The Sheriff’s (read the DOJ’s) dramatic entrance into town last week armed with court writ and firing irons likely came as a shock to the boys from AB, who had turned the town upside-down whooping about their pending nuptials (read $20bn merger) with Madame Modelo.
What are the options now for AB? Swagger into town and slug it out with the DOJ (in court) head for the hills north of the border (walk away) or sit down, sober up and stick the kettle on – yeah, that’s maybe a bit tame, but it’s what we do in England – and thrash out a compromise over a brew.
“Litigate, negotiate or walk away’, in other words, as Sanford C. Bernstein analyst Trevor Stirling told the Wall Street Journal last Friday, adding that he thought AB would simultaneously pursue court action and peace talks.
There’s a $20bn deal at stake, and the fair Madame Modelo, who after freezing out our hero with icy stares for several years – despite the fact that, to a certain extent, they co-habited, has now fallen into his Samsonite arms before the onrushing train.
Tethered pack o’ legal hounds
Obviously, last June’s ‘intoxicating’ err…, proposition, had everything and nothing to do with the fact that our brawny hero AB slapped a fistful o’ dollars (or rather a suitcase-full) at Modelo’s feet, while gazing glassy eyed through her fishnets across a thick pianola wail and a wash of Corona.
But if AB fights to secure his belle – and make no mistake, the fight might make a movie in itself – then the romance could be over in a flurry of fists, a blur of bullets, and a clutch of bit-part B-movie players catapulted across bar countertops to the crash of beer bottles/sales and share price.
Doubtless, AB keeps a tethered pack o’ legal hounds with minds that make razor blades seem blunt, but University of Florida law professor Daniel Sokol reckons the DOJ knew “what worked” in court.
The Sheriff’s beef? He’s mighty annoyed with the boys from AB for planning, he alleges, to lift beer prices in the town by taking-out their main rival in Madame Modelo, who was the only saloon owner not to follow their beer brand pricing lead.
“If you can tell a story about a firm constraining prices, that’s a good story to tell a judge,” Sokol said, adding that the DOJ had successfully ran previous M&A transactions outta town: namely AT&T’s planned T-Mobile USA purchase in 2011, by using internal company documents against AT&T.
AB InBev flicks-off safety catch
The DOJ is scouting the same trail here – citing AB’s documents to further its claim that the planned Modelo nuptials will saddle the townsfolk of good ole’ US of A with higher beer prices, since AB admits therein that Modelo’s competitive pricing hits ‘premium’ sales in California, read Budweiser.
Naturally, AB will argue that due to category differences, folk will not buy a Bud because the price of Corona might perhaps go up, with its takeover, so marrying the brands will not hurt competition.
Will it wash in court? Hmm… AB InBev might prefer the third option – namely that of Clint Eastwood/Will Munney in The Unforgiven. Well, early in the movie before Munney becomes ‘the unforgiven’ having ditched whiskey and guns for the ‘good book’ and backwoods.
Madame Modelo owns a shiny new $600m bottling plant in Piedras, Mexico which AB wants as dowry, but the sheriff believes this is one holdup too many. There are suggestions that AB won’t budge on this issue – namely selling the site off – but divesting this or other assets might do the trick.
Could AB InBev simply walk away? Well, aside from the fact that AB’s fighting talk suggests that abandoning the fair prize isn’t an option, Stirling told the WSJ that AB didn’t want to run the risk of losing Modelo, pearls, ostrich feathers and all.
Or rather, Corona Extra, Modelo's distribution muscle and open access to a fast-growing Mexican beer market.
So although AB flicked-off the safety catch with its statement last week, behind closed saloon doors the world’s biggest brewer is likely brewing plans to shoot from the mouth, not the hip.