WASHINGTON The Justice Department and Anheuser-Busch InBev have agreed to conditions that will allow the beer giant to expand its stake in Mexico's Grupo Modelo, according to court documents and company statements issued on Friday.
The pact would settle a lawsuit filed by the department on January 31 aimed at stopping AB InBev, the world's largest brewer with some 200 brands, from buying the 50 percent of Modelo it does not already own for $20.1 billion.
AB InBev will be required to sell the Piedras Negras brewery in Mexico that makes Corona and other Modelo brand beers for the U.S. market. It also requires the purchaser, Constellation Brands, to expand the brewery so that it can make at least 20 million hectoliters of beer by December 31, 2016.
The agreement announced on Friday closely tracks a February revision of the transaction to meet U.S. antitrust objections. AB InBev knew early on that the Justice Department would balk at allowing it to expand its already large U.S. presence.
U.S. wine giant Constellation, in addition to the brewery and U.S. brand rights, will also buy AB InBev's 50 percent share of Modelo's U.S. distributor, Crown Imports, becoming the third largest U.S. beer producer after AB InBev and MillerCoors with its $4.75 billion segment of the deal.
The head of the Justice Department's Antitrust Division, Bill Baer, said Constellation would be a "formidable" rival to AB InBev and thus prevent price increases to consumers.
But AB InBev comes out a winner because it will sell Corona and other Modelo brand beers in Mexico, the world's fourth largest market in terms of profit generated, and elsewhere outside the United States, which was the company's original goal.
"This is a positive step in the right direction for ABI," said Jefferies analyst Dirk Van Vlaanderen in a note which estimated that the Modelo buy would add 10 percent to earnings.
AB InBev shares closed up 1.5 percent at 75.60 euros in Europe. They traded about 0.7 percent higher before the announcement. Constellation stock was up 1.4 percent to $48 in Friday afternoon trading in New York.
BEER EVERYWHERE BUT FEW BREWERS
Despite a huge array of beers on store shelves, the U.S. beer market is dominated by two big players.
AB InBev, formed in 2008 when InBev bought iconic U.S. company Anheuser Busch, was the top U.S. brewer with 47 percent of the U.S. beer market going into the Modelo deal.
AB InBev sells 200 brands ranging from big names like Budweiser and Stella Artois to craft-style beers like Shock Top and Goose Island. The No. 2 U.S. player is MillerCoors, a joint venture between SABMiller Plc and Molson Coors Brewing Co.
AB InBev, in announcing the deal in June last year, had said that it would sell its 50 percent share of Modelo's U.S. distributor, Crown Imports, to Constellation Brands.
The Justice Department said that was inadequate and sued to stop the deal. AB InBev sweetened the offer in February by offering to sell the Piedras Negras plant to Constellation.
The final agreement adds Constellation as a defendant to the settlement with the Justice Department. This means that pledges that Constellation makes to the court about expanding the plant to make it big enough to serve the U.S. market will be legally binding.
Constellation Brands Chief Executive Rob Sands said that buying the rest of Modelo distributor Crown represented "a significant milestone for Constellation as the most transformational event in the history of our 68-year-old company."
"This transaction will nearly double the sales of our company, significantly enhance our earnings and free cash flow, diversify our profit stream and provide new avenues for growth," he said.
New York-based Constellation Brands, the world's largest branded wine company, makes Robert Mondavi and Ravenswood wines. It also sells spirits including Black Velvet Canadian Whisky and SVEDKA vodka.
The companies can close on the transactions as soon as a court approves the settlement. InBev said in a statement that they expected it to close in June.
The case in U.S. District Court for the District of Columbia is United States of America v. Anheuser-Busch InBev and Grupo Modelo, No. 13-cv-00127.