Anheuser-Busch InBev Reports a Small Profit Increase

Core profit, or earnings before interest, taxes, depreciation and amortization, rose 0.9 percent to $3.43 billion, but was below even the lowest forecast in a Reuters poll of brokers. Anheuser-Busch also reported sales declines in every region except Asia, where China was exceptionally strong.

The company, which has a two-thirds share of the Brazilian beer market, said consumers there drank 8.2 percent less beer than a year ago because of the earlier timing of the Carnival, poor weather and high food inflation. It also lost market share.

“Brazil has been a great banker for years. It wobbled a bit last year. Now, it’s taken a further leg down,” said Andrew Holland, beverage analyst at Societe Generale.

The company, which makes Budweiser, Stella and Beck’s, missed first-quarter profit forecasts, and said that Brazilian sales volumes were likely to be flat or down by a low-single-digit percentage this year. It had previously forecast low- to mid-single digit growth there.

The world’s top brewers are relying on emerging markets for growth amid a prolonged squeeze on consumer incomes in austerity-hit Europe and limited expansion in the United States. But bad weather and tax-related price increases have posed challenges recently.

Felipe Dutra, the company’s chief financial officer, said the early Carnival in Brazil, which shortened the summer drinking season, and wet weather had been known factors. But March proved particularly weak, with industry volumes down by a percentage in the high teens.

“We had continued weak weather into March,” Mr. Dutra said. “But we also saw a peak in food inflation which impacts real disposable income.”

Brazilian inflation accelerated in March to 6.59 percent, breaching the official target ceiling of 6.5 percent for the first time since November 2011.

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.

DealBook: Anheuser-Busch Merger Deal Clears an Antitrust Hurdle

Associated PressThe purchase of Grupo Modelo, the maker of Corona beer, would give Anheuser-Busch InBev greater access to emerging markets like Mexico.

8:46 p.m. | Updated Anheuser-Busch InBev said on Friday that it had reached an agreement in principle to win government approval for its $20.1 billion deal to buy control of Grupo Modelo, the maker of Corona.

The Obama administration sued on Jan. 31 to block the takeover, arguing that the deal would give Anheuser-Busch InBev too much control over the American beer market, potentially reducing choice while raising prices.

Anheuser-Busch did not immediately disclose details of the agreement but said “the proposed resolution is substantially in line” with revised terms announced in February. It offered then to sell its 50 percent stake in Crown Imports, the company that imports Corona into the United States, to Constellation Brands for $2.9 billion. Constellation, one of the world’s largest wine companies, already owns half of Crown alongside Modelo.

Anheuser also agreed to sell the rights to Corona and other Modelo brands to Constellation, as well as a brewery close to the United States-Mexico border currently owned by Grupo Modelo.

The government’s opposition threatened to stymie a merger that Anheuser-Busch InBev has deemed important for its growth. Buying full control of Modelo, of which it already owns 50 percent, would help solidify its footprint in fast-growing markets in Mexico and elsewhere in Latin America.

Such a deal would be a crowning achievement of Anheuser-Busch InBev’s chief executive, Carlos Brito, who built the company into a global colossus through a relentless series of takeovers.

The government had argued in its lawsuit that Anheuser-Busch InBev, which already makes Budweiser and Stella Artois, would only solidify its hold over the American market. Together, the company and Modelo would control about 46 percent of beer sales in the United States.

The government’s lawsuit detailed how, in California, a price war among the biggest brewers had led Anheuser to complain in internal documents that Modelo’s strategy was “eating [Budweiser’s] lunch.”

The lawsuit reflected a tougher stance by the Obama administration toward industry-changing mergers. The Justice Department sued to block AT&T’s proposed $39 billion takeover of T-Mobile USA, forcing the telecommunications companies to abandon their merger.

Analysts have largely expected Anheuser-Busch InBev and the Justice Department to reach an accord on reasonable terms. The company has long regarded holding onto the United States rights to Corona and other brands less important than keeping control of Modelo’s operations elsewhere.

Anheuser and the Justice Department have asked the federal district judge overseeing the antitrust lawsuit to extend a stay of proceedings until April 23, to let them complete details of the agreement.

“As we have said all along, any settlement would have to fully protect U.S. consumers by preserving the competition that Grupo Modelo currently provides, while giving a divestiture buyer the freedom and capability to compete vigorously going forward,” Gina Talamona, a spokeswoman for the Justice Department, said in a statement.

The transaction is also subject to approval by Mexican regulators.