Shares of Constellation Brands soared on investor hopes that a $20.1 billion tie-up between beer giants Anheuser-Bush InBev and Grupo Modelo will gain approval from U.S. regulators after the companies revised deal terms.
That would mean a lucrative side deal with Constellation, giving the wine and liquor company total control of the production of Corona and other Modelo beers sold in the U.S.
The Department of Justice in January sued to block the combination, saying having one company controlling nearly half of all U.S. beer sales would stifle competition.
Anheuser-Busch was purchased by Belgium's InBev in 2008. The combined company is already the world's biggest brewer and makes Budweiser, Beck's and Stella Artois, among others.
Under previous terms of the complicated deal, Mexican brewer Grupo Modelo would have sold its half of Crown Imports to Victor, N.Y., wine maker Constellation Brands Inc. to address antitrust concerns. Constellation already owned the other half of the venture.
But AB InBev would have the right to end the import agreement with Crown after 10 years.
Now AB Inbev is willing to sell Modelo's Piedras Negras brewery in Mexico and give perpetual rights for Corona and the Modelo brands in the U.S. to Constellation for $2.9 billion. That's in addition to selling Constellation the half of Crown it does not already own for $1.85 billion. Under the revised agreement, Constellation, whose brands include Robert Mondavi, Clos du Bois and Manischewitz, would become the nation's third largest beer producer and seller, according to the company.
Shares soared 37 percent, or $11.87, to end at $43.75 on Thursday — the highest close since at least 1989, when accounting for stock splits. The stock has bounced back from its losses after the government sued to block the combination of AB InBev and Modelo.
"We believe this revised agreement addresses all of the concerns raised by the U.S. Department of Justice in its lawsuit, leaving no doubt about Constellation's Crown beer division's complete independence and ability to compete," AB InBev said in a statement released Thursday.
The transaction would be a "significant milestone" and a "transformational step" giving Constellation a solid place in the U.S. beer market, said Constellation CEO Rob Sands in a conference call with investors Thursday.
Justice Department spokeswoman Gina Talamona said in a statement that the department can't comment on a specific proposal, but that it "would give any proposal serious consideration and at the same time we would continue to prepare for litigation."
Some Wall Street analysts were hopeful that the change could get the deal regulatory approval.
"We believe this move addresses the (Justice Department's) concerns surrounding the ABI-Modelo deal as ABI has effectively no involvement/influence over any aspect of the Corona/Modelo brands in the U.S.," said Jefferies analyst Dirk Van Vlaanderen in a Thursday note.