8:57 p.m. | Updated
For more than a decade, the world’s biggest brewers have been swallowing competitor after competitor as they grapple with slowing growth in many markets. Now, the Obama administration wants to cut them off.
The Justice Department on Thursday sued to block Anheuser-Busch InBev’s $20.1 billion deal to buy Grupo Modelo, the Mexican maker of Corona beer, saying that the merger would cement Anheuser-Busch InBev’s control of the market and enable it to continue to raise beer prices. Grupo Modelo is the third-biggest beer company in the United States.
“This is the sort of product that matters to consumers,” William J. Baer, head of the Justice Department’s antitrust division, said in a conference call with reporters. “If you have a very slight price increase that happens because of this deal, it could mean that consumers will pay billions of dollars more.”
The lawsuit is the first major roadblock in a decade of consolidation by brewers around the world, which has reduced the industry to only a few major players, primarily multinationals that own a majority of big brands.
At the top worldwide is Anheuser-Busch InBev, itself the product of a 2008 merger between a St. Louis-based icon and a Belgian-Brazilian brewing juggernaut. To compensate for slow growth in developed economies like the United States, the company has been seeking significant footholds in emerging markets like Mexico.
Since the middle of 2008, the brewer has announced more than 15 takeovers, according to Capital IQ.
The government’s lawsuit details how in California, a price war among the biggest brewers had led Anheuser to complain in internal documents that Modelo’s strategy was “eating [Budweiser’s] lunch.” According to the suit, a sales executive said that “California is a burning platform” for Anheuser.
With the lawsuit, the Justice Department is again flexing its aggressive antitrust muscle. It is the biggest deal to be opposed since 2011, when the government sued to stop AT&T’s proposed $39 billion takeover of T-Mobile USA. (Those companies abandoned the deal.)
The antitrust action is in an industry that previous administrations had allowed waves of consolidation. Anheuser-Busch InBev; the acquisitive SABMiller, which is one of MillerCoors’s parents; and Grupo Modelo have 72 percent of the $80 billion American beer market, giving them enormous power over pricing.
Despite the explosion of smaller breweries in recent years, industry analysts say that the craft beer market makes up just 6 percent of beer sales.
The biggest in the market, Anheuser — brewer of Budweiser and Stella Artois — has raised its prices with regularity every year, with MillerCoors following suit, the Justice Department said.
“Even small price increases could lead to significant harm,” Mr. Baer said.
Like AT&T, which ferociously battled the government’s case for months, Anheuser-Busch InBev has promised a fight. In a statement, the company said, “We remain confident in our position, and we intend to vigorously contest the D.O.J.’s action in federal court.”
Yet behind the scenes, the two sides will continue to try to reach a settlement.
Analysts were divided over how significant a hurdle the lawsuit posed. In a research note on Thursday, analysts at UBS wrote that the case wasn’t a “deal breaker,” expecting Anheuser to give up what they called “reasonable” concessions.
Anheuser has long pursued the benefits of consolidation, including opportunities to cut costs. Last summer, the company agreed to buy the 50 percent that it did not already own in Modelo, a deal that would give it full control of Corona, the United States’ top imported beer brand.
“In this case, there are pretty significant synergies,” said Harry Schuhmacher, the editor of Beer Business Daily. “Anheuser can afford to overpay for Modelo and is eager to.”
He added that he believed the Modelo deal was the end of beer deals for a long time, especially among the beer giants. Some consolidation could still be in store among smaller companies.
The Justice Department’s lawsuit is the first prominent antitrust action on the watch of Mr. Baer, who took over as President Obama’s top antitrust lawyer at the beginning of the year. Mr. Baer, who previously worked at the Federal Trade Commission and in private practice at the law firm Arnold & Porter, is the first permanent antitrust chief since August 2011, when Christine A. Varney stepped down.
Ms. Varney left the government to join Cravath, Swaine & Moore, where she is now leading Modelo’s antitrust defense.
The Justice Department contends that taking over full control of Modelo would give Anheuser overwhelming control both nationally and in markets like California, Texas and New York.
Mindful of potential antitrust issues, Anheuser has proposed selling Modelo’s 50 percent stake in Crown Imports, the main importer of Corona in the United States, to Constellation Brands for nearly $1.9 billion. Anheuser has said that Crown is what dictates the prices of Modelo products, and that selling the stake removes any say that it would have in the matter.
But the Justice Department called that offer a “facade,” arguing that Crown’s dependence on Modelo products makes it effectively subject to Anheuser’s wishes. The government’s lawsuit highlighted an internal e-mail from Crown’s chief executive, Bill Hackett, to employees that read, “Our #1 competitor will now be our supplier.”
Since the Modelo deal’s announcement last June, consumer advocacy groups have called for government intervention.
“Obviously, beer is different from most other goods and services because there are significant public health issues relating to alcohol,” said Sandeep Vaheesan, special counsel at the American Antitrust Institute, a nonprofit group that supports stronger enforcement of the antitrust laws. “But an antitrust analysis looks strictly at promoting competitive prices, product innovation and consumer choice, and this deal thwarts those objectives.”
Thursday’s lawsuit is the most prominent setback in the deal-making career of Carlos Brito, Anheuser’s chief executive. Mr. Brito helped lead the growth of AmBev, a regional Brazilian brewer, into a global giant through a successive series of takeovers.
“I’m not sure if this is the end, but Brito’s a guy who’s used to getting what he wants,” said Lew Bryson, a writer who follows the beer industry. “InBev isn’t a company that’s growing much organically. It’s grown by acquisition.”
