Consumers to benefit if Obama administration blocks AB-InBev-Modelo merger
Media support is rallying behind the U.S. government to prevent AB-InBev’s pending transaction to acquire the remaining shares in Mexico's brewer Modelo that it does not already own.
On 9 February 2013, in a leader, the New York Times newspaper wrote that consumers will benefit if the Justice Department’s antitrust suit to block AB-InBev, the country’s largest brewing company, from acquiring one of its competitors, is successful. It added that this kind of action was seen less frequently in the Bush administration.
The New York Times newspaper is considered a more liberal voice in U.S. media, so it coming out in support of the Justice Department should not really surprise.
This article came hard on the heels of AB-InBev's statement of the previous day that Constellation Brands and Crown Imports have joined AB-InBev in fighting the U.S. Department of Justice in the courts on 8 February 2013.
AB-InBev announced in June last year that it would pay USD 20.1 billion to buy the 50 percent stake in Grupo Modelo of Mexico – maker of Corona beer – that it did not already own. The New York Times said that "together the two companies sell about 46 percent of all beer in the United States and more than 50 percent in big cities like Houston and Los Angeles, according to the department’s antitrust division. The proposed acquisition would leave the country with just two companies – the second being MillerCoors – controlling more than 70 percent of the beer business."
The newspaper reminded its readers that "under the Bush administration’s less robust antitrust division, a series of big mergers severely reduced competition in the beer industry and led to higher prices. In 2008, it greenlighted two mega-deals: Belgium-based InBev’s purchase of Anheuser-Busch, and a merger of the American beer divisions of SABMiller, a London-based brewing giant, and Molson Coors, a Canadian company."
Although Molson Coors is not strictly speaking a Canadian company, but a U.S.-Canadian one, the newspaper got the other fact right, namely that beer prices started rising faster than the Consumer Price Index, according to a detailed study by the American Antitrust Institute, a research organisation.
The newspaper commentator thinks that the Obama administration has made a compelling case against AB-InBev’s purchase of Grupo Modelo. In recent years in the U.S., Modelo’s importer Crown, which it co-owns with wine company Constellation Brands, has competed with the two larger brewing companies by keeping prices of its top-selling beer, Corona, stable even as Anheuser-Busch raised the prices of its popular beers, like Bud Light. That has given customers an incentive to switch to Corona, the newspaper says. "That competition will most likely disappear if InBev is allowed to own 100 percent of Modelo, which currently operates independently."
In defence of the proposed merger, AB-InBev has argued that, despite Anheuser-Busch and MillerCoors controlling a large share of the beer market, smaller rivals like Samuel Adams and Brooklyn Lager have managed to grow their sales volumes. However, all the microbrewers combined only have a 6 percent share of the market. "Many small companies find it very difficult to get their beers in stores and bars because the two big brewers have forced many distributors to sell only their beers", the New York Times said.
As concerns the Obama administration's track record in protecting consumers, the newspaper pointed out that in the telecoms industry the government's antitrust watchdogs blocked AT&T’s 2011 offer to buy T-Mobile USA, and used the threat of a lawsuit to scuttle 3M’s purchase of a rival that would have given it an 80 percent market share for some office supplies.
The newspaper concluded: "It was right to take the same position on the beer deal."
