The U.S. government has filed a lawsuit seeking to stop Anheuser-Busch InBev SA from buying the half of Mexican brewer Grupo Modelo that it does not already own, saying the $20.1 billion deal could mean higher U.S. beer prices.
The government's move calls into question the future of one of the biggest deals of 2012. Shares of both companies fell sharply on the news.
Despite a huge array of beers on store shelves, the beer market is dominated by two big players.
The top seller is AB InBev, which has 200 brands ranging from big names like Budweiser and Stella Artois to craft-style beers like Shock Top and Goose Island. The No. 2 player is MillerCoors, a joint venture between SABMiller Plc and Molson Coors Brewing Co.
This market dominance would seem to give the big companies the power to raise prices. But, when they did, the smaller Modelo, with its popular Corona beer, often refused and took market share, the Justice Department said.
For example, Modelo declined to raise prices in California in 2010 and was "eating [Budweiser's] lunch," according to an AB InBev document quoted in the Justice Department complaint aimed at stopping the proposed transaction on the grounds that it breaks antitrust law.
AB InBev, which announced the deal for Modelo in June, said it will fight the Justice Department in federal court and called its decision to sue "inconsistent with the law, the facts and the reality of the market place."
"This is a very well-drafted complaint with quotes from what appear to be very damaging documents along with solid market share data," said Rob Davis, an antitrust attorney with Venable Llp. "If the division is able to prove what they say they can, then this looks like a very hard case for the parties to win."
A second expert agreed, but cautioned: "AB is going to have arguments. And I don't know what they are." A court battle could drag on for months, during which time deals often fall apart.
AB InBev, formed in 2008 when InBev bought Anheuser Busch, was the top U.S. brewer with 47 percent of the U.S. beer market going into the Modelo deal.