Anheuser-Busch InBev is not having a great January. Any joy the brewer might have felt after raising $4-billion (U.S.) of debt at rates as low as 0.8 per cent this week will have been tempered by regulatory woes on both sides of the Atlantic. In the U.K., it was told that it has to share the Budweiser name with rival Budvar. More seriously, in the U.S. it is haggling with regulators over its $20-billion acquisition of Modelo, whose brands include Corona.
The big issue is market share – the combined company would have a 55-per-cent share of the U.S. beer market by volume. Anheuser's attempt to soothe regulatory concerns by handing control of Crown Imports (which distributes Modelo's drinks in the U.S.) to Constellation Brands – limiting the combined market share to 49 per cent – appears to have failed. It may also have to give up its option to buy Crown, which can be exercised once every 10 years. And if that is not enough, it might have to allow another brewer to produce some of Modelo's drinks.
Problems with U.S. regulators need not be fatal to the deal, whose benefits rely largely on cost savings in Mexico and wider distribution of Corona. But exports account for 40 per cent of Modelo's sales, and about two-thirds of its exports go to the U.S., so it is a big enough chunk of business to be a cause for concern. Bernstein estimates that being forced to lose some of Modelo's production would strip $75-million out of the deal's forecast cost savings of $600-milllion. That said, Anheuser has overdelivered on savings promises in the past, so $600-million might still be achievable.
Worries about the deal are weighing on the shares. Since it was announced last June, Anheuser has underperformed rivals SABMiller, Heineken, and Carlsberg. The company hopes that the deal can be completed in the first quarter of 2013. If the uncertainty drags on further, the risk is that the shares will lose more of their fizz.