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Anheuser-Busch Inbev Buys Rest of Grupo Modelo

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Merging:
Creating economies of scale but allowing for an anti-competitive market
Anheuser-Busch InBev Buys Rest of Grupo Modelo, Maker of Corona Beer

In an effort to take full control of the maker of Corona Extra beer, Anheuser-Busch InBev agreed to buy the remaining share of Grupo Modelo, a large brewery in Mexico, which it had not already owned. If approved, the deal will finally unite the two companies who have shared a bond since 1993 and it will solidify Anheuser-Busch InBev’s position as the world’s largest brewer in the beer industry. Under the deal, Modelo will absorb several subsidiaries and will continue to be based in Mexico City and have a local board in order to preserve the Mexican brewer’s identity. With operations in 24 countries, the merger is expected to generate about $600 million in annual cost savings and give Anheuser-Busch InBev access to Mexico’s fast-expanding domestic market.
As the world’s leading brewing company, Anheuser-Busch InBev produces, markets, distributes, and sells approximately 200 beer brands. The merge with Modelo will encourage growth by continuing to create economies of scale [Figure 1] in production. With Modelo based in Mexico City, InBev will gain new production facilities in a new geographic area after the merge. This will drastically cut costs, seeing that beer is an expensive product to ship relative to its value which causes transportation costs to account for the majority of the overall product cost. The merge will result in the primary cost of production to be lowered by decreasing per unit cost of production while simultaneously increasing output. This will allow for InBev to produce at an even lower minimum efficient scale [1], all while producing more and lowering its costs of distribution, as it can now take advantage of its new brewing facilities to transport its beer [2] at a lower cost to the...

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