Anheuser-Busch InBev may have to give up more control of beer distribution in the United States, or even sell a brewery to settle an antitrust lawsuit to block its US$20.1 billion takeover of the rest of Grupo Modelo SAB.
US regulators and AB InBev are proceeding with talks on the Department of Justice's objections to the deal, according to people familiar with the matter. The company now must decide whether to give the government more concessions, fight the lawsuit in court, or walk away from the deal, said Herbert Hovenkamp, who teaches antitrust law at the University of Iowa.
"It's a tiny percentage that go to trial," Hovenkamp said. "More often than not, the parties identify some assets that can be spun-off."
Shares of both firms plunged after the justice department filed its complaint with the Federal Court in Washington on Thursday. The government argued the 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".
AB InBev was unwilling to sell Modelo's newest state-of-the-art beer bottling plant, located near Piedras Negras, Mexico as a concession to win approval, two people familiar with the matter said last month. Selling the plant would take the supply of Corona in the US out of AB InBev's hands, reducing the likelihood the brewer could control Corona prices.
Any requirement to sell the brewery would be a deal-breaker, said the people at the time, asking not to be named because the matter wasn't public.
Possible concessions range "from contract revision to some degree of divestments," said Philip Morrisey, an analyst at Berenberg Bank in London.
The transaction between AB InBev, the world's largest beer maker with almost half the US market, and Modelo would marry Bud Light, the top-selling domestic brand, with Corona, the biggest import, and create a company with estimated revenue of about US$47 billion this year.
Bill Baer, the head of the justice department's antitrust division, said AB InBev's proposal to sell Modelo's stake in Crown Imports, a US distributor Modelo owns jointly with Constellation Brands, fell "far short" of protecting consumers.
"Even with this fix, ABI would still control Modelo's brand and its brewing and bottling assets," Baer said on Thursday. The US would seek an injunction to block the deal formally, pending any trial, he said.
"Obviously the parties are free to propose fixes that will avoid the need for an injunction," Baer added.
Potential remedies AB InBev is considering include removing the 10-year call option on Crown Imports, said a person familiar with the company's thinking.