March 9 (Bloomberg) -- Constellation Brands Inc.’s plans for expanding a beer plant now owned by Grupo Modelo SAB are being examined by U.S. antitrust investigators to see if they’re sufficient to approve Anheuser-Busch InBev NV’s purchase of the Mexican brewer, two people familiar with the matter said.
The Justice Department is reviewing Constellation’s plan to boost brewing capacity by about 70 percent at the Piedras Negras plant in Mexico to ensure it can keep Modelo-brand products as a viable competitor in the U.S. beer market, said the people.
The sale of the plant to Constellation by Modelo is the key element of AB InBev’s revised proposal to resolve a U.S. lawsuit seeking to block its $20.1 billion purchase of the Mexico City-based brewer. Under the plan, Constellation would pay $2.9 billion for the production assets and perpetual rights to Modelo brands in the U.S., where its Corona is the largest-selling imported beer.
An independent beer supply that can meet U.S. demand is critical to resolving regulators’ antitrust concerns, said the people, who asked not to be named because the matter is confidential.
Talks between the companies and the Justice Department are progressing smoothly with exchanges of documents and information, the people said.
Even so, an agreement might not be ready by March 19 when both sides are due to update U.S. District Judge Richard Roberts in Washington on the status of settlement talks or propose a schedule for the litigation if the case is headed to trial, the people said.
Angie Blackwell, a spokeswoman for Constellation, Marianne Amssoms, a spokeswoman for AB InBev and Jennifer Shelley, a spokeswoman for Grupo Modelo, and Gina Talamona, a spokeswoman for the Justice Department, also declined to comment on status of the review.
Constellation shares fell as much as 4 percent on news of the antitrust scrutiny before closing little changed at $44.04 in New York. Modelo shares fell 1 percent to 113.22 pesos in Mexico City. AB InBev rose 2 percent to 74.15 euros in Brussels.
Under the revised deal, Leuven, Belgium-based AB InBev, the world biggest brewer, also gave up an option to buy back a stake in Crown Imports LLC, the U.S. distributor of Corona and the other Modelo brands that’s also being sold to Victor, New York-based Constellation.
AB InBev agreed to buy the 50 percent of Mexico City-based Modelo it didn’t own in June 2012, seeking to increase its penetration of emerging 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 Piedras Negras brewery, just across the border near Eagle Pass, Texas, is the crown jewel of Modelo’s manufacturing network, Constellation Chief Executive Officer Robert Sands said in a Feb. 14 interview.
The plant uses automated production lines and sophisticated water treatment facilities, making it “the most modern in the world,” according to Modelo, which spent $600 million less than three years ago to build the plant. The facility currently produces 10 million hectoliters (264 million gallons) of beer a year and was designed to be easily and quickly expanded to produce three times that amount, Sands said.
The plant’s current production can meet about 60 percent of the supply needed for Modelo brands in the U.S., according to Sands. Constellation plans to invest $400 million to expand the plant to have capacity to satisfy all U.S. demand, bringing output to about 17 million hectoliters.
AB InBev agreed to supply Constellation during the expansion with the additional beer it needs through a three-year supply contract.
“This makes them the third-largest brewer in the U.S., answering only to themselves and gives them 100 percent authority on new packages, innovation, pricing and supply chain,” said Bump Williams, whose Stratford, Connecticut-based BWC Co. advises more than 100 beer retailers, distributors and brewers. He declined to disclose the names of his clients. “It’s a great thing for them and the entire U.S. beer business. The Justice Department got everything it asked for.”
The case is U.S. v. Anheuser-Busch InBev NV, 13-cv-00127, U.S. District Court, District of Columbia (Washington).