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Anheuser-Bush InBev has shown a willingness to deal, but will the DOJ demand more protections for U.S. craft beer consumers?
At the announcement of the largest beer merger in history, Anheuser-Bush InBev SA/NV's ("ABI") acquisition of SABMiller plc, SABMiller offered to divest its interest in the MillerCoors LLC Joint Venture to Molson Coors in order to appease U.S. regulators. ABI maintains that with the divestiture, this transaction does not change the competitive landscape in the United States. However, Congress has been outspoken that the Department of Justice ("DOJ") must be wary of ABI's initial offer and must consider how this mega merger may harm U.S. craft beer consumers. So, the question, is, will the DOJ force ABI to provide additional concessions in the United States?
Given the global foot print and enormous size of these brewers, significant competition questions have been raised across the world. Purportedly, ABI is on its way to obtaining all of its regulatory approvals. ABI was quick to offer immediate solutions to competition problems on its terms. To the credit of foreign competition authorities, they pushed back and forced ABI to make further concessions.
In Europe, ABI initially proposed a $2 billion divestiture of Peroni, Meantime, and Grolsch, but the EC did not bite at ABI's first offer. Rather, the EC remained true to its goals of protecting competition and secured an additional divestiture of roughly $8 billion in assets.
In South Africa, ABI initially proposed to delay any layoffs by five years and invest 1 billion rand ($69 million) to support South African farmers and manufacturing jobs. But, the South Africa Competition Commission ("SACC") knew better than to simply accept ABI's first offer. SACC held out and secured additional structural and behavioral concessions. Indeed, SACC imposed various behavioral conditions to protect craft brewers after considering how this mega beer deal might harm smaller brewers. SACC required ABI to continue to supply metal bottle caps to its smaller competitors; to provide 10% of its fridge space to local craft brewers; and to supply hops and malt to small beer producers.
Interestingly, the SACC used the merger approval process to protect craft brewers. The concerns that led to the condition related to fridge space are similar to concerns that craft brewers have regarding access to distribution in the United States. In certain South African taverns, SABMiller may supply the only fridge, which usually carries its brands as part of the agreement. SACC imposed conditions to make sure that ABI will allow retailers and/or tavern owners to have freedom to allocate capacity to competitors' products. The key to the remedy is making sure that craft brews gain access to retailers and consumers.
Like Europe and South African competition authorities, the DOJ should be careful about approving this transaction without seeking additional remedies. Indeed, this mega beer deal forms the first truly global beer brewer, which will have lasting effects on U.S. beer consumers. The DOJ should demand concessions beyond ABI's initial divestiture offer, including:
- Requiring ABI to divest wholly or partially owned distribution assets;
- Imposing a cap on ABI's and Molson Coors' ability to acquire distributors;
- Prohibiting ABI and Molson Coors from implementing distributor incentive programs that prevent smaller brewers from obtaining access to distributors;
- Prohibiting ABI and Molson Coors from terminating existing beer distributors and a freeze on contract term changes;
- Requiring ABI to notify the DOJ in advance of executing contracts to purchase distributors or craft brewers that would not otherwise be HSR reportable; and
- Requiring Molson Coors to divest the Miller Brewery in Eden, N.C.
Earlier this year, Bill Baer, the Associate Attorney General stated to the Senate Judiciary Subcommittee on Antitrust that "we have learned to be skeptical of settlement offers consisting of . . . asset divestitures that only partially remedy the likely harm." During that hearing and a hearing held in December, Members of Congress expressed their concerns that the DOJ should be skeptical of simply accepting ABI's initial offer to fixing an otherwise anticompetitive merger.
ABI has shown a willingness to sweeten deals to obtain regulatory approvals around the world. South Africa was able to force ABI into agreeing to a number of behavioral conditions to protect its craft brew industry. The same sound approach used in South Africa can be used in the United States, and the DOJ has the necessary leverage to obtain concessions that protect U.S. beer consumers.
Barlow is a former Department of Justice Antitrust Division trial attorney and current partner at Doyle, Barlow, and Mazard.