AB InBev, DOJ Talks Over Grupo Modelo Deal Progressing

Published in CSP Daily News

Companies believe revised transaction resolves anti-competitive concerns

WASHINGTON -- Anheuser-Busch InBev, Grupo Modelo SAB de CV, Constellation Brands Inc. and Crown Imports LLC are engaged in discussions with the U.S. Department of Justice seeking to resolve the Justice Department's litigation challenging AB InBev's proposed acquisition of the remaining stake in Grupo Modelo that it does not already own, AB InBev said in a press release. In connection with such discussions, the parties and the Justice Department have agreed to jointly approach the court to request a stay of all litigation proceedings until March 19, 2013.

"There can be no assurance that the discussions will be successful. The filing today also reiterates AB InBev's and Modelo's position that the revised transaction resolves the concerns raised in the DOJ's complaint," it said.

The other companies issued similarly worded statements.

In a joint court filing, AB InBev and the Justice Department said the government is looking at whether a revised plan to sell control of all Modelo brands in the United States, and a brewery in Mexico, to Constellation Brands would allay antitrust concerns, said a Bloomberg report.

A break in the proceedings "would be beneficial" for a potential resolution, according to the request filed Feb. 20 with a federal judge in Washington.

"This signals serious settlement discussions are under way," Allen Grunes, an antitrust lawyer with Brownstein Hyatt Farber Schreck LLP in Washington, who isn't involved in the case, told the news agency. "If AB InBev can address any remaining government concerns, the path seems clear to a negotiated settlement. This is very positive for the deal."

The filing comes the day before AB InBev was required to respond to the government's lawsuit. The parties offered to update U.S. District Judge Richard Roberts by March 19 on efforts to settle the case. If the matter can't be resolved, they will propose a scheduling order for bringing the case to trial, according to the filing.

"We see this as positive," Melissa Earlam, an analyst at UBS AG in London, told Bloomberg. "It feels like there's constructive negotiation going on between the DOJ and AB InBev."

The parties and the Justice Department are cooperating to try to resolve the competitive concerns raised by the transaction, three people familiar with the discussions told the news agency. The companies are providing information, including access to documents and executives, as the department conducts a full review of the revised deal proposal, the people said.

While the tone of the discussions is positive for a settlement, it's still early in the process and the outcome isn't guaranteed, said two of the people, who asked not to be identified because the talks aren't public.

The revised deal, submitted on Feb. 14, is aimed at appeasing U.S. authorities, who sued to block AB InBev's proposed $20.1 billion purchase of the rest of Mexico City-based Modelo, arguing the merger would hurt competition and lead to higher prices. AB InBev, the world's biggest brewer, controls almost half the U.S. beer market, while Corona is the country's biggest imported brand.

Under the revised deal, Constellation will gain Modelo's brewery in Piedras Negras, near the Texas border in Mexico, and perpetual rights for the Corona and Modelo brands in the United States.

The sale to Constellation addresses "all of the concerns" presented by the government, AB InBev said when announcing the new proposal. AB InBev had earlier agreed to sell Modelo's 50% stake in Crown Imports LLC to Constellation for $1.85 billion.

Constellation and Crown asked Roberts for permission to intervene in the case, arguing the department's action "fundamentally threatens Constellation's future in the beer business." Roberts hasn't ruled on that request, and the filing said that the two companies agreed to the monthlong suspension of the case.

AB InBev agreed to buy the 50% of Modelo it didn't own in June 2012, seeking to increase its penetration ofemerging markets. Beer sales are rising at a faster pace in Mexico than in developed economies such as the U.S., the world's second-biggest beer market by volume after China.

The Justice Department in its lawsuit said the original transaction violates antitrust law because it would eliminate the "substantial head-to-head competition" between AB InBev and Modelo and "diminish ABI's incentive to innovate."

The Justice Department alleges the initial proposal for Constellation to take full control of U.S. distribution of Modelo brands was aimed at winning regulatory approval by "creating a facade of competition" between AB InBev and its importer.

The department said Constellation "has already shown through its participation in the Crown joint venture that it does not share Modelo's incentive to thwart ABI's price leadership."

The case is U.S. v. Anheuser-Busch InBev NV, U.S. District Court, District of Columbia (Washington).