US: Constellation Brands comes out fighting against lawsuit
Constellation is taking a tough stance on the lawsuit
Yesterday (31 January), the Department of Justice (DoJ) filed a lawsuit against A-B InBev over the latter's intention to buy the half of Grupo Modelo that it does not already own. The purchase, announced in June, would see Constellation take full control of Crown Imports, the US sales and distribution JV it operates with Modelo.
Following the announcement of the lawsuit, Constellation's share price plunged by around 20%.
Having issued a short statement late yesterday, in which it said it was “disappointed” at the latest development, Constellation went further today, claiming that the DoJ has “demonstrated its incomplete understanding of the proposed transaction”.
The first of the three reasons Constellation gives in the attack is that it is Crown Imports that is A-B InBev's competitor in the US, rather than Modelo. “It is surprising that the DoJ has over-looked the existence and commercial activities of this … autonomous business,” said Constellation's president and CEO, Rob Sands.
Secondly, Constellation argues, its takeover of Crown would “improve competition”, with the division having “complete, autonomous control as the brand owner in the US with respect to its distribution, marketing, promotion and pricing of Corona and the other Modelo brands”.
Finally, the move would afford Crown “even greater flexibility” to respond to “competitive factors” in each of its markets. “The new contract ensures that Crown will benefit from both long-term stability in costs of goods provided by A-B InBev, and from the … global scale of the world’s leading beer producer,” said Constellation. The unit would also be in a position to “supplement its offerings in the US beyond the Modelo portfolio” should it wish to.
Several analysts posited today that A-B InBev's move for Modelo, and Constellation's subsequent takeover of Crown, will likely proceed, with A-B InBev making concessions to satisfy the DoJ.
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