MillerCoors Comes Out Swinging Against Pabst Allegations

FILED MAY 17, 2016

Dear Client:

MillerCoors filed a Motion for Stay and to Compel Mediation in response to Pabst sweeping lawsuit filed last week in Wisconsin circuit court, and it has some whammies in it just as Pabst had in its initial suit [see BBD 05-13-2016]. Here are the deets:

-MillerCoors maintains that it was surprised by Pabst's lawsuit because according to their agreement it "expressly requires [mediation] before any litigation may commence." MC also wants the court to "stay all discovery and all deadlines" until a "proper forum" is identified. MC says Pabst has "skipped all these steps" which is averse to their 2007 agreement (which we note is in effect until 2020, unless terminated early, which it hasn't been). So MC maintains Pabst "is not entitled to the relief it seeks" and MC "would be within its rights to seek outright dismissal of this litigation for improper venue."

-In answer to the Pabst's allegations that MC is screwing Pabst because it will lack capacity (after disposal of the Eden plant) is "baseless." The agreement allows for MC must determine whether "at its sole discretion" whether it will have sufficient capacity to brew Pabst's brands "over and above MillerCoors' other production." MC has determined "it will not have sufficient capacity" to product Pabst's brands "between 2020 and 2025" and the agreement provides that in this case the parties "shall discuss possible solutions to address the potential capacity constraints." Part of those solutions may require Pabst to participate financially.

So both parties met in September last year, but even prior to that meeting, MC says it had notified Pabst it would not have sufficient capacity. At that meeting it notified Pabst and proposed solutions. In the ensuing months, "Pabst repeatedly asserted unreasonable interpretations of the Agreement that were inconsistent with its express terms and began threatening MillerCoors with litigation." (Even if the agreement is terminated, it calls for a two year "wind down" period of two years, so MC would brew for Pabst until June 30, 2022).

-MillerCoors currently produces 45 brands and over 200 SKUs. MC says Pabst isn't a "legal partner" of Pabst's but rather Pabst is a customer of MC and is "not required to maintain or create capacity to produce, package, store and ship Pabst's brands during either the term of the Agreement or any optional extension thereof."

And here's the deal: MC says its volumes have dropped 15% since 2008 and "its production needs are best met with a re-sized brewing network", which is why it made the "difficult decision" to close Eden. MC also denies that Eden was "one of the main facilities that MillerCoors uses to" make Pabst products, as Pabst's suit alleges.

-On the allegation that MillerCoors hasn't provided Pabst with the information it needs, MC says it doesn't have a contractual obligation to, but it did provide information on their capacity analysis, recent volume figures and Pabst's own estimated 2015 volumes. Also MC says it offered to allow an independent Big 4 accounting firm to review its capacity needs, but it says Pabst "ignored this proposal, continued to assert unreasonable interpretations of the of the Agreement, and threatened litigation."

-On the Eden plant, MillerCoors says it offered to lease or sell the Eden brewery "if it made financial sense to do so." Here was Pabst's alleged response: "Pabst hinted at (but never formally proposed) paying $100 million over an indeterminate number of years for a facility worth many multiples of that amount - and then only subject to a procurement requirement extending through 2030."

In October, MillerCoors provided Pabst with information in order for Pabst to "formulate a serious proposal to lease or buy the Eden Facility. In response, Pabst again threatened litigation and requested even more information regarding the Eden Facility, which MillerCoors provided in December."

-Regarding the proposed big price increase after 2020, MC says that "after years of brewing Pabst products at below-market rates, it proposed a possible Solution that contemplated Pabst's financial participation commensurate with MillerCoors' level of return on its own brands." While Pabst said MillerCoors wanted its fixed charge from $18.30 a barrel to $45 (a 146% increase), MC says it also offered to lower the increase to $22 per barrel in a "good faith attempt to reach a solution" but Pabst "refused to offer any reasonable Solutions of its own."

-What about Pabst's claim that MillerCoors made verbal assurances to extend the contract? MC denies this and that it would've been "irresponsible of MillerCoors to do so and unreasonable for anyone to rely on such promises."

Let's see what happens next.

Until tomorrow, Harry

"All growth is a leap in the dark, a spontaneous unpremeditated act without the benefit of experience." - Henry Miller

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