CCA and merger guidelines that the ACCC consider whether a merger would result in the removal of a vigorous and effective competitor).  In the DOJ’s view, the acquisition of Modelo would not only increase AB InBev’s market power but would further facilitate coordinated pricing between the remaining market participants.

The “fix” proposed by the merger parties is inadequate, says the DOJ, because it would result only in an importer without their own brands, totally dependent on the merged entity for supply.  Market commentators in the US suggest that a possible compromise could see an independent party (such as MillerCoors or even Constellation) brewing Corona destined for the US, leaving the merged entity to focus on Corona sales in Mexico and overseas.

Photo credit: Ian Sane / Foter.com / CC BY

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About The Author

is a partner in the Sydney office of King & Wood Mallesons where she specialises in competition litigation with experience in a wide range of jurisdictions. Peta also advises clients on the application of the anti-competitive conduct, consumer protection and access provisions of the Competition & Consumer Act 2010 (Cth) and related state legislation. In 2001/02 she undertook her LLM at the University of Cambridge, during which time she developed a passionate if fleeting interest in rowing.

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