The Department of Justice’s Antitrust Division (DOJ) is currently investigating Anheuser-Bush InBev SA/NV’s (ABI) acquisition of SABMiller plc (SABMiller), the largest beer merger in history, as well as its proposed divestiture of SABMiller’s interest in the MillerCoors LLC Joint Venture to Molson Coors.  These proposed transactions lock in place the two largest beer competitors in the United States while fundamentally changing the dynamics in the beer industry for smaller brewers, distributors, wholesalers and retailers. 

While ABI maintains that this transaction does not change the competitive landscape in the United States, Members of Congress have repeatedly asked the DOJ over the past eight months to make sure that it address significant antitrust concerns posed by the merger.

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One of the biggest concerns is whether the transactions will lead to a decrease in small brewers' access to distributors.  The beer market in the United States is a predominantly a three-tiered system because most state regulations generally require that the brewer sell to a distributor who then sells to retailers.  This open and independent distribution has become the safety valve that keeps beer markets competitive.

ABI, however, has recently stepped up its efforts to undermine open and independent distribution through acquisitions of distributors and craft brewers and the implementation of distributor incentive program that discourages distributors from carrying smaller craft brews.  Thus, the DOJ needs comprehensive relief to protect distributors, craft beers and consumers. 

The DOJ’s recent approach in approving Charter Communications, Inc.’s (Charter) acquisition of Time Warner Cable Inc. (TWC) to create New Charter is instructive.  Despite no competitive overlap in any local market, the DOJ required comprehensive behavioral conditions to prevent New Charter, a cable company, from engaging in future anticompetitive conduct against new and emerging video streaming services.  In that investigation, the DOJ found that TWC already entered into and enforced contracts that prohibited or limited programmers from providing video content to online video distributors (OVDs) such as Netflix.  The DOJ was appropriately concerned that the merger enhanced New Charter’s ability and incentive to restrain OVDs access to programmers, thereby foreclosing OVDs such as Netflix, HBO, Sling TV, and Hulu, from providing a competitive option to consumers. 

Therefore, the DOJ prohibited New Charter from entering into and enforcing agreements with programmers that limit or forbid OVDs access to video content and that make it financially unattractive to license content to OVDs.  The DOJ also prohibited New Charter from discriminating against, retaliating against, or punishing any video programmer for providing its content to any OVD. 

The craft brewers provide the new and emerging competitive options for beer consumers, but they need access to distributors, and ultimately retailers in order to sell their products.  Like TWC, ABI already squeezes its smaller rivals.  Indeed, ABI’s new distributor incentive program discourages independent distributors from selling rival beer if they want to be eligible for substantial financial awards and prevents retailers from offering adequate or prime shelving space to rival brewers.

Post-transaction, ABI/SABMiller, with increased global scale, and MillerCoors, with a broader portfolio of beers, will each have a greater ability and incentive to restrict smaller rivals’ access to the market through acquisitions of distributors and craft brews and implementation of incentive programs that make it financially unattractive for distributors to carry smaller brands.  In other words, smaller brewers will not be able to find or join distributors with scale which is critical for volume gains in all retail accounts.

Thus, the DOJ should not simply rely on ABI’s divestiture proposal as a remedy to the competitive harm posed by the merger.  Appropriate remedies in the proposed ABI merger would prohibit or limit ABI’s and MillerCoors’ ability: to terminate or acquire distributors; to use distributor incentive programs that create economic disadvantages or make it financially unattractive for them to distribute rival brewers’ beer; to retaliate or discriminate against distributors for distributing rival brewers’ beers; and to engage in other conduct that would foreclose rival brewers’ ability to distribute their products to retailers.   

As the tough merger cop it proved to be in requiring stringent conditions on Charter’s acquisition of TWC, the DOJ should use the same sound approach it used to protect consumers of video services when negotiating merger remedies to protect beer consumers.