Corona importer wins big in beer deal redo

Anheuser-Busch InBev (BUD) will lose the right to sell Corona to beer drinkers in the U.S. in order to save its deal for Mexican brewer Modelo, but just about everybody wins this high-stakes drinking game.

On Thursday, A-B revised its $20.1 billion deal for Modelo by selling Modelo's Piedras Negras brewery in Northern Mexico the perpetual rights for Corona and other Modelo brands in the U.S. to Constellation Brands (STZ) for $2.9 billion.

Under the old deal, A-B would have sold Modelo's half of its joint Crown Imports U.S. distribution venture with Constellation Brands to Constellation. The catch was that A-B could reassess that import deal every decade and terminate it at its leisure, which made the brewer the target of a Justice Department antitrust suit.

In the beer section of American liquor stores, convenience stores and supermarkets, A-B's sacrifice of U.S. Corona and Modelo sales to save the deal is like buying Manhattan while giving away the Empire State Building and Central Park. Or, quite frankly, it's like buying Anheuser-Busch InBev while losing the rights to sell Budweiser and Bud Light to American customers. While the revised deal works out really well for Constellation Brands in the U.S. -- which is now the nation's third-largest beer company with 5.7% of sales by volume, according to Beer Marketer's Insights, A-B still sees the Modelo merger as a pint half full.

As it stands, Anheuser-Busch Inbev beers account for 46% of all beer sold in the U.S. Though the old deal ceded Constellation the U.S. market share for Corona, Pacifico and other brands, A-B's ownership of the brewery that made those beers and its extensive U.S. distribution system made regulators uneasy. Last month, the Department of Justice filed suit to prevent the deal from going down, saying it "would result in less competition and higher beer prices for American consumers." A-B is hopping its latest maneuver will calm the Justice Department's fears and get it to back off.

In the DOJ's eyes, that 5.7% U.S. market share for Corona and other brands is no small deal. If A-B decided to pull distribution rights, that Crown Imports stake would give the multinational brewer a 52% share of the American beer market. Crown Imports' current 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 Heineken and five times that of Guinness owner Diageo (DEO).

That share means a lot to Constellation Brands, whose shares shot up more than 35% on Thursday after the revised deal was announced, but isn't nearly as important to A-B. The brewer had been steadily losing U.S. sales market share since its merger with InBev in 2008. Last year, it eked out a scant 0.6% production gain while seeing its slice of the U.S. beer industry trimmed from 46.8% to 46.3%.

Giving away U.S. rights to the Modelo brands won't help those numbers, but that's not the market A-B's concerned with. While North American sales still account for 42% of A-B InBev's annual revenue, its sales in the northern part of Latin America have swelled to 37.6% of all earnings. When you look at the amount of beer produced for each region, northern Latin America's 30.4% of all A-B volume seems awfully close to the 31.3% of A-B brews produced for North America.

If A-B's revised deal is approved, the northern Latin American market would become the brewer's largest by volume -- if not by revenue -- almost immediately. Let Constellation Brands splash around in its little U.S. puddle: A-B has bigger steins to fill.

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