Is Budweiser Constellation Brands' Puppet Master?

If at first you don't succeed try, try again. A group of beer drinkers is taking that saying to heart as it hopes to resurrect its antitrust lawsuit against Anheuser-Busch InBev and its $20.1 billion acquisition of Mexican brewer Grupo Modelo.

The nine plaintiffs in the case filed suit earlier this year saying the acquisition would lead to higher prices. They alleged that because Anheuser-Busch and Miller Coors, the joint venture of Molson Coors and SABMiller, control 80% to 85% of the U.S. beer market, even with A-B divesting its half of the Crown Imports joint venture to Constellation Brands , consumers would be subject to their colluding to raise prices.

Under the microscope
After undergoing Justice Department scrutiny that had Anheuser-Busch selling Crown Imports to Constellation, along with Grupo Modelo's Piedras Negras brewery, the merger was approved. Following A-B's claim that the antitrust lawsuit against it was "outlandish and completely unsupportable," a U.S. District Court judge agreed, ruling in September the beer drinkers lacked "any factual allegations supporting a claim."

They aren't letting that deter them, though, as Beverage Daily reports they were back in court on Sunday arguing that Constellation misled the courts when it said it wouldn't coordinate with Anheuser-Busch on price hikes, submitting an internal memo from A-B that Modelo's pricing strategy was "eating [Budweiser's] lunch." In short, whereas Modelo used to be a force keeping prices low, Constellation had now become A-B's "puppet."

Frothy returns
Following the consummation of the merger, Constellation reported earnings this past October showing how important Modelo has already become to its operations. Whereas its wine portfolio sagged, the new beer addition helped it record higher profits and let it raise its per-share earnings outlook for the year, partly because it was able to raise beer prices.

While seemingly vindication for the lawsuit, it seems hard to believe the new accusations will carry any more heft with the courts than their previous arguments did, because in agreeing to not collude with A-B, Constellation wasn't promising it would never raise prices, just that pricing is but one component of a company's marketing strategy. Besides, imported beers are experiencing strong demand, with the Beverage Information Group saying imports notched their third consecutive year of gains even as major labels like Bass, Beck's, and Red Stripe were removed from the category because they are domestically brewed now.

There are market forces at work that have more to do with rising beer prices such that Constellation isn't just a monkey on a string dancing to Budweiser's tune, and this latest round of legal wrangling will likely leave the plaintiffs crying in their beers.

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Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Molson Coors Brewing Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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