The world's largest brewing company hit a major snag last week when the Justice Department filed suit to block Anheuser-Busch InBev's $20 billion takeover of Mexican brewer Grupo Modelo.
The marriage of Budweiser and Corona's parent companies would eliminate competition between the rivals and lead to higher beer prices for Americans, the Justice Department claims. And the feds have a point.
The global brewing industry has already been consolidating like mad for years. The number of major brewers in the U.S. fell from 48 in 1980 to just two in 2008, when Anheuser-Busch and AmBev merged to become the world's leading brewer. Since then, the company has announced an additional 15 takeovers.
Anheuser-Busch InBev – which already owns 50 percent of Grupo Modelo and is seeking to buy the other half — has been raising prices while losing market share to the Grupo-Modelo-made Corona, which has held its prices steady. Since 2008, the price for 100 liters of Anheuser-Busch InBev beer has risen 14.5 percent.
The proposed takeover would leave Anheuser-Busch InBev with 46 percent of the U.S. beer market, an $80 billion industry. And the reduced competition would hit consumers hard, according to the Justice Department.
"This is the sort of product that matters to consumers," William J. Baer, head of the Justice Department's antitrust division, said in a conference call with reporters. "If you have a very slight price increase that happens because of this deal, it could mean that consumers will pay billions of dollars more." [The New York Times]
Indeed, a paper from antitrust think tank the American Antitrust Institute suggests that certain mergers of major brewers "appear to have harmed consumers" in the past:
Although the increase in beer prices cannot be definitively attributed to the mega-mergers in 2007 and 2008, the evidence — rising prices and profit margins, coinciding with a period of consolidation and falling sales — does circumstantially suggest that reduced competition is one of the drivers. [American Antitrust Institute]
Of course, the brewing battle that began last week is far from over, and Anheuser-Busch InBev seems to think it has the upper hand. The company claims the Justice Departments suit is "inconsistent with the law, the facts, and the reality of the marketplace," adding that "we remain confident in our position, and we intend to vigorously contest the DOJ's action in federal court."
The company could also seek to settle by agreeing to terms reducing its pricing power in the U.S. market. Aware of the potential antitrust implications of the takeover, Anheuser-Busch InBev had already proposed selling Modelo's 50 percent stake in Crown Imports, which dictates the prices of Modelo products. The Justice Department claims the offer is a mere "facade," arguing that Anheuser-Busch InBev would be still be able to assert its control over Crown.
Many analysts predict that some form of the deal will eventually survive. Others say we're in for a drawn-out legal battle.
"It's possible they've done an aggressive complaint to push the parties into settling," Allen Grunes, an antitrust lawyer with Brownstein Hyatt Farber Schreck, told Bloomberg, "but the way they've written it will make it harder to settle for both sides. This looks more like it's going to court."