DealBook: Antitrust Agreement in Merger of Anheuser-Busch and Brewer of Corona

Victor Ruiz Garcia/ReutersConstellation will get rights to make and sell Corona.

7:26 p.m. | Updated

WASHINGTON — Anheuser-Busch InBev, the country’s largest brewer, agreed on Friday to sell the United States rights to several foreign brands, including the top-selling Corona, in a deal that regulators say will ensure competition in beer prices.

The settlement of the Justice Department’s antitrust lawsuit means that Anheuser-Busch InBev, which controls 39 percent of the American beer market, can go ahead with its $20.1 billion takeover of Grupo Modelo of Mexico, the brewer of Corona.

But as part of the agreement, Anheuser will sell Modelo’s 50 percent stake in Crown Imports, which distributes Corona and other Modelo brands in the United States, to Constellation Brands, which already owned the other half.

For American consumers, the agreement will help keep beer prices down, government officials say, although there will be little practical effect on what beer buyers will see when they go shopping.

“This is an $80 billion market,” said William J. Baer, an assistant attorney general who oversees the Justice Department’s antitrust division. “Even a 1 percent price change would cost consumers $1 billion a year. This agreement will help to keep the market competitive, dynamic and quite healthy.”

The Justice Department’s antitrust division filed a lawsuit in January to block the merger. The government’s opposition was a big blow to Anheuser-Busch InBev, which saw the acquisition as vital to its push to expand in Mexico and the rest of Latin America. In February, the two sides announced they were in talks to resolve the antitrust concerns.

The settlement will leave Constellation — one of the country’s largest wine producers — with full and permanent rights to make and sell Corona, Corona Light, Modelo Especial, Pacifico and six other brands in the United States.

“Ultimately, nothing will change for consumers in the U.S. as a result of this transaction,” said Laura Vallis, a spokeswoman for Anheuser-Busch InBev. “The proposed combination with Grupo Modelo has always been about Mexico, and making Corona more global in markets other than the United States. Beers that Mexican consumers enjoy and appreciate will now get a larger worldwide presence.”

Constellation will pay $5.5 billion for Modelo’s share of Crown and for the Piedras Negras brewery, a new production and bottling plant in Mexico near the border with Texas.

Rob Sands, president and chief executive of Constellation, called the deal “the most transformational event in the history of our 68-year-old company,” one that would double sales and significantly increase profits and free cash flow.

Anheuser-Busch InBev is itself the result of a $52 billion merger in 2008 between the maker of Budweiser and a Belgian-Brazilian brewer. It was looking to expand internationally, and wanted to secure the rights to sell Corona and Modelo’s other Mexican brands around the world, particularly in Europe and South America.

Corona is the top-selling imported beer in the United States and the fifth-largest seller over all. Few imports to Europe, analysts say, have a greater potential for growth there.

But the Justice Department decided that in the United States, joining the marketing of Corona with that of Bud Light, the country’s biggest seller, and other top brands would result in too much consolidation and too little price competition.

A merger of the 39 percent market share of Anheuser-Busch InBev, also known as ABI, with Modelo’s brands, which account for 7 percent of the United States market, would put 46 percent of the market in one company’s hands.

That would essentially make the United States beer market a duopoly, because MillerCoors, the second-largest brewer of beer sold in the United States, controls 26 percent of the market. The next largest company would be Heineken USA at 6 percent.

But even those large market shares understate the effect of the market power of the two largest companies, which tend to “engage in significant levels of tacit coordination” in pricing, the Justice Department said. Anheuser would usually raise prices in the fall, and shortly thereafter MillerCoors would follow suit, often with the same increase, the regulators said.

In certain geographic market areas, however, Modelo accounts for as much as 20 percent of sales, and that gives it a unique ability to enforce price competition on the larger companies in those markets.

From 2010 to 2012, the Justice Department said in its lawsuit, aggressive pricing by Modelo in California, Texas and New York City kept Anheuser from raising prices, forced it to lower prices or caused it to lose market share.

The new arrangement will keep the Modelo brands competing with Anheuser-Busch InBev’s products in the United States. Constellation has never brewed beer, however, making the deal a new direction for the company. Currently, it produces and markets wine and spirits, including Robert Mondavi and Clos du Bois wines and Svedka vodka.

Constellation will gain control of a new, state-of-the-art brewery that is about at the midpoint of the 1,240-mile border between Texas and Mexico. The company plans to nearly double the plant’s capacity to take over the brewing of Modelo products for the United States.

Off the Shelf: Bretton Woods Monetary Agreement, Examined in a New Book

Representatives of some 44 nations gathered in July 1944 at Bretton Woods, a resort spot in New Hampshire, to hammer out a world monetary system, replacing the gold standard that had failed so woefully. But only two nations mattered: Britain and the United States.

In “The Battle of Bretton Woods” (Princeton University Press, $29.95), Benn Steil, a senior fellow and director of international economics at the Council on Foreign Relations, describes that effort from its roots and projects its effect on today’s conflicts among the dollar, the euro and the Chinese renminbi. Although America’s global dominance has long since melted away, no substitute is yet strong enough to shove the dollar aside, in part because of Bretton Woods.

Britain entered the conference exhausted and broke, crippled by the war. It desperately needed flexible exchange rates to rekindle its vital exports to pay for the imports it required to live. It clung to a privileged access to trading with its empire, one-fourth of the Earth’s land and people.

America was unscathed at home and far stronger in 1945 than in 1941. Owner of the bulk of the world’s gold bullion, a stunning 20,000 metric tons, the United States wanted to emerge from World War II with fixed conversion rates assured by a dollar tied to gold. And it went without saying that it was bent on becoming the globe’s financial capital.

Representing America at Bretton Woods was Harry Dexter White, an economics professor who had joined the Treasury as an adviser in 1934. By dint of intellect and hard work, he became grudgingly accepted as its ranking expert on international finance. He labored as the brains buttressing the Treasury Secretary, Henry Morgenthau, who described himself as “just a farmer,” albeit a close gentleman-farmer friend of Franklin D. Roosevelt. Morgenthau presided at Bretton Woods but White ran the show.

Dr. Steil presents evidence that White was also an informant for the Soviet Union, a starry-eyed admirer of what he saw as its remarkable economic success. For years, Dr. Steil says, White provided documents to the Soviets and favored their side in policy debates. In 1948, White fended off the House Un-American Activities Committee, denying that he was a Communist. A more adverse light was shed on his activities when wartime codes were broken years after his death. Dr. Steil is more convinced of the espionage claims surrounding White than some historians who see his actions as more innocent. There is no sign that his interest in the Soviets affected his work at Bretton Woods.

Taking Britain’s part at the 1944 conference was the celebrated John Maynard Keynes, who knew full well that war had reduced Britain to a hapless debtor, obliged to accept whatever the United States offered. The book confirms that Keynes was an intellectual giant with flawless intuition for finance, but it also exposes his caustic criticisms of lesser men and his tin ear for workaday diplomacy. The Americans considered him too bright for his britches and bottled him up at every opportunity.

White had prepared so well that the actual conference was well-orchestrated, everything the Americans wanted. “Now the advantage is ours here, and I personally think we should take it,” Morgenthau said to White, who fully agreed. As White said, “If the advantage was theirs, they would take it.”

The Americans wanted free trade and open markets; they feared postwar inflation. Bretton Woods helped by providing for stable but convertible currencies, tied within limits to the dollar and ultimately to gold. It also created the International Monetary Fund, a money pool from which nations with trade deficits could borrow to satisfy international accounts. And it set up what became the World Bank, initially focused on rebuilding Europe, and later on the developing world. Britain lost out on looser exchange rates, and its imperial trade preferences were doomed.

On item after item, Keynes found a stone wall. What Dr. Steil calls his “most tangible legacy” from Bretton Woods was pathetic. Norway moved to abolish the Bank for International Settlements for cooperating with the Nazis, a motion that Keynes vehemently opposed. The delegates eventually agreed that the bank would be “liquidated at the earliest possible moment.” The bank is still in business today.

Keynes ended up having to play an impossible hand. In 1945, he was left to sell Parliament on accepting arrangements that he had exhausted himself resisting. Four months later, he was dead. History later vindicated his advocacy of flexible exchange rates. The Bretton Woods system, not fully in effect till 1961, died only a decade later when President Richard M. Nixon ended the gold standard. The United States was running such large international deficits, paying out so many dollars, that not even Fort Knox had enough gold.

“The Battle of Bretton Woods” should become the gold standard on its topic. The details are addictive. But be warned: the book is dense. Every skirmish, every exchange — and the book gets into hundreds of thems — was presumably meaningful to the participants. But while some episodes mattered much, many did not. The author is no Robert Caro, who in his multivolume biography of Lyndon B. Johnson delves into minute details but also explains their larger significance.

Perhaps that is what is missing here — an unmistakable voice, a sense that this rich history is told by one mind. Mr. Caro is known for working on his own, with the assistance of his wife. In his acknowledgments, Dr. Steil thanks 10 research assistants and an advisory panel of 18 luminaries. The book sometimes reads like a succession of brilliant but loosely connected graduate seminar papers — an assemblage, a very fine one, but an assemblage nevertheless.