Corona importer loses big in beer industry dustup

You know how gamblers on Super Bowl Sunday get really angry at a team for not covering the spread and costing them money? That's kind of how wine and beer company Constellation Brands (STZ) is feeling about the Justice Department's lawsuit against beer giant Anheuser-Busch InBev (BUD).

Last summer, A-B made a $20.1 billion deal to increase its 50% stake in Mexican brewer Grupo Modelo and take control of its Corona, Modelo and Pacifico brands.

The deal caught the eye of the Department of Justice largely because A-B already holds a 46% share of the U.S. beer market, according to Beer Marketer's Insights. Throw in the 5.7% share held by Crown Imports, the Constellation-Modelo​ joint partnership that imports and markets Modelo brands in the U.S., and A-B would be selling one out of every two beers Americans drink.

According to the Wall Street Journal, the Department of Justice filed suit on Thursday to prevent the deal from going down, saying it "would result in less competition and higher beer prices for American consumers." That undid Constellation's plan to buy Modelo's 50% stake in Crown Imports for $1.85 billion and become the sole exporter of Modelo products. That, in turn, sent Constellation stock plummeting more than 24% and forced Nasdaq to temporarily halt trading because of the volatility.

That's a shame for Constellation, but it's also a sign that the Justice Department didn't like the smell of this deal one bit. A-B and Constellation's argument was that Modelo's sale of its stake in Crown Imports gives Constellation the U.S. market share for any Modelo, Corona and Pacifico products sold in the U.S. Never mind that A-B would own Modelo and use its extensive distribution system to send it all over the country: Constellation would be the necessary middle man and take that unwieldy burden off A-B's shoulders while doubling its revenue in the process.

Even though Mexico's antitrust group OK'd the deal, the DOJ still wasn't buying it. Taking A-B out of the equation for a moment, Crown Imports' 5.7% U.S. market share is nearly equal to that of the entire craft beer industry combined, according to industry group the Brewers Association. It's larger than the 4% U.S. presence of European megabrewer Heinkeken and five times that of Guinness owner Diageo (DEO).

A-B has vowed to continue its battle in court, but the damage to Constellation has already been done. Constellation's plans for 2013 hinged on A-B's deal for Modelo being completed in the first quarter. Without it, Constellation's 2013 looks not only half-empty, but skunked.

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