More on Hearing: Formalized Concessions

FILED DECEMBER 10, 2015

Dear Client:

Yesterday morning, Stifel released a note on the MegaBrew hearing. "Without the clear framework for antitrust concerns [considering the MillerCoors divestiture in the states]," in their opinion, panelists opposing the deal "were left to air a series of mainly distribution and procurement related grievances, concerns we think they already hold."

Still, they expect "a handful of [the hearing's] proposed concessions to be formalized in a consent decree as conditions to DOJ approval." Those include:

-Exclusivity incentives.

-Terminations and renegotiation triggers. As we covered yesterday, "Mr. Brito assured there would be no terminations as a result of the acquisition but reminded that it is SABMiller and MillerCoors that are undergoing changes in control, prompting Mark Hunter to confirm Molson Coors has no plans for distributor terminations or renegotiations as a result of the MillerCoors purchase," per note.

-Molson Coors operating independence. Again, as we relayed after hearing, American Antitrust Institute's Diane Moss questioned some of the details surrounding MillerCoors divestiture in the U.S. We wrote how she was concerned about "quite a bit of murk," including fate of certain distribution contracts. She'd also like to see as result of this deal no supply agreements; and "no contract brewing should be included."

(On a related note, Mark Hunter also expressed how a Molson Coors-run MillerCoors should make the latter a more formidable competitor in the states. "We want to be stronger, more assertive competitor in the U.S.," he said, under leadership of Molson Coors. "One of the advantages we have on the back of this deal is we can start to [shore up our] network from a North American perspective; we have a big business in Canada ... breweries, distribution, procurement, shared services -- and our ability to move our brands between markets ... will make us a more able competitor in the marketplace," he said.)

-Capacity closures. As reported, "Mark Hunter quickly dispelled any notion that the Eden, N.C. MillerCoors brewery closure was timed to coincide with the JV purchase."

-Distributor financing.

-Input procurement.

And

-Omissions. "We think a disproportionate level of scrutiny over U.S. job security was directed at Mr. Brito while the $200 mil in annualized cost savings Molson Coors expects to achieve four years following the MillerCoors transaction went unmentioned," per note. "Nor was any attention was given to ABI's eventual control over production of SABMiller brands for which licenses to MillerCoors will continue in the future, e.g. Pilsner Urquell and Tyskie."

One related passage we omitted in our coverage yesterday transpired between Sen. Al Franken of Minnesota and Brito. Franken pointed out how ABI announced -- "a few weeks before Christmas" -- they'd lay off more than 1,400 U.S. workers and 400 contractors after InBev's 2008 takeover of Anheuser Busch. "This time around A-B InBev is taking on $75 billion in debt -- over $20 billion more than last time -- and I know you'll be faced with tough decisions about where to cut costs," said Franken. "So ... what can Americans expect this time around? Will there be job losses, brewery closings? Distributor terminations? Or will you face pressure to raise prices to pay back that debt." After all, it's beginning to look a lot like Christmas, and we all know what that means.

Again, Brito answered that the transaction "has nothing to do with the U.S. Therefore it will have no impact in operations in the U.S. market."

Franken followed: "So basically this $75 billion in debt is not going to have any effect on decisions you might have to make in the same way you did last time?"
 Boom!

But 
Brito invoked the economic crisis of 2008. And this transaction is a different size, he said.

"Is anyone here skeptical about that answer?" Franken asked.

TRADE ORG CHIEFS REQUEST CLARIFICATION ON CATEGORY MANAGEMENT ... AGAIN

Earlier this week, Brewers Association chief Bob Pease, along with NBWA chief Craig Purser, Bill Earle of the National Association of Beverage Importers, Michael Kaiser of Wine America, John Bodnovich of American Beverage Licensees and Victoria McDowell of Presidents' Forum wrote a letter to Secretary Lew of the U.S. Dept. of the Treasury "to urge Treasury Department action on clarifying the rules of trade practices generally and category management specifically." It's the latest such letter from various trade organizations, as we've reported in sister publication BBD, requesting agencies clarify legalities surrounding category management programs.

This in light of Kroger's alleged new category management program with Southern Wine and Spirits (about which we admittedly still know few specifics).

"A high profile category management concept is being promoted by one of the nation's largest retailers (national grocery store chain), operating in at least 29 states," per letter. "We believe this category management proposal being mandated raises serious issues of compliance by the alcohol industry with both state and federal laws."

Group specifically requests clarification "of TTB's category management guidance and enforcement of the [Federal Alcohol Administration Act's] various trade practice provisions such as the tied house, commercial bribery and exclusive outlet prohibitions. Moreover, prohibitions on providing items of value either directly through payments or through indirect inducements such as mandated arrangements with third party data centers owned by the retailer are of immediate concern for our members."

Letter closed, "when issues such as the proposed retailer planogram system (category management) and payments to a third party providing services to one national retailer are presented to industry members as a requirement, TTB should act and speak decisively to articulate what is permissible under the law and the penalties for violations."

Stay tuned. As BBD has reported in previous weeks, NBWA and the Beer Institute (though BI is notably absent on this latest letter, simply, we hear, because they've previously written their own) have previously written to TTB'S John Manfreda -- CC'ed on this latest correspondence -- requesting clarification over various category management concerns.

As we understand, TTB still has not responded to the various (four letter from various bev alc trade orgs, per our last count) requests for clarification.

Until tomorrow, Harry

"Thank you for sending me a copy of your book - I'll waste no time reading it." - Moses Hadas

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