In his first big move as head of the Antitrust Division, Assistant Attorney General Bill Baer announced on Thursday that the Department of Justice is seeking to block beer titan Anheuser-Busch InBev’s $20 billion acquisition of the Mexican brewing giant Grupo Modelo.
“The department is taking this action to stop a merger between major beer brewers because it would result in less competition and higher beer prices for American consumers,” Baer said in announcing the filing of a lawsuit in United States District Court for the District of Columbia, a suit that puts the division at odds with former head Christine Varney. “If ABI fully owned and controlled Modelo, ABI would be able to increase beer prices to American consumers.”
The DOJ said Americans spent at least $80 billion on beer last year. “ABI’s Bud Light is the best selling beer in the United States and Modelo’s Corona Extra is the best-selling import,” the DOJ said. “Because of the size of the beer market in the United States, even a small increase in the price of beer could result in billions of dollars of harm to American consumers.”
Anheuser-Busch InBev issued a statement calling the DOJ’s move wrong on the facts, wrong on the law and wrong “on the reality of the market place.” The company said it would fight the lawsuit “vigorously.” The company conceded that the DOJ suit makes it probable that the Grupo Modelo deal will not go through in the first quarter of 2013, as planned. Leading the fight for Grupo Modelo, as The New York Times noted, will be Varney, now a partner at Cravath, Swain & Moore.
For many decades, Anheuser-Busch has been an American institution, promoting its Budweiser as “the king of beers” and showing off its horse-drawn delivery wagons on television commercials. But in 2008, Anheuser-Busch agreed to be acquired by the Belgian brewer InBev for about $52 billion, uniting the maker of Budweiser and Michelob with the producer of Stella Artois, Bass and Brahma (see New York Times report).
The DOJ said ABI and Modelo, the largest and third-largest beer companies, together control about 46 percent of annual sales in the United States. MillerCoors, the second-largest beer firm, accounts for about 29 percent, the DOJ said.
The DOJ’s complaint asserts that the American beer market is already highly concentrated, and prices are increased by “strategic interactions” among the largest brewers, including ABI and MillerCoors. ”
ABI generally acts as the price leader, implementing annual price increases in the sub-premium, premium and premium plus segments of the U.S. beer industry,” the DOJ said. “MillerCoors and other brewers have typically joined the ABI price increases, while Modelo has not. By pricing aggressively, Modelo–through its importer, Crown Imports–puts pressure on ABI to maintain or lower prices, especially in certain parts of the country. As a result, Modelo has become a particularly important competitor in the U.S. market.”
It would be unfair to blame Bill Baer, in his post for barely a month, but the government’s attitude toward alcohol has been inconsistent over the years. The term “sin tax” means a levy imposed on socially frowned upon indulgences, like tobacco and — yes — alcohol. Taxes are part of the reason a bottle of top-shelf liquor is so expensive. Now, the DOJ wants to make it cheaper to drink, as long as the beverage is beer. But beer makers have sometimes described their product as the drink of moderation. Besides, it’s Super Bowl week.