AB-InBev-Modelo deal could hit the wall
Where’s the leak? According to rumour, the U.S. Department of Justice (DoJ) may seek to block AB-InBev’s proposed acquisition of Mexican brewer Grupo Modelo.
U.S. media say, citing anonymous sources, that the DoJ is unlikely to approve the deal in its current state. A-B InBev, which currently owns a 50 percent stake in the maker of Corona beer, announced in June 2012 that it would buy the rest of Modelo in a USD 20 billion deal.
Antitrust concerns were a much talked about issue even before the buyout was announced. In a bid to allay them, AB-InBev reached an agreement with Constellation Brands, which makes the wine company and former Modelo partner in a distribution joint venture the exclusive importer of Modelo products in the United States. Many market observers doubted that this deal will be enough to satisfy the U.S. competition watchdogs.
After all, in the U.S. a 50 percent market share is already considered a monopoly. Presently, AB-Inbev enjoys a market share of slightly under 50 percent. If Modelo’s sales in the U.S. were taken into account too, AB-InBev’s share of the market would easily exceed 50 percent.
In mid-August 2012 the DoJ already asked AB-InBev for more information on the deal with Modelo
However, despite the recent leak, it could be a while before the DoJ will make an informed decision.
As Beer Business Daily, a U.S. trade news service, reminded its readers, the antitrust watchdogs will have to interview other brewers, distributors and other bodies to find out if owning Modelo will have an impact on the pricing of AB-InBev’s brands.
After that, should the DoJ detect a competition problem, there will be negotiations back and forth between the DoJ and AB-InBev. AB-InBev has taken a "fix it first" approach by selling off the rights to Modelo’s brands to Constellation Brands, says Beer Business Daily. Sometimes those approaches work and sometimes they don’t. The DoJ never suggests what the remedy should be, it relies on the companies to do that.
What could turn into a big stumbling block this time is distribution or rather AB-InBev’s attempt at further vertical integration. According to reports, AB-InBev already self-distributes 10 percent of its volume in several states where it is legally possible for brewers to own the middlemen, aka the distributors.
When InBev bought Anheuser-Busch in 2008, the DoJ really didn’t look at the vertical integration issue very closely. But today, with AB-InBev wanting to buy more distributorships and there are about 2,000 microbrewers out there all seeking distribution, the issue will be looked at much more closely.
