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Shares of Constellation Brands sank Thursday after the U.S. Justice Department filed an antitrust lawsuit challenging Anheuser-Busch InBev's proposed $20.1 billion purchase of Mexican brewer Grupo Modelo, which harms chances of a related Constellation deal.
The Anheuser-Busch InBev acquisition of Modelo would unite ownership of popular beers such as Bud Light and Corona. If it went through, Constellation was to buy the remaining half of a joint venture with Grupo Modelo, Crown Imports LLC, that imports Modelo beers into the U.S. The Justice Department's objection could sideline Constellation's $1.85 billion deal, which would have landed it greater U.S. control of Corona and other beers.
The deal with Constellation was intended to alleviate antitrust concerns. But the Justice Department says that it wasn't enough to protect U.S. beer buyers, since Anheuser-Busch InBev could terminate its deal to supply Modelo brands to Constellation after 10 years and would retain Modelo brands and its brewing facilities.
Constellation Brands Inc. shares dropped 20 percent to $31.22 in midday trading. U.S.-traded shares of Anheuser-Busch InBev SA fell 7.5 percent to $87.12.
Constellation had predicted that the Crown deal would add significantly to its earnings per share.
In a statement Thursday, Constellation said that the proposed deal would have established Crown as a more "independent and competitive" entity. The company, based in Victor, N.Y., said it no longer expected the Crown deal to close during the first quarter but looked forward to an "expeditious resolution."
AB InBev said in a statement that it would "vigorously contest" the Justice Department's action, which it said was inconsistent with the law.
Americans spent at least $80 billion on beer last year, with Anheuser-Busch InBev's Bud Light being the top-selling beer and Modelo's Corona Extra being the best-selling import. Anheuser-Busch InBev and Modelo are the largest and third-largest beer companies in the U.S. and control about 46 percent of the market, the government said.
The government said Anheuser-Busch InBev's purchase of Grupo Modelo would "substantially lessen competition" for beer in the United States. That would result in people paying more for beer and having fewer new products to pick from, the government said.
The government said its lawsuit is intended to preserve the "head-to-head" competition the deal would eliminate.
Anheuser-Busch InBev, the world's biggest brewer, was created in 2008 when Belgian brewer InBev, which brews Stella Artois and Beck's, purchased U.S. beer giant Anheuser-Busch for $52 billion. Buying Grupo Modelo would have given the combined company annual sales of $47 billion and 150,000 workers in 24 countries.