Despite the progress made with the Justice Department, Anheuser-Busch InBev (NYSE:BUD) could be left bereft if a new lawsuit blocks its attempt to acquire the remaining stake in Mexican brewer Grupo Modelo that it doesn't already own.
Last Friday nine consumers filed a lawsuit seeking to stop the $20 billion merger, arguing it would significantly reduce competition and would allow Anheuser-Busch and No. 2 brewer MillerCoors to collude to raise prices. The filing says the combination would give Anheuser-Busch 54% of the market in the U.S., and with its rival owning another 30%, the two would control between 85% and 95% of the market.
The attorney that rounded up the nine affronted plaintiffs is the same one that attempted to block the merger of Anheuser-Busch and InBev in 2008.
100 bottles of beer on the wall
The Justice Department had its own concerns over allowing the deal to go through, and to alleviate the anti-competitive fears, Anheuser-Busch agreed to sell Modelo's Piedras Negras, Mexico, brewery and grant perpetual brand licenses to Constellation Brands (NYSE:STZ) for $2.9 billion.
Additionally, Modelo's U.S. business would be completely divested to ensure independence of supply for Crown Imports, which is currently jointly owned by Modelo and Constellation. It would also sell to Constellation the 50% piece of Crown currently owned by Modelo to give it complete control of the production of the brands for marketing and distribution in the United States.
Anheuser-Busch briefly addressed the new lawsuit in its annual report filed this past Monday, noting that even if all the brewers, distributors, and Justice Department lawyers came to an agreement on the merger, the court in this private action lawsuit could delay it further or even kill it.
One of the concerns the new lawsuit apparently has is that despite selling Modelo's half of Crown Imports to Constellation, the deal only creates a "facade of competition" because Constellation would still be reliant upon Anheuser-Busch for the beer.
Yet that was one of the concerns the Justice Department originally had, and it led Anheuser-Busch to amend its original proposal to include the Piedras Negras brewery. As Constellation's president and CEO said at the time, it gives the distributor perpetual rights to the Corona and Modelo brands as it will have "autonomous control of production, distribution, marketing, and promotion" in the U.S.
No doubt the Justice Department has already addressed the many concerns the new lawsuit raised, and though the deal would create a massive brewing giant, it's also true that Bud needs some new ways to juice sales. Beer volumes have been fairly anemic, rising just 0.1% in 2012 as craft breweries gained momentum. Just because you're the biggest doesn't mean you've got control over drinkers' tastes, and it doesn't guarantee frothy prices, either.
Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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