AB InBev, U.S. Antitrust Case to Stay Hold Until April 9

Anheuser-Busch InBev NV and the U.S. Justice Department obtained a second postponement of the government’s antitrust lawsuit seeking to block the brewer’s purchase of Grupo Modelo SAB as settlement talks continue.

U.S. District Judge Richard Roberts in Washington suspended the case until April 9 in a one-page order, when the two sides must brief him on a possible resolution. The order, signed March 18, was made public today.

“There’s no point in the judge insisting on the case being actively litigated when the parties have told him they are well on the way to a possible settlement,” said Allen Grunes, an antitrust lawyer with Brownstein Hyatt Farber Schreck LLP in Washington, who isn’t involved in the case.

AB InBev and the government sought the delay in a joint filing last week, citing “substantial progress” toward a settlement. They said the talks are based on a revised proposal for Modelo to sell control of all Modelo brands in the U.S., and a brewery it built in Piedras Negras, Mexico, to Constellation Brands Inc., a winemaker and beverage distribution company.

The Justice Department is reviewing Constellation’s plan to boost brewing capacity by about 70 percent at the Piedras Negras plant to ensure Modelo-brand products will remain viable as competitors in the U.S. beer market, two people familiar with the matter, who asked not to be named because the talks are confidential, said March 8.

Independent Supply

An independent beer supply that can meet U.S. demand is critical to resolving regulators’ antitrust concerns that Leuven, Belgium-based AB InBev’s proposed $20.1 billion purchase of the rest of Mexico City-based Modelo would hurt competition and lead to higher prices, said the people.

The plant’s sale is the key element the revised proposal AB InBev submitted Feb. 14 to resolve the U.S. lawsuit. Under the plan, Constellation would pay $2.9 billion for production assets and perpetual rights to Modelo brands in the U.S. The revised deal may make Constellation, which now isn’t a beermaker, the third-largest brewer in the U.S.

AB InBev, the world’s biggest brewer, controls almost half the U.S. beer market, while Modelo’s Corona is the country’s biggest-selling imported brand.

Revised Deal

Under the revised deal, AB InBev 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. Crown, owned jointly by Modelo and Constellation, would be entirely owned by Victor, New York-based Constellation as part of the plan.

AB InBev agreed to buy the 50 percent of 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.

Constellation and Crown Imports, which had filed to intervene in the case, agreed to the April postponement, according to the filing. The judge had agreed to an earlier delay so talks could continue.

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’s current production can meet about 60 percent of the supply needed for Modelo brands in the U.S., Sands said. Constellation plans to invest $400 million to expand the plant’s capacity to about 17 million hectoliters so it can satisfy all U.S. demand.

AB InBev agreed to supply Constellation during the expansion with the additional beer it needs through a three-year supply contract.

The case is U.S. v. Anheuser-Busch InBev NV, 13-cv-00127, U.S. District Court, District of Columbia (Washington).

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