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Anheuser-Busch, Constellation Hit By U.S. Suit To Block Takeover Of Modelo

January 31, 2013

The U.S. Department of Justice filed suit today in U.S. District Court to block Anheuser-Busch InBev’s $20.1 billion deal to acquire Grupo Modelo, arguing that the acquisition would result in “less competition and higher beer prices for American consumers.”

ABI, which already owned a 50% non-controlling stake in Modelo, had agreed to purchase the remainder of the Mexican brewer on June 29, 2012. The transaction had been slated to close in the first quarter of 2013, but now that will not happen. No timetable has been given for any future consummation of the deal.

According to Impact Databank, ABI’s U.S. market share is roughly 49%, while Modelo’s share is around 6%.

Modelo’s U.S. portfolio, led by Corona Extra, is handled by Crown Imports, a 50-50 joint venture between Modelo and Constellation Brands. As a condition of last summer’s ABI-Modelo deal, Constellation agreed to buy Modelo’s 50% stake in Crown Imports for $1.85 billion. That deal is also now in limbo along with the ABI-Modelo purchase agreement.

When its move to gain full ownership of Crown Imports was announced last summer, Constellation’s share price soared as investors cheered the company’s plan to become full owner of a major, profitable beer business. Crown posted $2.47 billion in sales and $431 million in operating income for its fiscal year ended February 29, 2012.

Constellation’s share price jumped from about $19.50 to nearly $30 immediately after the deal was unveiled. It then continued its bull run throughout the year, and hit a high of $39.17 yesterday before plunging today. Constellation’s shares were at around $32.50 in early afternoon trading, down nearly 17%.

ABI issued a blistering statement today on the DOJ decision, calling it “inconsistent with the law, the facts and the reality of the marketplace.” ABI added that it remains “confident in our position, and we intend to vigorously contest the DOJ’s action in federal court.”

Constellation said it was “disappointed” with the DOJ move. “The proposed transaction would further establish Crown Imports as a more independent and competitive entity and solidify its position as a major player in the U.S. beer industry,” the company added.

 

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