By: Gregory Parnas
Almost a year and a half ago, on November 11, 2015, AB InBev (ABI) announced that it had reached a $107 billion deal to acquire its chief global rival SAB-Miller. This announcement touched off a lot of very justifiable anxiety over what the merger would mean for the craft brewing community, and more importantly to the beer distribution networks that are dominated by AB and Miller. The announcement also began a nine-month long review process by the Department of Justice (DOJ) Antitrust Division. That process led to a challenge from the DOJ of the merger, with a subsequent D.C. federal court complaint and (due to a somewhat archaic legal procedure) simultaneous consent decree, or settlement agreement, being filed between the U.S. government and the defendants, ABI and SABMiller.
The proposed consent decree, issued on July 20, 2016, set out certain terms of approval for the AB-Miller merger and was subject to a public notice and comment period. During that comment period a number of stakeholders, among them, the Brewers Association, the State of North Carolina, two national beer wholesalers associations, the Virginia Beer Wholesalers Association, Ninkasi, Yeungling, the Teamsters Union and a number of other parties, wrote in to address various aspects of the proposed decree and explain why the merger may harm the American beer industry and more specifically beer consumers. In any antitrust review, the key question is not whether a particular merger will harm competitors or industry members, but whether consumers in the “relevant” market will be harmed by the acquisition. On January 13, 2017, the DOJ issued their response to the public comments along with publishing said comments.
In their response, the DOJ essentially said, thank you very much for all your comments and concerns, but we believe the proposed consent order is just fine as it is. Specifically, the DOJ cited relevant case law which explains that, “A ‘proposed decree must be approved even if it falls short of the remedy the court would impose on its own, as long as it falls within the range of acceptability or is within the reaches of the public interest.”
The proposed consent decree has now cleared most of the relevant procedural hurdles and is likely to be shortly finalized by order of the D.C. District Court. Here is where the members of the DC Brewers’ Guild come in. Among other provisions, the consent decree provides for the appointment of a Monitoring Trustee whose job it is to oversee the conduct of ABI during the ten-year period of the Court Order. That trustee’s name is William E. Berlin; he is a local D.C. attorney whose office is located at 1425 K Street NW. His email address is firstname.lastname@example.org and his phone number 202-370-9582. Bill Berlin’s job over the next decade is to field any and all complaints from beer industry members regarding the conduct of ABI, particularly as it concerns violations of the consent decree with the DOJ. While Bill is given authority to investigate such complaints, and issue recommendations to the Antitrust Division, it is ultimately in the sole discretion of the DOJ to accept, modify, or reject the Trustee’s recommendations for action against ABI. According to Bob Pease, President of the Brewers Association, keeping Mega Brew in check will require the vigilant eye of the brewing community. DC Brewers’ Guild members should make note if they hear of any of the following prohibited practices in the consent decree:
(1) ABI acquiring more than 50% ownership of equity or assets in a distributor, if acquiring that distributor would mean that more than 10% of ABI’s beer in the geographic territory would be sold through distributors that they own. Unfortunately, ABI is still permitted by the plain wording of the decree to acquire more than 50% of the voting shares in a distributor business, or anything up to 49% of the ownership shares, without any violation of the Court Order.
(2) ABI cannot condition its relationship with an Independent Distributor (defined as any distributor where ABI doesn’t have a 50% plus ownership stake), or provide any reward or penalty to the Distributor, based upon its sale of third party brewers’ beer or the promotional/account services the Distributor provides to those independent brands. There are a number of specific examples provided in the consent decree, which can be found here. However, ABI is permitted to condition its relationship with a Distributor, and provide all sorts of rewards and penalties, based upon that Distributor’s efforts to promote and sell ABI brands, as long as such conduct doesn’t require or encourage the Distributor to provide less than best efforts for its independent brands. For example, if 40% of a distributor’s revenue in the previous year came from selling ABI products, the Consent Decree explicitly states that the Independent Distributor can be required to spend up to 40% of their promotional and incentives budget for the subsequent year on ABI products.
(3) ABI cannot object to the placement of an Independent Distributor’s general manager based on that Distributor’s sale, retail placement, or promotion of a Third Party Brewer’s beer. How one would establish that this was the actual reason for ABI’s objection is not discussed in the Consent Decree.
(4) If ABI exercises its right to intervene in the case of a change in the transfer of control, ownership, or equity from one Distributor to another Distributor, when ABI intervenes it cannot take into account the business that the Distributor has with a Third Party Brewery or the retail placement of that brewery’s beer.
(5) ABI cannot request that an Independent Distributor provide them financial information regarding anything related to a Third Party Brewery, or require that an Independent Distributor provide them general financial data about the Distributor or ABI related information, if by doing so ABI would be able to ascertain any financial information regarding the Third Party Brewer.
If any DC Brewers’ Guild Brewery Members are harmed, or are likely to be harmed, by the conduct of ABI regarding one of their distribution partners, or otherwise hears through the beer community of any inappropriate conduct that would fall within the scope of the consent decree with the DOJ, they should contact the Monitor Trustee, Mr. Bill Berlin. Even if the Antitrust Division decides not to proceed forward with any action against ABI, publicity of the conduct could impact the conglomerate’s actions. Furthermore, records of the complaints to the Monitor Trustee and subsequent investigation, can provide evidence for a future civil suit against ABI.