The DOJ permitted the merger of the two largest global brewers, which without a remedy threatened to reduce head-to-head competition between Anheuser Busch InBev SA/NV’s (“ABI”) and MillerCoors in local markets throughout the country.  The DOJ alleged that the elimination of competition between ABI and MillerCoors would increase ABI’s incentive and ability to disadvantage its remaining rivals – in particular, brewers of high-end beers that serve as an important constraint on ABI’s ability to raise its beer prices – by limiting or “impeding the distribution” of their beers, likely resulting in increased prices and fewer choices for consumers.   This allegation is significant because “effective distribution is important for a brewer to be competitive.”

To resolve these competitive concerns, the DOJ’s Proposed Final Judgment required the divestiture, which permanently cemented a duopoly where two suppliers exert control over approximately 85-90% of the distributors in the United States.  The DOJ further acknowledged in its Competitive Impact Statement (“CIS”) that ABI and Molson Coors have business arrangements and contacts throughout the world and that the divestiture may actually facilitate coordination.  Because of the increased likelihood of coordinated anticompetitive effects, the DOJ alleged that the merger “would increase ABI’s incentive and ability to disadvantage its beer rivals by impeding the distribution of its beers.”  Accordingly, the DOJ sought behavioral remedies, which are designed to keep beer distribution independent and open as well as to level the playing field for ABI’s high end rivals.

The Court now must determine whether the MPFJ is in the public interest, as mandated by the “Tunney Act”.  Specifically, the district court must determine whether the remedy secured in the MPFJ adequately restores competition.  For the MPFJ to be meaningful, the DOJ and the federal court need to have the tools to effectively enforce the decree.  So careful scrutiny by the court is important.

The court’s job is very difficult because the consent decree/settlement contains numerous behavioral remedies that require the DOJ and a monitoring trustee to police ABI’s conduct going forward.  Third parties including the Brewers Association, National Beer Wholesalers Association, Yuengling, the Teamsters, and consumer groups, however, raised concerns that careful scrutiny of the details of the settlement agreement are important because as drafted ABI may be capable of creating new strategies designed to harm rival brewers while also following the letter of the decree.  These third parties identified ambiguities in the decree and provided numerous recommendations.  Both changes in the language of the decree and strong oversight is needed to ensure that ABI does not devise new strategies and engage in conduct that could slip through the cracks and harm competition and consumer choice.

The DOJ summarily rejected all third-party arguments and defended its settlement agreement.  At the same time, the Trump DOJ modified and strengthened the decree by adding three new provisions that improve the enforceability of the Division’s consent decree.  First, the DOJ included language that lowers its burden of proof should ABI violate the decree and the DOJ move for contempt.  The DOJ included a “preponderance of the evidence” standard in the decree, which is a lower standard than the “clear and convincing evidence” standard the U.S. antitrust agencies have been held to in the past.  Second, the DOJ included a provision on fee shifting that requires ABI to reimburse the DOJ if the DOJ starts an investigation into a consent decree violation.  Third, the DOJ included a provision that allows for a one-time extension of the term of the decree, if ABI is found to violate the decree.  All three provisions allow for meaningful and effective enforcement of the behavioral decree and should encourage ABI to comply with it.  The good news for consumers is that the DOJ did not walk away from the behavioral remedies even though the head of the DOJ, Makan Delrahim is adamantly opposed to them.  He believes that antitrust is about law enforcement and behavioral remedies are are fundamentally regulatory, which requires the monitoring of what otherwise should be free markets.

As part of the negotiations to include the provisions that strengthened the decree, the DOJ agreed to reduce the time period for the decree, which was originally ten years down to approximately 8 years.  While the DOJ’s efforts in obtaining additional provisions that should meaningfully improve the enforceability of the decree should be applauded, the DOJ should not be short-changing consumers with a shorter time period because of the DOJ’s 20-month delay in this Tunney Act proceeding especially when the DOJ itself has concerns that the divestiture to Molson Coors could result in coordinated conduct in the future.  The reason the DOJ entered into a settlement agreement is because the transaction was anticompetitive under the antitrust laws.  The DOJ should not be rewarding ABI when it designed incentive programs that impeded the growth of rival craft brewers in the not too distant past.  At the ABA Fall Forum, the DOJ’s own Makan Delrahim said that “a short-term remedy is a band-aid, not a fix”.   In other words, “the relief at best only delays the merged firm’s exercise of market power.”  Accordingly, the district court should could consider whether a longer-term band-aid is a better outcome for consumers.

The Honorable Judge Emmet Sullivan is the one who is tasked to make this decision.  He has an enormous responsibility.  Because the MPFJ includes numerous behavioral conditions, the Final Judgment must be absolutely clear to avoid any confusion or ambiguities.  The DOJ defends its MPFJ without recognizing the need for any substantive modifications proposed by the various amicus briefs.  But, Judge Sullivan is statutorily empowered to take into account the competitive landscape to determine whether the MPFJ is in the public interest and is adequate to, at the very least, resolve the anticompetitive concerns identified by the DOJ in its Complaint and CIS.  Given the complexities involved in drafting a behavioral decree as well as the third-party concerns about the numerous ambiguities within the decree that directly impact them, Judge Sullivan should hold a hearing before making his final decision.

 Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

The beer industry readily falls into this category, with the United States market dominated by two players, Anheuser-Busch InBev (ABI), and MillerCoors, a joint venture between South African controlled SABMiller and Molson Coors.  The pending merger between ABI the largest global beer company, and SABMiller, the second largest global beer company, will truly leave ABI in a position in which it can crush its competitors and stifle new entry.  The Justice Department has been examining the merger but only tough comprehensive action by DOJ can prevent the significant threat of Brazilian owned ABI becoming the kingpin of the market.

Using the best lawyers, economists and lobbyists money can buy, ABI has tried to engage in a slight of hand with Congress and the DOJ.  It claims that there are simply no competitive issues from this merger because it plans to divest all of SABMiller’s U.S. operations, which are held by the MillerCoors joint venture, to Molson Coors. And, while that may appear to be correct at first glance, one doesn’t have to dig too deep to pierce this façade and see major competitive problems looming in the future for the beer industry.

ABI says that they can simply sell SABMiller’s share to Molson Coors to resolve any competitive concerns raised by the transaction as the divestiture would maintain the status quo in the United States. But that is not enough under the law. As Judge Amit Mehta said in rejecting a proposed settlement and enjoining the Sysco-US Foods Merger, “Restoring competition requires replacing the competitive intensity lost as a result of the merger rather than focusing narrowly on returning to premerger HHI levels.”

Clearly, simply changing names won’t do that. Molson Coors, while a staple in the American beer industry, is a substantially smaller company than SABMiller, and it simply lacks the financial support of a large international conglomerate. The new MillerCoors will not be as strong once it is solely owned by Molson Coors, especially considering the massive debt Molson Coors will have to take on to pay for this purchase. It will also likely have to rely on ABI in order to import foreign brands that will remain owned by SABMiller but sold by MillerCoors. This means that Molson Coors’ incentives and ability to compete won’t be the same and consumers will lose.

ABI knows how to use its dominant position to make consumers pay a mighty price.  Economic studies have demonstrated that ABI and MillerCoors tacitly collude already to increase prices in lock step fashion.  But, the greatest competition threat for this cozy duopoly comes from craft beer and imports.

To stifle their opportunities, ABI has turned to a playbook of anticompetitive conduct John D Rockefeller would be proud of, marshalling a multipronged attack – cut off avenues to distribution, acquire craft beers, and limit access to outlets. To be successful and grow, craft brewers need cost effective access to retail outlets.  Independent and open distribution has been the safety valve that keeps beer markets competitive and is key to the thriving craft beer industry because it provides craft brewers access to retailers. But, ABI is the fastest growing distributor in the United States and ABI is pursuing strategies such as acquiring distributors and craft brands and implementing distributor incentive programs designed to cut off many avenues for craft brewers to get their products to retailers. Reportedly, ABI’s distributor incentive programs discourage distributors who sell ABI’s beer from selling other brewer’s beer.

Part of the purpose of enacting the Clayton Act 102 years ago was to prevent anticompetitive conduct in its incipiency – before the conduct created substantial competitive harm. Congress recognized that attacking conduct after the fact would require long drawn out litigation that would take tremendous resources and cost. This is a problem Elizabeth Warren identified, stating that antitrust regulators “are very unlikely to force the companies to break up after the fact.” This is true “even if the companies blow off the conditions” they agreed to in order to get the deal through. The Clayton Act sought to provide tools to prevent this harm before it was fully developed in part by giving the DOJ broad powers to enjoin mergers or severely restrict anticompetitive conduct through consent decrees.

That is precisely the problem in this merger. Even, if ABI changes the nameplate on the U.S. headquarters of SABMiller, opportunities for rivals will weaken significantly. Once combined with SABMiller, ABI will add control of almost a third of global beer production to its over 45% market share domestic dominance, enabling it to impose additional substantial hardships on independent distributors and small craft brewers to reach consumers in the market. Worse, once the beer market becomes more cozy, Molson Coors might start to follow ABI’s lead in its distribution strategies. The reality is that the ABI/SABMiller combination with increased global size and scale and post-merger Molson Coors with the control of a broader portfolio of beers, will both have a greater ability and incentive to restrict smaller rivals’ access to the market through acquisitions of distributors and craft brews and implementation of distributor incentive programs that make it financially unattractive for distributors to carry rival brands.  Accordingly, the increased ability and incentive to foreclose smaller and new rivals are merger specific concerns that should be weighed by the Justice Department.

ABI has already secured approval of the merger in all the major jurisdictions except the United States and China. Other jurisdictions, like the E.U. and South Africa, placed extensive conditions on the companies, and forced them to agree to much more than ABI originally intended. For example, the E.U. secured divestitures of $8 billion in assets over ABI’s initial $2 billion proposal and South Africa required a number of remedies to specifically protect the South African craft brewer industry.

American antitrust enforcers need to be just as tough.  DOJ needs to impose remedies to keep the market functioning and competition flourishing. Here, the Justice Department should not simply accept ABI’s divestiture proposal as a remedy when vertical foreclosure concerns exist.  Thoughtful remedies would include a requirement for ABI to divest its ownership of distributors, so that distribution can continue to be run by independent companies who sell what consumers want, not what big brewers tell them to sell. The Justice Department should also seek remedies that would prohibit or limit ABI’s and MillerCoors’ ability: to terminate or acquire distributors; to acquire craft brewers; 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 Justice Departments works toward a settlement agreement with ABI, it needs to heed Senator Warren’s warnings on large monopolists and their ability to crush competitors and lock out small rivals and new entrants.  This deal must be remedied correctly to protect beer customers because as Senator Warren understands, a merger is forever.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com