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Proposed merger of beer giants may lead to unfair competition

Louisiana's business community is likely well aware of the benefits of mergers and acquisitions. Mergers and acquisitions may allow businesses to expand and obtain economies of scale. The phrase "economies of scale" implies cost reductions and increased efficiencies obtained through an increase in a business' size. However, a merger or acquisition may not be allowed if it would result in market dominance or unfair competition.

In a recent case of business litigation, the Justice Department has filed a lawsuit against the proposed merger of two beer giants. Anheuser-Busch InBev has proposed a buyout of Mexican beer manufacturer Grupo Modelo. The $20.1 billion purchase would unite the ownership of the best-selling domestic beer, Budweiser, and the best-selling imported beer, Corona, in the U.S. market.

As per the Justice Department, the merger, if given a green signal, would greatly reduce competition in the U.S. beer market. Metropolitan areas would be the worst affected. The two firms currently control around half of the beer sold in the U.S. market annually.

At present, ABI acts as the industry price leader in setting price increases in the U.S. and other brewers follow. However, competitive pricing by the foreign company Grupo Modelo compels ABI to maintain a lower price. The Justice Department fears that the merger may eradicate this price competition and allow ABI to increase beer prices.

ABI intends to contest the suit. According to ABI, attempts to block the proposed merger are not consistent with the law and with marketplace realities. ABI is already the world's biggest beer manufacturer.

Business litigation such as this may be quite troubling. For example, in the above case, the lawsuit has already resulted in a 5 percent drop in the value of ABI's stock shares. Apart from damaging a company's reputation, much time and money is wasted in litigation. Although it is important to maintain confidentiality about any intended merger, prior advice of an experienced professional would be wise to have. Louisiana business people should understand that a merger failure, especially due to antitrust violations, can cause serious and perhaps permanent damage to a business.

Source: New Orleans City Business, "US challenges deal to merge Budweiser and Corona," Jan. 31, 2013

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