U.S. challenges Anheuser-Busch InBev's purchase of Grupo Modelo

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By Diane Bartz | February 1, 2013 6:21 AM EST

Trading in Constellation Brands , which would have become sole owner of the company that distributes Modelo's Corona beer in the United States if the transaction had been approved, was halted after it dropped 23.8 percent.

AB InBev shares dropped as much as 8.0 percent to a three-month low and were the weakest performers in the FTSEurofirst 300 index of leading European stocks. <.FTEU3>

Shares in Mexican brewer Grupo Modelo fell to a seven-month low, down 9.5 percent to 105 pesos on the Mexican exchange.

InBev said in a statement that the Justice Department's decision to sue to stop the deal was "inconsistent with the law, the facts and the reality of the market place."

"We remain confident in our position, and we intend to vigorously contest the DOJ's action in federal court," the statement said.

The company said, however, that it no longer expected the deal to close in the first quarter.

Aside from battling the Justice Department in court, holding the deal together during a months-long fight, the companies could also settle. Or the companies could decide to scrap the proposed transaction.

InBev, which bought Anheuser Busch in 2008, was the top U.S. brewer by far with 47 percent of the U.S. beer market going into the Modelo deal. It owns 200 brands of beer, according to the Justice Department complaint.

Because of this, the company meticulously crafted an agreement under which AB InBev would sell Modelo's 50-percent stake in Crown Imports, its U.S. distributor, to Constellation Brands Inc for $1.85 billion. Constellation was already Modelo's partner in Crown.

AB InBev said that since it would sell Modelo's stake in Crown, it would not be adding any more U.S. market share by acquiring Modelo

But this was not enough to satisfy the Justice Department.

"If ABI fully owned and controlled Modelo, ABI would be able to increase beer prices to American consumers. This lawsuit seeks to prevent ABI from eliminating Modelo as an important competitive force in the beer industry," Bill Baer, assistant attorney general in charge of the Department of Justice's Antitrust Division, said in an emailed statement.

Despite what looks like a large variety of beers on liquor store shelves, the market is dominated by two big players.

AB InBev, with 47 percent of the U.S. market, has a large stable of brands from big names like Budweiser and Stella Artois to craft-style beers like Shock Top and Goose Island.

The No. 2 player is MillerCoors, a joint venture between SABMiller Plc and Molson Coors Brewing Co , with a 28.4 percent market share, according to Beer Marketer's Insights. Like AB InBev, it sells some craft-style beers, including Blue Moon. Crown is a distant third with 5.3 percent.

(Reporting By Diane Bartz, Martinne Geller, Michael O'Boyle, Phil Blenkinsop; Editing by Ros Krasny and Nick Zieminski)

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