After twelve hours of grokking the DOJ's approval, with conditions, of ABI's purchase of SABMiller while jettisoning MillerCoors to Molson Coors [see BBD 07-20-2016], and reading your smart responses, here's what I've come up with:
It was a long nine months, but ABI came out of it all with a pretty baby with all ten toes and maybe 9.5 fingers. Yes, they had to make some concessions, but all in I have a feeling there were high fives in St. Louis and NYC yesterday. Their guv affairs/legal negotiating team earned their bonuses.
The winners of the concessions: Other than A-B itself. Wholesalers (of all brands, and most A-B wholesalers too) won the most. The independence of the middle tier got a big boost yesterday particularly because there's no time limit on these concessions of branch ownership capped at 10% of total volumes, dropping VAIP, and approving transactions regardless of companion brands. Competing brewers got a slight win due to the same (Constellation can't be punished for being in an A-B house that's being acquired, for instance, and a wholesaler can feel freer to acquire/keep Yuengling and still be a buyer or seller, presumably).
For craft brewers, I think it was a wash. Yes, they jettisoned the VAIP program, which may have been a stalking horse to begin with (We wrote last month: "Maybe they created VAIP in order to take it off the table as a condition of the deal…. A bargaining chip? Just an idea that came to me in a cab last week. After all, A-B often plays chess while the rest of the industry is playing checkers"). But how viable a program was that to begin with? Most A-B wholesalers wouldn't or couldn't qualify. But for those who did, today they kinda feel jilted at the alter. See below.
The real question is how diligent the DOJ will be in enforcing these concessions, and how far ABI will push the envelope against them. But I will make one point: The folks at the DOJ are much more informed of how the U.S. beer business operates today than back when ABI purchased Modelo. They get it. So I suspect they'll be watching.
JOAO AND BOB TALLET HOST WHOLESALER CALL ON CONDITIONAL APPROVAL, REVEAL 60-DAY COMMENT PERIOD
Shortly after the news came through yesterday, ABI's North American chief, João Castro Neves, and VP Business and Wholesaler Development, Bob Tallet, hosted a call for wholesalers on what it would mean for them (and BBD hired Edward Snowden to listen in).
Natch, they reassured -- and reassured -- their wholesaler partners that the U.S. continues to be their most important market, and their distrib partners are an important asset.
NOW: A 60-DAY PUBLIC COMMENT PERIOD ON DEAL. But there was also something we hadn't heard before -- Bob on a "60 day comment period":
"With this announcement, we will be moving into a 60-day comment period," Bob said. "This is a public comment period. The DOJ will then take several weeks to compile the feedback and respond. At the end of that period, we will issue a public communication, with the DOJ, with the summary of the changes. And ... that's probably several months away.
"In the meantime, we will be working through the details of the consent decree. We won't have all the answers to your questions at this point." But they will "begin to comply with the terms of the consent decree immediately."
Their 3-year wholesaler planning panel process is still intact and they will "adapt to any calendar changes that may be needed."
They didn't take questions.
THE VAIP BLUES: THE TRIBULATIONS OF BEING VAPORIZED
As mentioned above, the cancellation of the VAIP incentive program to drop craft brands, while welcomed by some, is a big betrayal to several A-B wholesalers who dropped brands to comply. One A-B wholesaler wrote in after yesterday's news broke saying: "literally TODAY had our payment for 1st half VAIP come in....it was so nice...it was so big.....it was for doing nothing but waking up this morning......"
A craft brewer told us they were on the verge of closing a deal that would have "split" their distribution rights in a Midwest state "across several ABI distributors instead of sticking with the one we had." All this was happening, "because it was a VAIP violation for them to sell our beer outside their Bud territory," the brewer said. The deal fell through, in light of yesterday's news. "That said, we were late in approving and ABI had asked distributors to clean up their territories by July 1, so I wonder how many distributors sold off craft beer territory at fire sale prices only to find out today that it was completely unnecessary," the brewer asked. Adding, "the timing of it just feels more than a little suspect."
Another Bud wholesaler told us, "I feel sorry for any wholesaler who gave up brands for VAIP - you can't get them back."
"The only ones to lose on this deal are the small, private AB houses that are 100% AB products!!," a Bud wholesaler wrote, no doubt lamenting the loss of VAIP incentives.
BA RESPONDS: WE WILL MONITOR THEIR ACTIONS
Brewers Association chief Bob Pease released a statement on the DOJ's conditional approval of ABI's SABMiller deal, which he said "stipulates many of the safeguards the Brewers Association requested to preserve fair competition and access to market for America's small and independent craft brewers.
"While we continue to believe that the merger of the world's two largest brewers is bad for both the beer industry and consumers, the DOJ's significant requirements, including the termination of incentive programs such as the Voluntary Anheuser Busch Incentive for Performance Program (VAIP), a cap on ABI's self-distribution volume and other measures to protect distributor independence, appear to address some of our major apprehensions with the merger. With effective enforcement of these provisions, small brewers can rely on their independent distributor partners to access the market…"
"The Brewers Association will closely examine the consent decree and compliance with its provisions, as well as monitor ABI's actions, specifically with regard to the acquisition of independent craft brewers. We remain concerned about how past, pending and future acquisitions may shift the dynamics of the current beer market. We will continue to encourage the DOJ to monitor and, where necessary, take action to remedy any anticompetitive effects of ABI's behavior in the U.S."
FINAL THOUGHTS: WAS THE DOJ TOUGH ENOUGH?
To quote The Fabulous Thunderbirds, were they "Tuff Enuff"? BBD also received a reaction from antitrust lawyer at Doyle Barlow & Mazard, Andre Barlow. The former attorney of the DOJ's Antitrust Division has been imploring his old colleagues to be "a tough merger cop" in the MegaBrew deal, [see BBD 06-13-2016]. He feels the DOJ "demonstrated that it is indeed the tough merger cop by forcing the ABI to provide more concessions." The elimination of ABI's distributor incentive programs was "vital," Andre said, "and this settlement does just that so this is a huge win." The only quibble Andre shared was that he felt the DOJ "could have been tougher in terms of prohibiting ABI from acquiring distributors in the future." Andre said ABI "is currently around 7%, which means that ABI can still make some acquisitions."
A Bud wholesaler offered harsher criticism on the DOJ's handling of the branch cap: "The DOJ is useless, who is going to monitor AB's 10%? Who knows how much they are currently selling?"
So what was it puss or boots? You tell me. email@example.com (put "puss" or "boots" in the subject line).
Until tomorrow, Harry
"I'd lay in a pile of burning money that I've earned and not even worry about getting burned." - Fabulous Thunderbirds
BeerNet Extra: Tuff Enuff: https://www.youtube.com/watch?v=EcXT1clXc04
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