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Merger headache brewing for Busch

Regulators will soon ask Anheuser-Busch InBev — the world’s biggest brewer — to make major concessions to complete its $19 billion buyout of Grupo Modelo, a well-placed source said.

Critics of the deal believe allowing Busch, with its Budweiser and other brands owning approximately 47 percent of the US beer market, to buy Modelo, whose Corona and 11 other brands control 6 percent, will give it too much pricing power.

Busch, sensing regulatory troubles, said in July it would give importer Constellation Brands the right to import all of Modelo’s beers and set distribution and pricing. But the offer appears to be one the DOJ can refuse.

There is a meeting of the regulatory cops at Justice this week and, the source said, Busch may be forced to have a third party make all beers imported into the US.

“It’s going to come down to how much Busch is willing to give up,” the source said. “They are going to have to create another competitor.”

Anheuser-Busch InBev already has 14 brands with sales of at least $1 billion each — and Modelo has three.

A banker said he believed Busch was ready to give in if the DOJ were to order Modelo’s US imports to be produced by a third party.

Perhaps that’s because ABInBev is not necessarily after Modelo’s US market share — but its 59 percent control of the Mexico beer market. Modelo, according to ABInBev, is also the leading import beer in 38 countries. Conversely, the US beer market is stagnant, with shipments eking out a small gain last year after three straight annual declines.

In its presentation to investors, Busch also says the deal will create at least $600 million in annual cost synergies, phased in over four years.

The DOJ, with jurisdiction only in the US, cannot place conditions outside the domestic market.

A Busch spokeswoman said the company is not commenting on the review and continues to expect the merger to close at the end of the first quarter. The DOJ declined to comment.

15 Jan. 2013

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