Crown Imports’ fate is hanging in the balance
The future of beer importer Crown Imports, which ranks third in U.S. beer sales volume behind Anheuser-Busch and MillerCoors, looks decidedly uncertain after the U.S. government announced it will sue to block the attempted merger of AB-InBev and Mexico’s Grupo Modelo on 31 January 2013.
The case was filed in the U.S. District Court for the District of Columbia as the United States of America versus AB-InBev and Grupo Modelo.
After months of behind-the-scenes discussions with AB-InBev, the U.S. government has filed a lawsuit seeking to stop AB-InBev from buying the half of Mexican brewer Grupo Modelo that it does not already own, saying the USD 20.1 billion deal could mean higher U.S. beer prices.
The government’s move not only calls into question the completion of one of the biggest deals of 2012 but also a related deal that was set to change the fortunes of the world’s largest wine company, Constellation Brands.
Anticipating regulators’ opposition to its merger with Modelo, AB-InBev in June 2012 signed a deal with Constellation, which includes the sale of Modelo’s half of U.S. distributor Crown Imports to its partner, Constellation, for USD 1.85 billion. As AB-InBev argued at the time, this deal would strip AB-InBev of any control over Modelo beers, including Corona, in the U.S., the world’s most profitable beer market, valued at USD 80 billion.
However, as the Department of Justice (DOJ), the claimant in the law suit argues, AB-InBev would have the right to withhold supply or terminate the supply agreement or renegotiate its terms. There is also a call option allowing AB-InBev to buy all of Crown every ten years at a fixed multiple.
Indeed, through its full ownership of Crown, Constellation would have control over the sale of Modelo’s beers in the U.S., including pricing, marketing and distribution. But Crown would buy the beer from AB-InBev, and critics note that a seller usually bases its retail pricing on the cost of its products.
"Crown’s fate is hanging in the balance", Benj Steinman of beerinsights.com was quoted as saying. The stakes are high for Constellation, since the deal was seen as a game-changer for the wine maker, allowing it to diversify its revenue and giving it an important foothold in the beer industry that could eventually lead to more acquisitions.
The parties are now headed to court for a trial that could drag on for months. Ultimately, the whole deal could fall apart. But many market observers agree that all companies are pursuing "a parallel path" toward a possible settlement with the U.S. government to avoid a trial.
While AB-InBev may have a Plan B or even a Plan C – of which we at BRAUWELT International have no inkling yet – Constellation does not. In actual fact, Constellation has most to lose if the deal fails in court.
In the meantime, the only ones to benefit from this antitrust brouhaha will be the lawyers.
