Speculation mounts on the AB-InBev deal with Modelo
Hopefully AB-InBev did not reckon without its host – which in this case is the U.S. anti-trust body at the Department of Justice. One of the biggest news stories in recent weeks was AB-InBev’s acquisition of the remaining stake in Grupo Modelo. Now the U.S. is abuzz with gossip that AB-InBev may have to sell off brands to clear antitrust hurdles.
Last year, AB-InBev had a 47 percent beer market share in the United States. Modelo, through its exports, had a 5.7 percent market share. Combined these would push AB-InBev over 50 percent market share in the United States.
Well aware that this would alarm antitrust regulators, AB-InBev has made a move to work around it by selling Modelo’s 50 percent stake in Crown Imports to Constellation Brands. This separate deal ensures that AB-InBev will maintain a market share of less than 50 percent in the United States.
But will antitrust regulators consider the Crown divestiture as sham and say that AB-InBev effectively owns the products being imported, which means that it does have a monopoly in the United States? In the U.S. having a 50 percent plus market share is considered a monopoly.
Ever since rumours of the AB-InBev-Grupo Modelo deal spread, analysts in the U.S. have speculated on potential divestments of AB-InBev’s American beer brands to clear antitrust issues.
Some industry analysts point to the Department of Justice’s decision in 2008, following InBev’s takeover of Anheuser-Busch. The Department of Justice then ordered AB-InBev to stop importing its Canadian label Labatt into the United States. AB-InBev was also told it could not even brew Labatt for U.S. sale, because Labatt enjoys a high market share in upstate New York. So today, while AB-InBev owns Labatt in Canada, another company, North American Breweries, owns the U.S. rights, and has AB-InBev’s rival MillerCoors brew it.
Labatt was less than 1 percent of the U.S. market. From this some analysts conclude that enforced disposals for AB-InBev are highly likely.
The worst case scenario is that AB-InBev may be forced by the Department of Justice to renegotiate the deal with Modelo.
Obviously, it’s hard to predict what the Department of Justice will do in this case. The long lead time on this deal – it is not expected to close until early 2013 – suggests the process will be complex.
AB-InBev did not say if the Modelo deal was unconditional. But it’s hard to imagine that AB-InBev gave an unconditional offer until it knows what will be the attitude of the Department of Justice.
In this respect, it should have learnt from the old Belgian Interbrew. In 2000 Interbrew won the bidding war for UK brewer Bass by placing an unconditional offer on the table. Bass’s then Chairman Sir Ian Prosser, rather wisely, turned down a higher offer from Carlsberg, which was conditional upon the deal receiving UK regulatory approval. However, months later the UK Government blocked this GBP 2.3 billion (EUR 3.68 billion) unconditional acquisition, which led to a forced sale of most of Bass’ assets to Coors.
The fact that AB-InBev is already going to such lengths to acquire Modelo says a lot about how much potential the brewer sees for the Corona brand around the world. Although AB-InBev would like to have control of the brand in its biggest market, the U.S., it is willing to give it up so that it can sell the brand globally.
Corona Extra is already a major import beer brand in 38 countries. When AB-InBev adds it to its stable of “global brands” – Budweiser, Stella Artois and Beck’s – and puts its considerable marketing and distribution muscle behind it, the rewards for AB-InBev could be huge.
Since 2009, the brewer has been able to boost non-U.S. sales of Budweiser by 45 percent, it was reported. If it can do something similar with Corona, all these problems in the U.S. may seem insignificant indeed. But don’t tell that to the anti-trust guys.
