The Justice Department says Anheuser-Busch InBev's bid to buy the… (Scott Eells, Bloomberg )
The Justice Department says it's looking out for America's beer drinkers.
Officials filed suit Thursday against Anheuser-Busch InBev, the maker of Budweiser, seeking to block its purchase of Mexican beer maker Grupo Modelo, arguing that retail prices of suds would rise if the $20.1-billion deal were finalized.
Last summer, AB InBev, which had a 50% noncontrolling stake in Grupo Modelo, maker of Corona Extra, offered to buy the rest of the shares at a 30% premium and had expected the transaction to close early this year.
The sale would have merged the largest and third-largest beer makers in the U.S.
In a scathing 27-page complaint, the Justice Department wrote that the deal would have given AB InBev too much market power in the U.S.
The beer maker, which has its headquarters in Belgium, had been aggressively competing with Grupo Modelo for market share in states with large Latino populations, such as California and Texas, where Corona is popular.
"The loss of this head-to-head competition would enhance the ability of ABI to unilaterally raise the prices of the brands that it would own post-acquisition, and diminish ABI's incentive to innovate with respect to new brands, products and packing," attorneys for the department wrote.
Together, AB InBev and Grupo Modelo account for 46% of beer sales in the U.S., according to the Justice Department.
"We took this action today because we believe the acquisition is a bad deal for American consumers," Bill Baer, assistant attorney general in charge of the antitrust division, said in a conference call with reporters.
The lawsuit was filed despite an offer by AB InBev to sell its 50% stake in Crown Imports, which along with Constellation Brands Inc. imports and markets Modelo beers in the U.S.
In recent years, large brewers have been acquiring smaller beer makers to expand operations around the world. In 2005, Canadian brewer Molson Inc. merged with Adolph Coors Brewing Co. in Denver and formed Molson Coors.
In 2008, the Justice Department approved the $52-billion purchase by InBev of Anheuser-Busch Cos. of St. Louis, creating the world's largest brewer. But InBev was required to sell subsidiary Labatt USA.
In 2011, British beer maker SABMiller paid $10.2 billion for Australia's biggest brewer, Foster's Group Ltd.
AB InBev said in a statement that it planned to contest the lawsuit challenging its Grupo Modelo purchase and that it no longer expects the deal to close during the first quarter.
Analysts, however, said it's possible the Grupo Modelo deal could still be salvaged.
Tom Mullarkey, an equity analyst at Morningstar, said that although AB InBev has indicated it will contest the lawsuit, it might be inclined to negotiate.
"I imagine … they're going to try to float out a couple more concessions," Mullarkey said.
Other analysts said the lawsuit was expected and it was unclear whether the deal would be approved.
Benj Steinman, president of Beer Marketer's Insights, said AB InBev's motivation to purchase Grupo Modelo was its desire to tap into the growing beer market in Mexico.
"This deal for ABI is not primarily about the U.S.," Steinman said. "The deal is mainly to get the Modelo Mexican business and secondarily to be able to expand the Corona brand platform around the world."
The competition between the two brewers had been heating up in recent years, according to the complaint.
AB InBev, for instance, launched Bud Light Lime to compete with Corona Extra.
They "went as far as to mimic Corona's distinctive clear bottle," according to the lawsuit. "Ultimately, instead of trying to compete head-to-head with its own product, Bud Light Lime, [AB InBev] is thwarting competition by buying Modelo."
Shares of the companies involved slid Thursday after the lawsuit was filed, but the hardest hit was Constellation, which had agreed to buy AB InBev's stake in Crown Imports. That firm's shares plunged $6.81, or 17.4%, to $32.36.
AB InBev fell $5.54, or 5.9%, to $88.60.