Reuters: Justice Department Investigating A-B Distributor Incentives

FILED MAY 25, 2016

Dear Client:

One of the main sticking points for Anheuser-Busch InBev in the U.S. authorities' antitrust review of MegaBrew has been their branches or WODs here in the states. Now, Anheuser-Busch InBev may have an additional hurdle: its incentive program. ABI's VAIP program has reportedly come under scrutiny from U.S. antitrust officials, per two anonymous Reuters sources.

"Investigators at the Justice Department have contacted beer distributors and craft brewers, asking about the incentive plan as well as AB InBev's other steps aimed at curbing craft promotion by distributors, those people said," per story. Justice Department has provided no official comment.

By now you're quite familiar with the incentive program: ABI refunds 75% of this money if its beers make up 98% of the distributor's sales, according to documents provided to lawmakers by ABI.

And that incentive plan "sticking point" has precedence with the Justice Department: Recall the stipulation it levied in 2013 after ABI's Grupo Modelo purchase, requiring divestiture of Modelo in the U.S., and more importantly for the matter at hand, necessitating that "A-B refrain from offering incentives to distributors that would hurt Modelo for three years."

Back to today: Sources familiar with A-B's incentive program have reportedly shared with the Justice Department details like how wholesalers aligned with A-B are required to spend "x" amount of dollars to advertise their beers. "The greater the share of rival beers in a distributor's sales, the less money it receives, according to the document," too. And "even if a distributor raised sales of ABI beers, it would still receive less money if craft sales rise faster," which sources suggest seems designed to punish non-A-B craft brands rather than simply boost A-B sales.

"A distributor that would want to promote a craft beer would be also required to run an equal promotion for Budweiser, which becomes prohibitively expensive, the people said."

A-B'S RESPONSE. "Our Voluntary Anheuser-Busch Incentive for Performance Program (VAIP) is a reflection of just how competitive the U.S. beer industry has become," A-B told BBD in a statement. "The program, versions of which have been in existence for 15 years, incentivizes wholesalers to sell Anheuser-Busch products while providing them even more flexibility than prior iterations to sell non-Anheuser-Busch products and still gain rewards under VAIP. Our voluntary incentive program clearly does not prevent or inhibit other brands from getting to market. There are more than 3,000 distributors across the U.S., only 467 of which are Anheuser-Busch distributors. Nearly all Anheuser-Busch distributors carry other brands."

MARYLAND GRAND JURY INDICTS RNDC EMPLOYEES FOR ALLEGED TRANSHIPPING SCHEME

Even more action on the regulatory front -- this time involving big wine and spirits distributor RNDC. A federal grand jury in Maryland has indicted Republic National Distributing Company and three of its employees on charges for a "scheme to defraud the state and city of New York, and registered New York liquor wholesalers," reports Wine & Spirits Daily.

The indictment (which is not a finding of guilt, mind you) alleges that three RNDC employees transferred and moved liquor from Maryland, where the state excise tax rate for liquor was approximately $1.50 per gallon, to New York, where the state excise tax for liquor was approximately $7.44 per gallon, in order to sell it at retail.

The indictment seeks forfeiture of all proceeds traceable to the scheme, including a money judgment of at least $9 million.

If convicted, the company and the individual defendants face a $250,000 fine, and the individual defendants also face a maximum sentence of 20 years in prison, for wire fraud conspiracy and each of four counts of wire fraud. If convicted of the money laundering counts, the indictment seeks forfeiture from RNDC of the funds involved in those offenses."

RNDC ISSUES RESPONSE. "RNDC is extremely disappointed to learn that the U.S. Attorney for the District of Maryland has chosen to take this action," stated RNDC chief Tom Cole in a release…… RNDC emphatically denies these allegations and looks forward to our day in court where we will demonstrate that the prosecutors' accusations are based on erroneous assumptions, unsubstantiated theories, and represent an unprecedented attempt at federal government overreach."

Tom says that this investigation involves a few "rogue" federal regulators who have overstepped their jurisdiction, as the 21st Amendment leaves bev-alc regulation to the state.

No initial appearance has been scheduled for the defendants, but we'll keep you updated as this one develops.

Until tomorrow, Harry

"The greatest of faults, I should say, is to be conscious of none."
- Thomas Carlyle

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