The Department of Justice announced on Friday that it has reached an official settlement with Anheuser-Busch InBev and Grupo Modelo. The deal will allow AB InBev to proceed with its $20 billion purchase of the Mexican brewer.
AB InBev, has been trying to complete a buyout of Modelo, maker of the popular Corona brand, since last June.
The Department of Justice sued to block the purchase out of concerns the deal would put too much price control in the hands of two companies, AB InBev and MillerCoors.
Modelo accounts for about 7 percent of the US domestic beer market. Combined the two companies would have controlled around 47 percent.
According to documents released by DOJ, despite being much smaller, Modelo was still able to exert a significant amount of market competition against AB InBev, particularly in key markets such as California and Texas.
According to the arrangement, AB InBev will divest itself of Modelo’s entire U.S. business and sell it to a third company, Constellation Brands.
Tim Greaney is an anti-trust attorney and professor at St. Louis University. He says consumers will only benefit if Constellation continues is price-competitive strategy.
“It all depends on whether the buyer is able to step in the shoes of Modelo and run the American operation as effectively as Modelo has,” says Greaney.
In previous statements AB InBev CEO Carlos Brito says the deal still makes sense as it wouldn’t prohibit the company from expand into high-growth emerging beer markets such Mexico, South America and China.
“And the beauty of this new enriched portfolio is that these brands complement each other in terms of positioning,” says Brito. “So Corona, is more about the Mexican heritage and the relaxed lifestyle. Budweiser is more about optimism and celebration.”
In addition to the licenses of Modelo brand beers, the deal will also hand Constellation greatly expanded brewing capabilities so that it is not relying on AB-InBev at all. AB InBev will be required to sell the Piedras Negras brewery in northern Mexico that makes Corona and other Modelo brand beers for the U.S. market. It also requires Constellation, to expand the brewery so that it can make at least 20 million hectoliters of beer by 2017.
It a statement officials with DOJ called the compromise a victory for domestic beer drinkers.
"This is a win for the $80 billion U.S. beer market and consumers," said Bill Baer, assistant attorney general in charge of the DOJ's antitrust division. "If this settlement makes just a one percent difference in prices, U.S. consumers will save almost $1 billion a year."
New York-based Constellation Brands is the world's largest branded wine company, distributing Robert Mondavi and Ravenswood wines. It also sells spirits including Black Velvet Canadian Whisky and Svedka vodka.
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