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March 18, 2013

Justice Department, Brewers Seek Extension of Stay in Effort to Reach Settlement of Merger Challenge

By Jeffrey May, J.D.

Anheuser-Busch InBev (ABI) and Grupo Modelo appear to be close to reaching a settlement with the Department of Justice Antitrust Division that would resolve the government's challenge to their proposed merger. Noting "substantial progress toward a resolution" of the matter, the Justice Department, ABI, and Modelo on Friday asked the federal district court in Washington, D.C. to extend a stay of proceedings in the Justice Department's civil suit to continue their settlement discussions. The joint motion seeks a limited extension of the stay through April 9.

On January 31, the Justice Department filed a complaint in the federal district court in Washington, D.C. challenging the proposed acquisition by ABI—the largest beer seller in the United States—of the remainder of Modelo that it does not already own. Modelo is the third-largest brewer of beer sold in the United States, according to the complaint.

The Justice Department contended that the $20.1 billion transaction would substantially lessen competition in the market for beer in the United States as a whole and in 26 metropolitan areas across the United States, causing consumers to pay more for beer and resulting in fewer new products from which they could choose.

ABI's global brands include Budweiser, Bud Light, Stella Artois, and Beck's. Modelo's Corona Extra brand is the top-selling import in the United States.

After the Justice Department rejected as inadequate the parties' initial attempts to remedy the potentially anticompetitive aspects of the transaction, ABI and Modelo offered more significant concessions. Under the initial deal, ABI agreed to sell Modelo's existing 50% interest in Crown Imports LLC, which is Modelo's exclusive U.S. importer, to Crown's other joint venture owner—Constellation Brands, Inc. Constellation would have had the exclusive right to import Modelo beer into the United States for ten years. Constellation would have remained an importer and would not have acquired any Modelo brands or brewing facilities under the arrangement. The Justice Department was concerned that after the ten-year period, ABI could unilaterally terminate its agreement with Constellation, thereby giving ABI full control of all aspects of the importation, sale, and distribution of Modelo brands in the United States.

In light of the Justice Department's concerns, the parties announced on February 14 that, in addition to facilitating Constellation's acquisition of ABI's 50 percent stake in Crown, ABI would transfer perpetual rights in Corona and other Modelo brands in the United States. Constellation also would gain ownership of Compañía Cervecera de Coahuila, Modelo's brewery in Piedras Negras, Mexico.

ABI and Constellation have agreed to a three-year transition services agreement. Constellation also pledged to expand the Piedras Negras facility. The deal purportedly would establish Crown as the third largest marketer of beer in the United States. The settlement talks are based on the terms of this revised offer.

In a February 22, 2013, order, the court granted the parties' joint motion for a stay of the proceedings to work toward a settlement. That stay is set to expire on March 19.

ABI issued a statement on March 15, saying that "an extension of the current stay will likely enable the parties to complete their discussions." The brewer noted, however, that "[t]here can be no assurance that the ongoing discussions will be successful."

The case is U.S. v. Anheuser-Busch InBEV SA/NV, Civil Action No. 13:127 (RWR).

Attorneys: David Z. Gringer, U.S. Department of Justice, for plaintiff. Steven C. Sunshine (Skadden, Arps, Slate, Meagher & Flom LLP) for Anheuser-Busch InBev SA/NV. Yonatan Even (Cravath, Swain & Moore LLP) for Grupo Modelo S.A.B. de C.V. Margaret H. Warner (McDermott, Will & Emery LLP) for Constellation Brands, Inc.

Companies: Anheuser-Busch InBev SA/NV; Constellation Brands, Inc.; Crown Imports LLC; Grupo Modelo S.A.B. de C.V.

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