AAI President Bert Foer’s Statement on DOJ’s Acceptance of Beer Merger Remedies

Apr 19 2013

The American Antitrust Institute (AAI) once again applauds the U.S. Department of Justice’s (DOJ) decision in late January to file a complaint seeking to enjoin Anheuser-Busch InBev’s (ABI) proposed acquisition of Grupo Modelo (Modelo). The acquisition as initially proposed would have increased concentration in the duopolistic U.S. beer market and enhanced the market power of ABI and SABMiller. Modelo has been a dynamic competitor and promoted price and non-price competition in the beer market. The loss of an independent Modelo would have likely resulted in higher prices and reduced choice for consumers.

Although the AAI believes that litigation to block this deal outright would have been justified, it respects the DOJ’s decision to accept the merging parties’ new proposed remedy. The transfer of the Modelo brands in the U.S. and the Piedras Negras brewery in Mexico to Constellation Brands (Constellation) appears on balance likely to preserve competition in the U.S. beer market. Critically, Constellation is required to expand the Piedras Negras facility to ensure it can meet current and future demand for the Modelo brands in the U.S. The original proposed remedy that involved assigning marketing, but not production, capabilities to Constellation would have created only a “facade of competition,” as the DOJ stated in its complaint. It would not have replaced the loss of Modelo as an independent player in the market. This new remedy apparently gives Constellation both the production capacity and marketing assets necessary to sell Modelo’s brands independently in the U.S. The AAI has concerns over whether Constellation will be a true replacement for Modelo because Constellation’s business has been focused on wine and spirits, rather than beer. Lacking the proprietary data available to the DOJ, we trust that the DOJ’s investigation found strong evidence to sustain the prediction that Constellation will prove to be a full and effective successor to Modelo in the marketplace.