The Justice Department moved Thursday to block beer giant Anheuser-Busch InBev from merging with Mexico’s largest maker, Grupo Modelo, arguing the deal would threaten competition and raise prices for consumers.
The $20.1 billion deal would have combined the biggest and third-biggest beer makers in the country, adding Grupo Modelo’s fast-growing Corona brand to AB InBev’s sizable portfolio, which includes Budweiser, Bud Light, Beck’s and Stella.
The merger, announced last summer, would also usher in further consolidation in the U.S. beer market, which has been steadily winnowed down to two major brewers in recent years: AB InBev, based in Belgium, and Chicago-based MillerCoors, the company behind Miller Lite and Coors.
Antitrust officials said Thursday they were alarmed by the prospect of AB InBev gaining even more market share by buying a direct competitor.
“We took this action today because we believe the acquisition is a bad deal for American consumers,” said Bill Baer, head of the Justice Department’s antitrust division.
After years of major mergers being approved without much pushback from the government, the lawsuit highlights the Obama administration’s willingness to go to court to block high-profile deals. Antitrust officials scored a major victory about a year ago when they opposed a merger between AT&T and T-Mobile, causing the companies to eventually drop the deal.
AB InBev said in a statement that the government’s lawsuit was “inconsistent with the law, the facts and the reality of the market place.”
“We remain confident in our position, and we intend to vigorously contest the DOJ’s action in federal court,” said the company, which added that it no longer expects the deal to close at the beginning of the year, as originally planned.
The company sells nearly half of the beer purchased in the United States, according to data from the trade publication Beer Marketer’s Insights.
AB InBev already owns a 50 percent stake of Grupo Modelo. The company announced last June that it was acquiring the remaining half.
The government’s lawsuit said that AB InBev competes “head-to-head” with Grupo Modelo now, which keeps prices lower. Allowing the deal to go through, according to Justice, would allow AB InBev and MillerCoors to charge more to consumers.
Since the repeal of Prohibition, U.S. beer moves through three layers before reaching consumers: from the brewers to the wholesalers to the retailers. If the same company controlled multiple parts of this chain, it could give that firm too much power over prices.
In an effort to head off antitrust concerns about the deal, Modelo said it would sell its 50 percent stake in the wholesaler Crown Imports, which has exclusive rights to bring Modelo’s brands to the United States, to Constellation Brands.
But Justice attorneys said in their lawsuit this measure was “inadequate.”
Constellation’s stock plummeted more than 17 percent Thursday after news of the Justice Department’s lawsuit broke. Meanwhile, shares of AB InBev dropped nearly 6 percent. Modelo’s stock fell 6.5 percent on the Mexican exchange.
It may surprise some Americans that iconic brands such as Budweiser are no longer brewed by U.S. companies.
In 2008, InBev acquired the St. Louis-based Anheuser-Busch in a hostile takeover.
After the merger, the company slashed expenses to improve its margins. Since then, some customers have complained that AB InBev has tinkered with classic formulas as part of its cost-cutting.
At the same time, craft beers made by small, independent brewers have exploded in popularity.
“There’s never been a broader choice of brands, choice, styles, flavors ever, certainly not in our lifetimes,” said Eric Shepard, executive editor of Beer Marketer’s Insights. “You cannot argue that there’s not choice.”
Yet some antitrust watchers are worried that as AB InBev gets bigger, it can potentially assert more leverage over beer wholesalers and have a bigger say in what gets sold.
“The success of craft brewers is really dependent on ‘the big two’ playing nice,” said Sandeep Vaheesan, special counsel for the American Antitrust Institute, referring to AB InBev and MillerCoors.
AAI, an antitrust think tank, released a paper in November urging the Justice Department to block the AB InBev deal.