Anheuser-Busch InBev NV (ABI) and U.S. Justice Department negotiations are heading toward an accord that will give the brewer antitrust approval to buy Grupo Modelo SAB, three people familiar with the matter said.
The discussions center on AB InBev’s revised proposal to sell control of all Modelo brands in the U.S., and a brewery in Mexico, to Constellation Brands Inc. (STZ) to resolve a U.S. lawsuit seeking to block the deal, said the people, who asked not to be named because the talks are confidential.
Should the progress in the talks continue, the world’s biggest brewer would be cleared for a $20.1 billion deal to buy the rest of Mexico’s largest beermaker, whose Corona brand is the U.S.’s most-popular import.
The revised proposal, submitted on Feb. 14, is aimed at appeasing U.S. authorities who sued to block the transaction, arguing it would hurt competition and lead to higher prices. AB InBev, the maker of Budweiser and Stella Artois, controls 39 percent of the U.S. beer market while Modelo brands account for 7 percent.
A federal judge in Washington on Feb. 23 agreed to suspend litigation until March 19, granting a joint request by both sides to try to reach a resolution. The companies have been cooperating with the Justice Department, providing the documents and access to executives that regulators need to assess the new proposal, people familiar with the talks said at the time.
It’s unlikely a settlement will be announced before the March 19 court deadline, the people said.
AB InBev fell 1.4 percent to 69.50 euros at 9:13 a.m. in Brussels trading, mirroring a slump in European stocks on concern that Italy’s inconclusive parliamentary election will lead to renewed turmoil in the region. The brewer is due to report annual results tomorrow.
Constellation shares were little changed at $43.97 at the close of trading in New York on Feb. 22 after jumping as much as 2.3 percent on news of the talks’ progress. Modelo shares climbed 0.6 percent to 115.06 pesos in Mexico City.
Allison Price, a spokeswoman for the Justice Department, Laura Vallis, a spokeswoman for AB InBev in New York, Angie Blackwell, a spokeswoman for Constellation Brands and Jennifer Shelley, a Grupo Modelo spokeswoman in Mexico City, declined to comment on a possible settlement.
Under the revised deal, Leuven, Belgium-based AB InBev 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 is being sold to Constellation, and added the Mexican brewery to address concerns outlined in the Justice Department’s complaint.
The Justice Department said Feb. 20 it’s investigating the proposed remedy.
The government must determine whether Victor, New York- based Constellation can replace Modelo as a viable competitor, similarly helping to contain beer prices. That will require some market testing, said Bert Foer, president of the American Antitrust Institute in Washington, a group favoring vigorous enforcement of antitrust laws.
The revised transaction would make Constellation the No. 3 producer and marketer of beer in the U.S., according to the brewers. Constellation would gain Modelo’s brewery in Piedras Negras, near the Texas border in Mexico, and perpetual rights for the Corona and Modelo brands in the U.S.
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.
The Justice Department in its lawsuit said the original transaction violates antitrust law because it would eliminate the “substantial head-to-head competition” between AB InBev and Modelo and “diminish ABI’s incentive to innovate.”
The case is U.S. v. Anheuser-Busch InBev NV, 13-cv-00127, U.S. District Court, District of Columbia (Washington).