Judge calls time out on beer merger
Since our most recent post on the proposed merger of AB InBev and Grupo Modelo earlier this month there have been several developments. As you’ll recall, AB InBev was previously offering to sell its stake in Crown Imports (Modelo’s US distributor of beers including Corona) to Constellation, giving Constellation full ownership of Crown. Constellation would have also received a 10 year exclusive licence to import Modelo beers into the US.
First, it was reported that Constellation and Crown had sought to intervene in the DOJ’s proceedings, so as to protect their own interests in the merger.
Then, late last week it was announced that AB InBev had offered an improved remedy package in relation to the Grupo Modelo deal. As we previously noted, the DOJ’s concern with the merger was that Constellation as a distributor only, without its own brewing facilities, would be an ineffective competitor to the merged entity. The sweetener now offered by AB InBev is that Constellation would also acquire Modelo’s ‘state of the art’ brewery in Piedras Negras, Mexico, and obtain perpetual licences in relation to the Modelo brands in the US. The improved remedy will effectively make Constellation fully independent of AB InBev going forward.
Will the DOJ consider this to be sufficient, or will their view that Constellation is unlikely to compete as aggressively on price as Modelo prevail? With Constellation independent from the merged entity, the pre-acquisition market structure is effectively maintained. The regulator has time to reflect, with a District of Columbia federal judge granting a stay to the DOJ’s challenge last Friday to allow settlement discussions to continue. The parties had jointly applied for the stay, which is effective until 19 March 2013.
