AB InBev-Modelo Merger Challenged by California Lawyer

Anheuser-Busch InBev NV was sued by the California lawyer who previously tried to block the merger that created the company and now seeks to stop its purchase of Grupo Modelo SAB (GMODELOC) over claims the deal will drive up beer prices.

The proposed merger, which the U.S. Justice Department sued to prevent on Jan. 31, would result in higher prices for the beverage by eliminating competition between AB InBev and Modelo, according to a complaint filed yesterday in federal court in San Francisco by Joseph Alioto on behalf of nine individuals.

“The proposed acquisition significantly threatens consumer welfare by the threatened increase in price, elimination of quality, curtailment of innovation, and destruction of consumer choice,” Alioto wrote in the complaint.

The lawsuit isn’t likely to have an impact on the merger, according to Roxann Henry, an antitrust lawyer with Morrison Foerster in Washington, who said private challenges to mergers are seldom successful. Alioto has sued to block other deals, including the one that created United Continental Holdings Inc. and the merger of Southwest Airlines Co. and AirTran Holdings Inc.

‘Capable Lawyer’

“Joe Alioto is a very capable lawyer who also likes to be a thorn in the side of the Justice Department,” said Allen Grunes, an antitrust lawyer with Brownstein Hyatt Farber Schreck LLP in Washington, who isn’t involved in the case. “But federal judges generally pay attention to the Justice Department’s decisions and reasons. If unhappy parties could block major mergers every time they thought Justice wasn’t tough enough, that would invite a great deal of mischief.”

The transaction between AB InBev, the world’s largest beer maker with almost half the U.S. market, and Modelo would marry Bud Light, the top-selling domestic brand, with Corona, the biggest import, and create a combined company with estimated revenue of about $47 billion this year.

After the Justice Department sued to block the merger, AB InBev presented a revised proposal to sell full control of Corona and Modelo’s other brands in the U.S., as well as a brewery, to Victor, New York-based Constellation Brands Inc. (STZ), paving the way for the continuing settlement talks, people familiar with the matter said Feb. 25.

‘ Absolute Fraud’

“It’s an absolute fraud,” Alioto, of the Alioto Law Firm in San Francisco, said in a phone interview, referring to the proposed remedy. “If the government allows this cosmetic fix to go through, they will have eliminated Modelo as being a ceiling on prices and then the dam will break and prices will go wild.”

A federal judge put the Justice Department’s lawsuit on hold until April 9 to allow the settlement talks to continue.

In InBev’s $52 billion takeover of Budweiser-maker Anheuser Busch Cos. in 2008, the largest brewing deal in history, the new entity had to sell its Labatt’s operations in the U.S. to appease regulators.

In the previous lawsuit, filed against Anheuser-Busch in federal court in St. Louis, the judge threw out the complaint, saying that the plaintiffs hadn’t supported their claim the merger would result in higher beer prices. The plaintiffs in that case included five of the individuals suing in the new one.

Alioto lost an appeal of the dismissal in the U.S. Court of Appeals in St. Louis.

Constellation Plan

The Justice Department is reviewing Constellation’s plan to boost brewing capacity by about 70 percent at a plant in Piedras Negras, Mexico, that it would get from Modelo under the revised proposal, to ensure it can keep Modelo-brand products as a viable competitor in the U.S. beer market, people familiar with the matter have said.

Laura Vallis, a spokeswoman for AB InBev in New York, Jennifer Shelley, a spokeswoman for Grupo Modelo in Mexico City, Angie Blackwell, a spokeswoman for Constellation and Gina Talamona, a spokeswoman for the Justice Department, declined to comment on the lawsuit.

The case is Edstrom v. Anheuser-Busch InBev NV (ABI), 13-01309, U.S. District Court, Northern District of California (San Francisco). The government’s case is U.S. v. Anheuser-Busch InBev NV, 13-cv-00127, U.S. District Court, District of Columbia (Washington).

To contact the reporters on this story: Sara Forden in Washington at sforden@bloomberg.net; Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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