Court Review of ABI-SABMiller Merger Complete, Judge Signs Modified Final Judgment

United States District Court Judge Emmet Sullivan ended the two-year journey for approval of the ABI-SABMiller merger by signing the Modified Final Judgment. Judge Sullivan had this case as part of the Tunney Act review of this merger. The Tunney Act process is designed to give judicial oversight of antitrust merger decisions and settlements.

As noted in previous posts, the proposed merger of the world’s two largest brewers drew significant attention throughout the world. Here in the United States 12 entities weighed in with the Department of Justice (DOJ). And four groups including NBWA later filed amicus briefs before Judge Sullivan asking for a hearing.

Judge Sullivan recently issued and signed a short Order declaring the merger with the negotiated concessions as in “the public interest” without any further explanation. He noted that due to the extra amicus briefs and responses from the parties the court “has availed itself of a record sufficient for the review mandated by the Tunney Act.”

Now that the order is signed, ABI must mail out notice to all ABI distributors on how it will comply with the Modified Final Judgment.   This can happen any day.  Section V. I. of the Modified Final Judgment states:

“Within ten (10) business days after entry of this Final Judgment, Defendant ABI shall provide the United States, for the United States to approve in its sole discretion, with a proposed form of written notification to be provided to any Independent Distributor that distributes Defendant ABI’s Beer in the Territory. Such notification shall (1) explain the practices prohibited by Section V of this Final Judgment, (2) describe the changes Defendant ABI is making to any programs, agreements, or any interpretations of agreements required to comply with Section V of this Final Judgment, and (3) inform the Independent Distributor of its right, without fear of retaliation, to bring to the attention of any Monitoring Trustee appointed pursuant to Section VIII of this Final Judgment or the United States any actions by Defendant ABI which the Independent Distributor believes may violate Section V of this Final Judgment. Within ten (10) business days after receiving the approval of the United States, Defendant ABI shall make reasonable efforts to furnish the approved notification described above, together with a paper or electronic copy of this Final Judgment, to any Independent Distributor that distributes Defendant ABI’s Beer in the Territory.”

It has been two years since the Complaint, Competitive Impact Statement and Proposed Final Judgment were first announced so let us review some of the highlights of the final Judgment. The major provisions are as follows:

  • Divestiture. The Final Judgment requires a divestiture to Molson Coors of all SABMiller assets sold in the United States. For all intents and purposes, this divestiture has already occurred.
  • No termination.  ABI and Molson Coors agree to not use the transaction or the required divestiture as a basis for modifying, renegotiating, or terminating any contract with any distributor. As a result, no MillerCoors or ABI distributors have been terminated because of the supplier consolidation. As you may recall, subsequent to the MillerCoors joint venture in 2008, over 40 distributors were given notices of termination due to change in successor ownership.
  • Numerous provisions concerning United States distribution. ABI is prevented from:
    • Acquiring a distributor if the acquisition would result in more than 10% of ABI’s beer sold in the United States to be sold through ABI-owned distributors (branches/WODs);
    • Prohibiting or impeding a distributor that sells ABI’s beer from using its best efforts to sell, market, advertise, promote, or secure retail placement by the distributor of ABI competitors’ beers, including the beers of other high-end brewers;
    • Providing incentives or rewards to a distributor of ABI’s beer based on the percentage of ABI beer sold as compared to the distributor’s sales of brands of ABI competitors;
    • Conditioning any agreement or program with a distributor of ABI’s beer on the fact that the distributor sells ABI competitors’ brands outside of the geographic area in which the distributor sells ABI’s beer;
    • Exercising its rights over distributor management and ownership based on a distributor’s sales of ABI competitors’ brands;
    • Requiring an independent distributor to report to ABI the financial information associated with the distributor’s sale of ABI competitors’ brands;
    • Requiring a distributor of ABI’s beer to offer its sales force the same incentives for selling ABI’s beer when the distributor promotes the beers of ABI competitors with sales incentives; and
    • Consummating non-reportable acquisitions of beer brewers – including craft brewers – without providing the United States with advance notice and an opportunity to assess the transaction’s likely competitive effects.
  • Best Efforts. The Final Judgment replaces ABI’s requirement of “maximum efforts” in the Wholesaler Equity Agreement with “best efforts.” This allows ABI to only require “best efforts” on behalf of its distributor partners and allows replacement of ABI beers in retail accounts without violation of the Wholesaler Equity Agreement.
  • Monitoring Trustee. The Modified Final Judgment also establishes oversight by a Monitoring Trustee, with responsibilities that go beyond those of the Monitoring Trustee put in place to oversee the ABI-Modelo deal. Among other responsibilities, the Monitoring Trustee will have the authority to investigate complaints that ABI has violated restrictions related to its distribution practices. The Monitoring Trustee appointed in this matter is William “Bill” Berlin, Partner of the law firm Hall, Render, Killian, Heath & Lyman. Anyone with concerns about compliance with the Modified Final Judgment is encouraged to speak with Mr. Berlin.

(previous post– DOJ Responds to Amicus Briefs in ABI-SABMiller Merger Review)

Although the DOJ filed its Complaint and proposed Consent Order in July 2016, the review of the ABI-SABMiller merger still has not completed its required Tunney Act review.  Yesterday, the Justice Department responded to the amicus briefs filed by the National Beer Wholesalers Association, Brewers Association, Yuengling, Teamsters, and Consumer Action and Consumer Watchdog and urged the court to enter the final judgment saying that the DOJ has considered and addressed all the concerns of the amicus.  The DOJ suggests “the changes to ABI’s approval rights work in conjunction with other provisions in the proposed Final Judgment that ensure that Independent Distributors are free to carry and promote rival brands without concern that ABI will use its contractual rights to punish the distributor.”

 The DOJ filing does not propose any changes to the Final Judgment based upon the arguments of the amici.  However, the DOJ did work out a side change to the proposed order with ABInBev and proposes to modify the proposed final order for four items:  1) Lower the burden of proof for proving violations of the order to a preponderance of the evidence standard from a clear and convincing” standard.  This DOJ suggests in its motion to modify the PFJ that the change matches what the DOJ has tried to standardize in recent consent orders before the Department.  2) Impose costs on the parties for violation of the order.   3) Extend credit to ABI for the “time served” under the Proposed Final Judgment meaning the Order would expire in eight years from now not ten years from the signing of the order as called for in the original Proposed Final Judgement. The timeline would kick in from July 2016 when the Consent Order was reached, not when the Final Judgment is signed by the court, and 4) allow the DOJ the ability to seek to terminate this Order in five years.

The next steps include a decision by Judge Sullivan on whether to hold a hearing as requested by the parties filing amicus briefs and a decision on whether he will sign the final order or seek any modifications.

(previous post) Court Grants Two Week Extension to Justice Department to Respond to Amicus Briefs

Judge Sullivan has given the Justice Department two additional weeks to respond to all amicus briefs in the pending ABInBev-SABMiller merger matter.  Many concerns with the Proposed Final Judgment were raised by Yeungling Brewery, the Teamsters union, Consumer Watchdog/Consumer Action, the Brewers Association, and the National Beer Wholesalers Association.  The DOJ was slated to respond to the court by March 1.  The Justice Department asked for additional time stating, “The United States seeks to extend the time for it to respond to amici curiae because the United States and ABI are in continued discussions regarding the United States’ response to amici curiae, the outcome of which may affect the United States’ response.”

I am not exactly sure what the DOJ notice means but I will post the response here when available.

(previous post– Court Asks Justice Department to Respond to All Amicus Briefs in ABI-SABMiller Merger)

Judge Sullivan has updated his order to require the Justice Department to additionally respond to amicus briefs filed by Yuengling, Teamsters, Consumer Action and Consumer Watchdog.   The DOJ response to these three briefs is also due by March 1.

(Previous post) District of Columbia District Court Judge Emmet Sullivan has ordered the Justice Department to respond to amicus briefs filed by the National Beer Wholesalers Association and the Brewers Association.   The Court asked that this response by filed by March 1.   The Court did not ask for briefing to address the amicus briefs of Consumer Watchdog, Teamsters and Yeungling which were filed before the Justice Department’s petition to finalize the Proposed Final Judgment.   Upon receiving the DOJ response, Judge Sullivan will presumably decide whether to hold a hearing, ask for additional briefing or sign/modify the pending order.

(previous post)  DOJ Moves to Finalize ABI-SABMiller Consent Order, Parties Seek Hearing

The Justice Department has petitioned the court to finalize the Proposed Final Judgment eight months after the DOJ responded to public comments filed under the Tunney Act.   In its motion the court seeks to make the terms of the consent order the DOJ negotiated with ABInbev and SABMiller/MolsonCoors final.  In this brief the DOJ claims to have responded to all concerns and they have complied with all terms of the Antitrust Procedures and Penalties Act (APPA).

However, this view of compliance is not shared by a growing collections of entities.  There are now five different entities including NBWA that have petitioned Judge Sullivan noting concerns with the process and substance of this order.  While the specific concerns vary, a generalized theme has emerged from four of the briefs about holes in the terms and language of the PFJ that will cause real life enforcement challenges due to the inconsistent treatment of the competitive concern identified.

The five entities that have filed briefs to date are Yuengling, Teamsters, Consumer Action and Consumer Watchdog , the National Beer Wholesalers Association, and the Brewers Association.  While the Teamster brief addresses the closure of the Eden, North Carolina brewery, the other briefs highlight inconsistencies and ambiguities in the PFJ.   Areas such as ABI ownership or partial ownership of distribution, changes in owners and management, and penalties by ABI against brewers that sell other craft and imported beer brands remain ambiguous.   These concerns of ambiguity were only exacerbated with the DOJ’s motion to finalize the PFJ.  In a footnote the DOJ explained that part of the delay in filing was a result of negotiations with ABI over what is permissible treatment by ABI of its independent distributors.    The standard apparently arrived at  for one part of Section V of the PFJ creates many more questions than answers.  It introduces many new undefined and subjective terms that will cause confusion moving forward.  It reads:

“Independent distributors are required to provide ‘best efforts’ to achieve and maintain the ‘highest practicable’ sales volume and retail placement of ABI beer. Consistent with this requirement, a distributor may ‘on occasion,’ and without violating best efforts to ABI, make ‘unsolicited recommendations’ to individual retailers, specific to each such individual retailer’s location(s), to convert a particular ABI ‘retail placement’ to that distributors third-party brewer’s beer when such recommendations are made for the express purpose of increasing such retailer’s sales of beer, including third-party brewers’ beer or ABI’s beer, so long as such unsolicited recommendation does not result in more than a ‘de minimis’ decrease in the sales volume or retail placement of ABI beer in the independent distributor’s assigned geographic area.” (Underlines added)

The ball is now in the court of Judge Sullivan.  The APPA is clear than an order must be clear and free from ambiguity.   At least four entities are saying it is not clear.  Judge Sullivan can grant the DOJ request to finalize, or he can hold a hearing or he can ask for more briefing on any of the issues raised.  We’ll wait and watch.

In the meantime, the Consent Order term is for ten years and is effective now.  A Monitoring Trustee has been appointed to be the contact for any concerns, questions or disputes about compliance with the PFJ.   Bill Berlin is the Monitoring Trustee and his contact can be found by clicking here.

(previous post) Justice Department Responds to Public Comment on ABI-SABMiller Merger

(January 13, 2017)  The Justice Department has responded to public comments filed by 12 parties (including NBWA) on the Justice Department’s Proposed Final Judgment (PFJ).  The PFJ and Consent Order was finalized between the Justice Department, SABMiller and ABInBev in July, 2016. In the response, the DOJ did not modify the PFJ and will soon move to ask Judge Sullivan to sign the final order for this case.

I previously summarized key provisions of the PFJ at this link. The 12 parties noted many varied areas where the PFJ was potentially confusing or did not go far enough. The DOJ had two forms of responses to these questions; 1) the PFJ already covers the question or 2) the request is outside the scope of the DOJ Complaint and Competitive Impact Statement. That being said, the confusion raised by the 12 parties and the deflection of answering several of these practical questions will significantly raise the importance of the Monitoring Trustee’s role in enforcing this PFJ.

To me the DOJ response under these Tunney Act proceedings was confirmation about the size of the wall they erected in the PFJ. The DOJ confirmed that the wall is indeed 30 feet, not 25 but they will not raise to 35 feet either as they feel their original settlement suffices to cover all concerns or that the other issues raised by the parties are outside their jurisdiction under the Complaint.

At this point, it is unknown if the Court will hold a hearing before entertaining a request to sign the final order.

(July 21, 2016 Update)

The required notice under the Tunney Act for comment on the proposed consent order has been published in the Federal Register.  The Justice Department will receive comments for 60 days.  The notice can be found here.

(earlier)    Justice Department Clears ABInBev Purchase of SABMiller With Conditions

The Department of Justice announced that it has approved the ABInBev purchase of SABMiller in the United States. The DOJ’s press release, Proposed Consent Order, and Competitive Impact Statement can be found here.

The DOJ approved the proposal by ABInBev to sell the SABMiller interest in the MillerCoors Joint Venture to Molson Coors and also added several additional conditions to ensure independence in the beer distribution industry. These provisions include restrictions on ABI, such as:

  • Acquiring a distributor if the acquisition would cause more than 10% of ABI’ s beer in the United States to be sold through ABI-owned distributors;
  • Prohibiting or impeding a distributor that sells ABI’ s beer from using its best efforts to sell, market, advertise, promote, or secure retail placement for rivals’ beers, including the beers of high-end brewers;
  • Providing incentives or rewards to a distributor who sells ABI’ s beer based on the
    percentage of ABI beer the distributor sells as compared to the distributor’s sales of the beers of ABI’s rivals;
  • Conditioning any agreement or program with a distributor that sells ABI’ s beer on the fact that it sells ABI’s rivals’ beer outside of the geographic area in which it sells ABI’s beer;
  • Exercising its rights over distributor management and ownership based on a
    distributor’s sales of ABI’s rivals’ beers;
  • Requiring a distributor to report financial information associated with the sale of ABI’s rivals’ beers;
  • Requiring that a distributor who sells ABI’ s beer offer its sales force the same
    incentives for selling ABI’ s beer when the distributor promotes the beers of ABI’s rivals with sales incentives.

The Consent Order contains additional provisions to ensure that Molson Coors is a robust competitor to ABInBev in the United States including provisions to facilitate Molson Coors effort to compete with ABI and ensure independent production of the current Miller brands for the US marketplace.

I will seek to provide additional perspective in the coming days after a more thorough review.

News coverage of the announcement can be found here and here.

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