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United States v. Anheuser-Busch InBev SA/NV, Grupo Modelo SAB PDF

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Preview United States v. Anheuser-Busch InBev SA/NV, Grupo Modelo SAB

Vol. 78 Wednesday, No. 99 May 22, 2013 Part II Department of Justice Antitrust Division United States v. Anheuser-Busch InBev SA/NV, Grupo Modelo S.A.B de C.V.; Proposed Final Judgment and Competitive Impact Statement; Notice S2 E C TI O N with D O R P N1 V T P S K3 S D Y on E KELLVerDate Mar<15>2010 21:24 May 21, 2013 Jkt 229001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\22MYN2.SGM 22MYN2 T 30400 Federal Register/Vol. 78, No. 99/Wednesday, May 22, 2013/Notices DEPARTMENT OF JUSTICE upon request and payment of the Grupo Modelo S.A.B. de C.V. copying fee set by Department of Justice (‘‘Modelo’’) that it does not already own, Antitrust Division regulations. and to obtain equitable and other relief Public comment is invited within 60 as appropriate. The United States United States v. Anheuser-Busch days of the date of this notice. Such alleges as follows: InBev SA/NV, Grupo Modelo S.A.B de comments, including the name of the C.V.; Proposed Final Judgment and submitter, and responses thereto, will be I. Introduction Competitive Impact Statement posted on the U.S. Department of 1. Fundamental to free markets is the Notice is hereby given pursuant to the Justice, Antitrust Division’s internet notion that competition works best and Antitrust Procedures and Penalties Act, Web site, filed with the Court and, consumers benefit most when 15 U.S.C. 16(b)–(h), that a proposed under certain circumstances, published independent firms battle hard to win Final Judgment, Stipulation and in the Federal Register. Comments business from each other. In industries Competitive Impact Statement have should be directed to James Tierney, characterized by a small number of been filed with the United States Chief, Networks and Technology substantial competitors and high District Court for the District of Enforcement Section, Antitrust barriers to entry, further consolidation is Columbia in United States of America v. Division, Department of Justice, 450 especially problematic and antithetical Anheuser-Busch InBev SA/NV, et al., Fifth Street NW., Suite 7700, to the nation’s antitrust laws. The U.S. Civil Action No. 1:13–CV–00127. On Washington, DC 20530, (telephone: beer industry—which serves tens of January 31, 2013, the United States filed 202–307–6200). millions of consumers at all levels of a Complaint alleging that the proposed Patricia A. Brink, income—is highly concentrated with acquisition by Anheuser-Busch InBev Director of Civil Enforcement. just two firms accounting for SA/NV (‘‘ABI’’) of the remaining interest approximately 65% of all sales in Grupo Modelo S.A.B. de C.V. United States District Court For the nationwide. The transaction that is the (‘‘Modelo’’) would violate Section 7 of District of Columbia subject of this Complaint threatens the Clayton Act, 15 U.S.C. 18. The UNITED STATES OF AMERICA, U.S. competition by combining the largest proposed Final Judgment, filed on April Department of Justice, Antitrust and third-largest brewers of beer sold in 19, 2013, requires ABI and Modelo to Division, 450 Fifth Street NW., Suite the United States. The United States divest Modelo’s entire U.S. business to 7100, Washington, DC 20530, Plaintiff, therefore seeks to enjoin this acquisition Constellation Brands, Inc. v. ANHEUSER–BUSCH InBEV SA/NV, and prevent a serious violation of (‘‘Constellation’’), or if that transaction Brouwerijplein 1, Leuven, Belgium 3000, Section 7 of the Clayton Act. fails to consummate, to an alternative and GRUPO MODELO S.A.B de C.V, purchaser. 2. Today, Modelo aggressively Javier Barros Sierra No. 555 Piso 3, Col. Copies of the Complaint, proposed competes head-to-head with ABI in the Zedec, Santa Fe, Mexico D.F., C.P. Final Judgment and Competitive Impact United States. That competition has 01210, Defendants. Statement are available for inspection at resulted in lower prices and product the Department of Justice, Antitrust Civil Action No. 13–127 (RWR) innovations that have benefited Division, Antitrust Documents Group, Judge Richard W. Roberts consumers across the country. The 450 Fifth Street NW., Suite 1010, proposed acquisition would eliminate Complaint Washington, DC 20530 (telephone: 202– this competition by further 514–2481), on the Department of The United States of America, acting concentrating the beer industry, Justice’s Web site at http:// under the direction of the Attorney enhancing ABI’s market power, and www.justice.gov/atr, and at the Office of General of the United States, brings this facilitating coordinated pricing between the Clerk of the United States District civil action under the antitrust laws of ABI and the next largest brewer, Court for the District of Columbia. the United States to enjoin the proposed MillerCoors, LLC. The approximate Copies of these materials may be acquisition by Anheuser-Busch InBev market shares of U.S. beer sales, by obtained from the Antitrust Division SA/NV (‘‘ABI’’) of the remainder of dollars, are illustrated below: S2 E C TI O N with D O R P N1 V T P S TKELLEY on DSK3VerDate Mar<15>2010 21:24 May 21, 2013 Jkt 229001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4725 E:\FR\FM\22MYN2.SGM 22MYN2 EN22MY13.000</GPH> Federal Register/Vol. 78, No. 99/Wednesday, May 22, 2013/Notices 30401 3. Defendants’ combined national If ABI were to acquire the remainder of exclusive right to import Modelo beer share actually understates the effect that Modelo, this competitive constraint on into the United States for ten years. eliminating Modelo would have on ABI’s and MillerCoors’ ability to raise Constellation, however, would acquire competition in the beer industry, both their prices would be eliminated. no Modelo brands or brewing facilities because Modelo’s share is substantially 6. The acquisition would also under this arrangement—it remains higher in many local areas than its eliminate the substantial head-to-head simply an importer, required to depend national share, and because of the competition that currently exists on ABI for its supply of Modelo-branded interdependent pricing dynamic that between ABI and Modelo. The loss of beer. At the end of the ten-year period, already exists between the largest this head-to-head competition would ABI could unilaterally terminate its brewers. As the two largest brewers, ABI enhance the ability of ABI to agreement with Constellation, thereby and MillerCoors often find it more unilaterally raise the prices of the giving ABI full control of all aspects of profitable to follow each other’s prices brands that it would own post- the importation, sale, and distribution of than to compete aggressively for market acquisition, and diminish ABI’s Modelo brands in the United States. share by cutting price. Among other incentive to innovate with respect to 9. The sale of Modelo’s 50% interest things, ABI typically initiates annual new brands, products, and packaging. price increases in various markets with 7. Accordingly, ABI’s acquisition of in Crown to Constellation is designed the expectation that MillerCoors’ prices the remainder of Modelo would likely predominantly to help ABI win antitrust will follow. And they frequently do. substantially lessen competition and is approval for its acquisition of Modelo, 4. In contrast, Modelo has resisted therefore illegal under Section 7 of the creating a fac¸ade of competition ABI-led price hikes. Modelo’s pricing Clayton Act, 15 U.S.C. 18. between ABI and its importer. In reality, strategy—‘‘The Momentum Plan’’— 8. For no substantial business reason Defendants’ proposed ‘‘remedy’’ seeks to narrow the ‘‘price gap’’ between other than to avoid liability under the eliminates from the market Modelo—a Modelo beers and lower-priced antitrust laws, ABI has entered into an particularly aggressive competitor—and premium domestic brands, such as Bud additional transaction contingent on the replaces it with an entity wholly and Bud Light. ABI internal documents approval of its acquisition of the dependent on ABI. As Crown’s CEO acknowledge that Modelo has put remainder of Modelo. Specifically, ABI wrote to his employees after the ‘‘increasing pressure’’ on ABI by has agreed to sell Modelo’s existing 50% acquisition was announced: ‘‘Our #1 pursuing a competitive strategy directly interest in Crown Imports LLC competitor will now be our supplier at odds with ABI’s well-established (‘‘Crown’’)1—which currently imports . . . it is not currently or will not, going practice of leading prices upward. Modelo beer into the United States—to forward, be ‘business as usual.’’’ The 5. Because Modelo prices have not Crown’s other owner, Constellation deficiencies of the ‘‘remedy’’ are closely followed ABI’s price increases, Brands, Inc. (‘‘Constellation’’). ABI and apparent from the illustrations of the ABI and MillerCoors have been forced Constellation have also negotiated a pre- and post-transaction chains of to offer lower prices and discounts for proposed Amended and Restated supply below, demonstrating how the their brands to discourage consumers Importer Agreement (the ‘‘supply ‘‘remedy’’ transforms horizontal from ‘‘trad[ing] up’’ to Modelo brands. agreement’’), giving Constellation the competition into vertical dependency: S2 E C TI O N with D O R P N1 V T SP 1Headquartered in Chicago, Illinois, Crown is a Constellation. Crown sells and markets Modelo’s beers in the United States as the exclusive importer TKELLEY on DSK3VerDat5e 0M/5a0r< j1o5i>n2t 0v1e0n tu2re1 :b2e4t Mwaeye n2 1M, 2o0d1e3lo aJnktd 2 29001 PO 00000 Frm 00003 Fmt 4701 Sfmt 4725 E:\FR\FM\22MYNo2f. SMGoMdel2o2 bMeYeNrs2. EN22MY13.001</GPH> 30402 Federal Register/Vol. 78, No. 99/Wednesday, May 22, 2013/Notices 10. Constellation has already shown including 12 in the United States. It from Modelo’s owners, thereby through its participation in the Crown owns more than 200 beer brands, obtaining full ownership and control of joint venture that it does not share including Bud Light, the number one Modelo, for about $20.1 billion. Modelo’s incentive to thwart ABI’s price brand in the United States, and other 24. As noted above, in an effective leadership. In fact, Constellation popular brands such as Budweiser, acknowledgement that the acquisition of consistently has urged following ABI’s Busch, Michelob, Natural Light, Stella Modelo raises significant competitive price leadership. Given that Artois, Goose Island, and Beck’s. concerns, Defendants simultaneously Constellation was inclined to follow 18. Modelo is a corporation organized entered into another transaction in an ABI’s price leadership before the and existing under the laws of Mexico, attempt to ‘‘remedy’’ the competitive acquisition, it is unlikely to reverse with headquarters in Mexico City, harm caused by ABI’s acquisition of the course after—when it would be fully Mexico. Modelo is the third-largest remainder of Modelo: ABI has agreed to dependent on ABI for its supply of beer, brewer of beer sold in the United States. sell Modelo’s existing 50% interest in and will effectively be ABI’s business Modelo’s Corona Extra brand is the top- Crown to Constellation, so that Crown, partner. In addition, Constellation selling import in the United States. Its previously a joint-venture between would need to preserve a strong other popular brands sold in the United Modelo and Constellation, would relationship with ABI to encourage ABI States include Corona Light, Modelo become wholly owned by Constellation. from exercising its option to terminate Especial, Negra Modelo, Victoria, and As part of this strategy, ABI and the agreement after 10 years. Pacifico. Constellation have negotiated a supply 11. For these reasons, as alleged more 19. ABI currently holds a 35.3% agreement giving Constellation the specifically below, the proposed direct interest in Modelo, and a 23.3% exclusive right to import Modelo beer acquisition, if consummated, would direct interest in Modelo’s operating into the United States for ten years. likely substantially lessen competition subsidiary Diblo, S.A. de C.V. ABI’s These transactions are contingent on the in violation of Section 7 of the Clayton current part-ownership of Modelo gives closing of ABI’s acquisition of Modelo. Act. The likely anticompetitive effects ABI certain minority voting rights and the right to appoint nine members of IV. The Relevant Market of the proposed acquisition would not Modelo’s 19-member Board of Directors. be prevented or remedied by the sale of A. Description of the Product However, as ABI stated in its most Modelo’s existing interest in Crown to recent annual report, ABI does ‘‘not 25. ‘‘Beer’’ is comprised of a wide Constellation and the supply agreement have voting or other effective control of variety of brands of alcoholic beverages between ABI and Constellation. . . . Grupo Modelo.’’ usually made from a malted cereal II. Jurisdiction, Venue, and Interstate 20. ABI and Modelo executives agree grain, flavored with hops, and brewed Commerce that there is currently vigorous via a process of fermentation. Beer is 12. The United States brings this competition between the ABI and substantially differentiated from other action under Section 15 of the Clayton Modelo brands in the United States. alcoholic beverages by taste, quality, Act, as amended, 15 U.S.C. 25, to Indeed, firewalls are in place to ensure alcohol content, image, and price. prevent and restrain Defendants ABI that the ABI members of Modelo’s Board 26. In addition to brewing, beer and Modelo from violating Section 7 of do not become privy to information producers typically also sell, market, the Clayton Act, as amended, 15 U.S.C. about the pricing, marketing, or and develop multiple brands. Marketing 18. distribution of Modelo brands in the and brand building take various forms 13. This Court has subject matter United States. including sports sponsorships, print jurisdiction over this action under 21. Modelo executives run its day-to- advertising, national television Section 15 of the Clayton Act, 15 U.S.C. day business, including Modelo’s campaigns, and increasingly, online 25, and 28 U.S.C. 1331, 1337, and 1345. relationship and interaction with its marketing. For example, Modelo has 14. Venue is proper under Section 12 U.S. importer, Crown. Modelo owns half recently invested in ‘‘more national of the Clayton Act, 15 U.S.C. 22, and 28 of Crown and may exercise an option at advertising [and] more national sports’’ U.S.C. 1391. the end of 2013, to acquire in 2016, the in order to ‘‘build the equity of [its] 15. Defendants are engaged in, and half of Crown it does not already own. brands.’’ their activities substantially affect, Today, Modelo must approve Crown’s 27. Most brewers use distributors to interstate commerce. ABI and Modelo general pricing parameters, changes in merchandise, sell, and deliver beer to annually brew several billion dollars strategic direction, borrowing activities, retailers. Those end accounts are worth of beer, which is then advertised and capital investment above certain primarily grocery stores, large retailers and sold throughout the United States. thresholds. Modelo also sets the global such as Target and Walmart, and 16. This Court has personal strategic themes for the brands it owns. convenience stores, liquor stores, jurisdiction over each Defendant. Essentially, Crown is a group of restaurants, and bars which, in turn, sell Modelo has consented to personal employees who report to Crown’s beer to the consumer. Beer brewed in jurisdiction in this judicial district. ABI owners: Modelo and Constellation. foreign countries may be sold to an is found and transacts business in this 22. The acquisition gives complete importer, which then arranges for District through its wholly-owned control of Modelo to ABI, and gives ABI distribution to retailers. United States subsidiaries, over which it full access to competitively sensitive 28. ABI groups beer into four exercises control. information about the sale of the segments: Sub-premium, premium, Modelo brands in the United States— premium plus, and high-end. The sub- S2 III. The Defendants and the access that ABI does not currently premium segment, also referred to as the TICE Transactions enjoy. ABI presently has no day-to-day value segment, generally consists of O D with N ex1is7t.i nAgB uI nisd ear c tohrep olarwatsio onf Boreglagniuizme,d w ainthd raonlde iisn wMaolldeedl oo’fsf Ufrnoimte dst rSattaetgeisc business lKaegyesr tboeneer sb,r sauncdhe da sb Neeart,u arnadl asnodm e ales RO headquarters in Leuven, Belgium. ABI is discussions regarding Modelo sales in and malt liquors, which are priced P N1 the largest brewer and marketer of beer the United States. lower than premium beers, made from V PT sold in the United States. ABI owns and 23. On June 28, 2012, ABI agreed to less expensive ingredients and are S K3 operates 125 breweries worldwide, purchase the remaining equity interest generally perceived as being of lower S D Y on E KELLVerDate Mar<15>2010 21:24 May 21, 2013 Jkt 229001 PO 00000 Frm 00004 Fmt 4701 Sfmt 4703 E:\FR\FM\22MYN2.SGM 22MYN2 T Federal Register/Vol. 78, No. 99/Wednesday, May 22, 2013/Notices 30403 quality than premium beers. The antitrust purposes. Each of these local V. ABI’S Proposed Acquisition Is Likely premium segment generally consists of markets currently benefits from head-to- To Result in Anticompetitive Effects medium-priced American lager beers, head competition between ABI and A. The Relevant Markets are Highly such as ABI’s Budweiser, and the Miller Modelo, and in each the acquisition Concentrated and the Merger Triggers a and Coors brand families, including the would likely substantially lessen Presumption of Illegality in Each ‘‘light’’ varieties. The premium plus competition. Relevant Market segment consists largely of American 33. The relevant geographic markets beers that are priced somewhat higher 38. The relevant markets are highly for analyzing the effects of this than premium beers, made from more concentrated and would become acquisition are best defined by the expensive ingredients and are generally significantly more concentrated as a perceived to be of superior quality. locations of the customers who result of the proposed acquisition. Examples of beers in the premium plus purchase beer, rather than by the 39. ABI is the largest brewer of beer category include Bud Light Lime, Bud locations of breweries. Brewers develop sold in the United States. MillerCoors is Light Platinum, Bud Light Lime-a-Rita pricing and promotional strategies based the second-largest brewer of beer sold in and Michelob Ultra. on an assessment of local demand for the United States. MillerCoors owns the 29. The high-end category includes their beer, local competitive conditions, Miller and Coors brands and also many craft beers, which are often produced in and local brand strength. Thus, the price smaller brands including Blue Moon small-scale breweries, and imported for a brand of beer can vary by local and Keystone Light. Modelo is the third- beers. High-end beers sell at a wide market. largest brewer of beer sold in the United variety of price points, most of which States, with annual U.S. sales of $2.47 34. Brewers are able to price are higher than premium and premium billion, 7% market share nationally, and differently in different locations, in part, plus beers. The high-end segment a market share that is nearly 20% in because arbitrage across local markets is includes craft beers such as Dogfish some local markets. Modelo owns the unlikely to occur. Consumers buy beer Head, Flying Dog, and also imported Corona, Modelo, Pacifico, and Victoria near their homes and typically do not beers, the best selling of which is brands. The remaining sales of beer in travel to other areas to buy beer when Modelo’s Corona. ABI also owns high- the U.S. are divided among Heineken prices rise. Also, distributors’ contracts end beers including Stella Artois and and fringe competitors, including many with brewers and their importers Goose Island. Brewers with a broad craft brewers, which the Defendants contain territorial limits and prohibit portfolio of brands, such as ABI, seek to characterize as being ‘‘fragmented . . . maintain ‘‘price gaps’’ between each distributors from reselling beer outside small player[s].’’ segment. For example, premium beer is their territories. In addition, each state 40. Concentration in relevant markets priced above sub-premium beer, but has different laws and regulations is typically measured by the Herfindahl- below premium plus beer. regarding beer distribution and sales Hirschman Index (‘‘HHI’’). Market 30. Beers compete with one another that would make arbitrage difficult. concentration is often one useful across segments. Indeed, ABI and 35. Accordingly, a hypothetical indicator of the level of competitive Modelo brands are in regular monopolist of beer sold into each of the vigor in a market and the likely competition with one another. For local markets identified in Appendix A competitive effects of a merger. The example, Modelo, acting through Crown more concentrated a market, and the would likely increase its prices in that in the United States, usually selects more a transaction would increase local market by at least a small but ‘‘[d]omestic premium’’ beer, namely, concentration in a market, the more significant and non-transitory amount. ABI’s Bud Light, as its benchmark for its likely it is that a transaction would own brands’ pricing. 36. Therefore, the MSAs identified in result in a meaningful reduction in Appendix A are relevant geographic competition. Markets in which the HHI B. Relevant Product Market markets and ‘‘sections of the country’’ is in excess of 2,500 points are 31. Beer is a relevant product market within the meaning of Section 7 of the considered highly concentrated. and line of commerce under Section 7 Clayton Act. 41. The beer industry in the United of the Clayton Act. Other alcoholic 37. There is also competition between States is highly concentrated and would beverages, such as wine and distilled brewers on a national level that affects become substantially more so as a result spirits, are not sufficiently substitutable local markets throughout the United of this acquisition. Market share to discipline at least a small but estimates demonstrate that in 20 of the States. Decisions about beer brewing, significant and nontransitory increase in 26 local geographic markets identified marketing, and brand building typically the price of beer, and relatively few in Appendix A, the post-acquisition take place on a national level. In consumers would substantially reduce HHI exceeds 2,500 points, in one market addition, most beer advertising is on their beer purchases in the event of such is as high as 4,886 points, and there is national television, and brewers a price increase. Therefore, a an increase in the HHI3of at least 472 commonly compete for national retail hypothetical monopolist producer of points in each of those 20 markets. In beer likely would increase its prices by accounts. General pricing strategy also six of the local geographic markets, the at least a small but significant and non- typically originates at a national level. A post-merger HHI is at least 1,822, with transitory amount. hypothetical monopolist of beer sold in an increase of the HHI of at least 387 the United States would likely increase points, and in each of those six markets C. Relevant Geographic Market S2 its prices by at least a small but the parties combined market share is CE 32. The 26 local markets, defined by significant and non-transitory amount. greater than 30%. NOTI Metropolitan Statistical Areas Accordingly, the United States is a 42. In the United States, the with (‘‘MSAs’’),2identified in Appendix A, relevant geographic market under Defendants will have a combined OD are relevant geographic markets for Section 7 of the Clayton Act. R N1P 3Even if these concentration measures are V 2As defined by the SymphonyIRI Group, a market modified to reflect ABI’s current partial ownership T SP research firm, whose data is commonly used by of Modelo, the effective levels of concentration K3 industry participants. would still support a presumption of illegality. S D Y on E KELLVerDate Mar<15>2010 21:24 May 21, 2013 Jkt 229001 PO 00000 Frm 00005 Fmt 4701 Sfmt 4703 E:\FR\FM\22MYN2.SGM 22MYN2 T 30404 Federal Register/Vol. 78, No. 99/Wednesday, May 22, 2013/Notices market share of approximately 46% match many of the price increases that brands and packages to limit its share post-transaction. The post-transaction were led by ABI and frequently joined losses and to attract customers. HHI of the United States beer market by MillerCoors. 54. Competition between the ABI and will be greater than 2800, with an 49. In or around 2008, Crown Modelo brands has become increasingly increase in the HHI of 566. implemented its ‘‘Momentum Plan’’ intense throughout the country, 43. The market concentration with Modelo’s enthusiastic support. The particularly in areas with large Latino measures, coupled with the significant Momentum Plan is specifically designed populations. As the country’s Latino increases in concentration, described to grow Modelo’s market share by population is forecasted to grow over above, demonstrate that the acquisition shrinking the price gaps between brands time, ABI anticipates even more is presumed to be anticompetitive. owned by Modelo and domestic rigorous competition with Modelo. Here premium brands. By maintaining steady are some examples of how the Modelo B. Beer Prices in the United States pricing while the prices of premium brands have disciplined the pricing of Today are Largely Determined by the beer continues to rise, Modelo has the market leaders. Strategic Interactions of ABI, narrowed the price gap between its MillerCoors, and Modelo a. California beers and ABI’s premium beers, 1. ABI’s Price Leadership encouraging consumers to trade up to 55. Modelo, acting through Crown, Modelo brands. These narrowed price has not followed ABI-led price increases 44. ABI and MillerCoors typically gaps frustrate ABI and MillerCoors in local markets in California. Because announce annual price increases in late because they result in Modelo gaining of the aggressive pricing of the Modelo summer for execution in early fall. The market share at their expense. brands, ABI’s Bud and Bud Light brands increases vary by region, but typically 50. Under the Momentum Plan, have reported ‘‘[h]eavy share losses’’ to cover a broad range of beer brands and Modelo brand prices essentially Modelo’s Corona and Modelo Especial. packs. In most local markets, ABI is the remained flat despite price increases 56. Consumers in California markets market share leader and issues its price from ABI and other competitors, have been the beneficiaries of Modelo’s announcement first, purposely making allowing Modelo brands to achieve their aggressive pricing. ABI rescinded a its price increases transparent to the targeted price gaps to premium beers in planned September 2010 price increase market so its competitors will get in various markets. After Modelo because of the share growth of Modelo’s line. In the past several years, implemented its price gap strategy, Corona brand. ABI also considered MillerCoors has followed ABI’s price Modelo brands experienced market launching a new line, ‘‘Michelob increases to a significant degree. share growth. Especial,’’—a Modelo brand is ‘‘Modelo 45. The specifics of ABI’s pricing 51. Because of the Momentum Plan, Especial’’—targeted at California’s strategy are governed by its ‘‘Conduct prices on the Modelo brands have Latino community. ABI recognized that Plan,’’ a strategic plan for pricing in the increased more slowly than ABI has Corona’s strength in California meant United States that reads like a how-to increased premium segment prices. that ‘‘innovation [is] required.’’ manual for successful price Thus, as ABI has observed, in recent Nonetheless, Modelo continued ‘‘eating coordination. The goals of the Conduct years, the ‘‘gap between Premium and [Budweiser’s] lunch’’ in California to Plan include: ‘‘yielding the highest level High End has been reducing . . . due to the point where ABI’s Vice President of of followership in the short-term’’ and non [high-end] increases.’’ Over the Sales observed that ‘‘California is a ‘‘improving competitor conduct over the same time period, the high-end segment burning platform’’ for ABI, which was long-term.’’ has been gaining market share at the ‘‘losing share’’ because of ‘‘price 46. ABI’s Conduct Plan emphasizes expense of ABI’s and MillerCoors’ compression’’ between ABI and Corona. the importance of being ‘‘Transparent— premium domestic brands. 57. In 2012, ABI’s concern about so competitors can clearly see the plan;’’ 52. In internal strategy documents, losing market share to Modelo in ‘‘Simple—so competitors can ABI has repeatedly complained about California caused a full-blown price understand the plan;’’ ‘‘Consistent—so pressure resulting from price war. ABI implemented ‘‘aggressive price competitors can predict the plan;’’ and competition with the Modelo brands: reductions . . .’’ that were seen as ‘‘Targeted—consider competition’s ‘‘Recent price actions delivered ‘‘specifically targeting Corona and structure.’’ By pursuing these goals, ABI expected Trade up from Sub Premium, Modelo.’’ These aggressive discounts seeks to ‘‘dictate consistent and however it created additional share appear to have been taken in support of transparent competitive response.’’ As pressure from volume shifting to High ABI’s expressed desire to discipline one ABI executive wrote, a ‘‘Front Line End where we under-index;’’ Modelo’s aggressive pricing with the Driven Plan sends Clear Signal to ‘‘Consumers switching to High End ultimate goal of ‘‘driv[ing] them to go Competition and Sets up well for accelerated by price gap compression;’’ up’’ in price. Both MillerCoors and potential conduct plan response.’’ ‘‘While relative Price to MC Modelo followed ABI’s price decrease, According to ABI, its Conduct Plan [MillerCoors] has remained stable the and ABI responded by dropping its ‘‘increases the probability of [ABI] lack of Price increase in Corona is price even further to stay competitive. sustaining a price increase.’’ increasing pressure in Premium.’’ An b. Texas 47. The proposed merger would likely ABI presentation from November 2011 increase the ability of ABI and the stated that ABI’s strategy was ‘‘Short- 58. Competition between the ABI and remaining beer firms to coordinate by Term []: We must slow the volume trend Modelo brands in local markets in Texas eliminating an independent Modelo— of High End Segment and cannot let the is also intense. Beginning in or about ES2 which has increasingly inhibited ABI’s industry transform.’’ Owning the 2010, some Modelo brands began to be TIC price leadership—from the market. Modelo brands will enable ABI to priced competitively with ABI’s Bud O with N 2. Modelo Has Constrained ABI’s im5p3l.e Tmheen tc othmapt esttritaitoeng yth. at Modelo has Lthigrohut,g thhoeu lte tahdei nsgta dteo.m Meosdtiecl ob rbarnadn ds ROD Ability to Lead Prices Higher created by not following ABI price also benefited from price promotions P N1 48. In the past several years, Modelo, increases has constrained ABI’s ability and regional advertising. By 2011, V PT acting through Crown, has disrupted to raise prices and forced ABI to become Modelo had begun gaining market share S K3 ABI’s pricing strategy by declining to more competitive by offering innovative at ABI’s expense. ABI recognized S D Y on E KELLVerDate Mar<15>2010 21:24 May 21, 2013 Jkt 229001 PO 00000 Frm 00006 Fmt 4701 Sfmt 4703 E:\FR\FM\22MYN2.SGM 22MYN2 T Federal Register/Vol. 78, No. 99/Wednesday, May 22, 2013/Notices 30405 Modelo’s aggressive price strategy as an destroying pricing by: [1] Ensuring product was ‘‘invading aggressively and issue contributing to its market share competition does not believe they can directly the Corona territory.’’ Another loss. take share through pricing[,] [and] [2] executive commented that the 59. Ultimately, aggressive pricing on Building discipline in our teams to commercial itself was ‘‘[v]ery similar’’ some Modelo brands forced ABI to prevent unintended initiation or to one Modelo, through Crown, was lower its prices in local Texas markets, acceleration of value-destroying developing at the same time. and adjust its marketing strategy to actions.’’ ABI documents show that it is 67. The proposed acquisition’s better respond to competition from the increasingly worried about the threat of harmful effect on product innovation is Modelo brands. According to an ABI high-end brands, such as Modelo’s, already evident. If ABI were to acquire Regional Vice President of Sales, ABI set constraining its ability to increase Modelo and enter into the supply ‘‘pricing, packaging and retail activity premium and sub-premium pricing. In agreement with Constellation, ABI targets to address [Modelo’s] Especial’’ general, ABI, as the price leader, would would be forbidden from launching a brand. In both Houston and San prefer a market not characterized by ‘‘Mexican-style Beer’’ in the United Antonio, ABI also lowered the price of aggressive pricing actions to take share States. Further, ABI would no longer its Bud Light Lime brand to match because ‘‘[t]aking market share this way have the same incentives to introduce Modelo Especial price moves. is unsustainable and results in lower new brands to take market share from total industry profitability which the Modelo brands. c. New York City damages all players long-term.’’ 60. In the summer of 2011, Modelo, 63. ABI would have strong incentives F. Summary of Competitive Harm From acting through Crown, sought to narrow to raise the prices of its beers were it to ABI’s Acquisition of the Remainder of the gap in price between its brands and acquire Modelo. First, lifting the price of Modelo those of domestic premiums, including Modelo beers would allow ABI to 68. The significant increase in market the ABI brands in New York City. ABI further increase the prices of its existing concentration that the proposed became concerned that ‘‘price brands across all beer segments. Second, acquisition would produce in the compression on Premiums by imports’’ as the market leader in the premium and relevant markets, combined with the would cause premium domestic premium-plus segments, and as a loss of head-to-head competition customers to trade up to the import brewer with an approximate overall between ABI and Modelo, is likely to segment. ABI’s Vice President of Sales national share of approximately 46% of result in unilateral price increases by observed that the price moves on beer sales post-acquisition, coupled ABI and to facilitate coordinated pricing Modelo’s Corona brand, and with its newly expanded portfolio of between ABI and remaining market corresponding reductions by brands, ABI stands to recapture a participants. MillerCoors and Heineken, meant that significant portion of any sales lost due VI. Absence of Countervailing Factors ABI would ‘‘need to respond in some to such a price increase, because a fashion,’’ and that its planned price significant percentage of those lost sales 69. New entry and expansion by increase was ‘‘in jeopardy.’’ ABI will go to other ABI-owned brands. existing competitors are unlikely to ultimately chose to respond by delaying 64. Therefore, ABI likely would prevent or remedy the acquisition’s a planned price increase to ‘‘limit the unilaterally raise prices on the brands of likely anticompetitive effects. Barriers to impact of price compression on our beer that it owns as a result of the entry and expansion within each of premiums as a result of the Corona . . . acquisition. these harmed markets include: (i) The deeper discount.’’ substantial time and expense required to E. The Loss of Head-to-Head build a brand reputation; (ii) the C. The Elimination of Modelo Would Competition Between ABI and Modelo substantial sunk costs for promotional Likely Result in Higher Coordinated Will Harm Consumers Through Reduced and advertising activity needed to Pricing by ABI and MillerCoors New Product Innovation and Product secure the distribution and placement of Variety 61. Competition spurred by Modelo a new entrant’s beer products in retail has benefitted consumers through lower 65. Modelo’s growth in the United outlets; (iii) the difficulty of securing beer prices and increased innovation. It States has repeatedly spurred product shelf-space in retail outlets; (iv) the time has also thwarted ABI’s vision of innovation by ABI. In 2011, ABI and cost of building new breweries and leading industry prices upward with decided to ‘‘Target Mexican imports’’ other facilities; and (v) the time and cost MillerCoors and others following. As and began planning three related ways of developing a network of beer one ABI executive stated in June 2011, of doing so. First, ABI would acquire the distributors and delivery routes. ‘‘[t]he impact of Crown Imports not U.S. sales rights to Presidente beer, the 70. Although ABI asserts that the increasing price has a significant number one beer in Central America, acquisition would produce efficiencies, influence on our volume and share. The and greatly expand Presidente’s it cannot demonstrate acquisition- case could be made that Crown’s lack of distribution in the United States. specific and cognizable efficiencies that increases has a bigger influence on our Second, ABI would acquire a ‘‘Southern would be passed-through to U.S. elasticity than MillerCoors does.’’ ABI’s US or Mexican craft brand,’’ and use it consumers, of sufficient size to offset acquisition of full ownership and to compete against Mexican imports. the acquisition’s significant control of Modelo’s brands and brewing Finally, ABI would license trademarks anticompetitive effects. assets will facilitate future pricing to another tropical-style beer, in a VII. Defendants’ Proffered ‘‘Remedy’’ coordination. project that the responsible ABI S2 manager described as a ‘‘Corona killer.’’ Does Not Prevent the Anticompetitive TICE D. The Loss of Head-to-Head 66. ABI’s Bud Light Lime, launched in Effect of ABI’s Acquisition of Modelo with NO CWoomulpde tLiitkioenly B Reetwsueletn in A HBiIg ahnedr PMroicdeesl oo n 2(c0o0m8,m woansl ya lsseor vtaerdg ewteitdh a at sCloicreo noaf lime), co7n1c.e Innt rlaitgihotn o, fa nthde shuibgsht amnatirakle t ROD ABI-Owned Brands going so far as to mimic Corona’s likelihood of anticompetitive effects, P N1 62. ABI is intent on moderating price distinctive clear bottle. As one Modelo ABI’s acquisition of the remainder of V PT competition. As it has explained executive noted after watching a Modelo is illegal. Defendants thus S K3 internally: ‘‘We must defend from value- commercial for Bud Light Lime, the evidently structured their transactions S D Y on E KELLVerDate Mar<15>2010 21:24 May 21, 2013 Jkt 229001 PO 00000 Frm 00007 Fmt 4701 Sfmt 4703 E:\FR\FM\22MYN2.SGM 22MYN2 T 30406 Federal Register/Vol. 78, No. 99/Wednesday, May 22, 2013/Notices with a purported ‘‘remedy’’ in mind: the ‘‘the Crown team [] is extremely anxious have built in several firewalls— sale of Modelo’s interest in Crown to about this change in ownership. This is including ABI’s exclusion from Constellation, coupled with a supply in no small part the result of sensitive portions of Modelo board agreement that gives Constellation the Constellation’s actions over the term of meetings concerning the sale of Modelo right to import Modelo beer into the the joint venture to limit investment in beer in the U.S.—to insulate ABI from United States. This proposal is the business in the areas of manpower Modelo’s U.S. business. Post- inadequate to remedy Defendants’ and marketing.’’ Constellation’s CEO acquisition, those firewalls would be violation of Section 7 of the Clayton responded internally: ‘‘[Q]uite gone. Act. something. I see a management issue 81. The loss of Modelo also, by itself, brewing.’’ In another email, Crown’s facilitates interdependent pricing. A. Constellation Has Not Shown Modelo CEO wrote to his employees that Today, ABI would need to reach and Crown’s Past Willingness To Resist Constellation had been ‘‘consistently agreement with both Modelo and ABI’s ‘‘Leader-Follower’’ Industry Plan non supportive of the business through Constellation to ensure that pricing for 72. Constellation has not shown Crown’s history . . . seeking to drive the Modelo brands followed ABI’s lead. Crown and Modelo’s past willingness to profits at all costs.’’ After the proposed transactions, thwart ABI’s price leadership. While 76. Crown’s fears appear well- working together on price would be Modelo supported narrowing the gap grounded. In 2010, Modelo sued easier because only Constellation would between the prices of its brands and Constellation for breach of fiduciary need to follow or agree with ABI. those of ABI premium brands, duty, after Constellation had refused to Constellation’s executives have sought invest in marketing the Modelo brands. B. Constellation Will Not Be an to follow ABI’s pricing lead. In August In its Complaint, Modelo alleged Independent Firm Capable of Restoring 2011, Constellation’s Managing Director ‘‘Constellation [] knew that [Crown] Head-To-Head Competition Between wrote to Crown’s CEO: ‘‘Since ABI has management’s plan was in Crown’s best ABI and Modelo already announced an October general interests, but they blocked it anyway in 82. Even if Constellation wanted to price increase I was wondering if you an effort to secure unwarranted benefits act at odds with ABI post-transaction, it are considering price increases for the for Constellation.’’ would be unlikely to do so. Modelo portfolio? . . .. From a 77. Post-acquisition, Constellation Constellation will own no brands or positioning and image perspective I would not need to ask Modelo for brewing or bottling assets of its own. It believe it would be a mistake to allow permission to follow ABI’s price- would be dependent on ABI for its the gaps to be narrowed . . . I think leadership. Instead, Constellation would supply. Thus, Defendants’ proposed ABI’s announcement gives you the be free to follow ABI’s lead. Moreover, remedy puts Constellation in a opportunity to increase profitability ABI and Constellation will have every considerably weaker competitive without having to sacrifice significant incentive to act together on pricing position compared to Modelo, which volume.’’ Similarly, in December of because of the vast profits each would owns both brands and breweries. 2011, Constellation’s CFO wrote to his stand to make if beer prices were to 83. ABI could terminate the counterpart at Crown that he thought increase. contingent supply agreement at any price increases on the Modelo brands 78. The contingent supply time. And if ABI is displeased with were viable ‘‘if domestics [i.e. Bud and relationship between ABI and Constellation’s strategy in the United Bud Light] keep going up’’ but worried Constellation would also facilitate joint States, it might simply withhold or that ‘‘Modelo gets a vote as well.’’ And pricing between the two companies. delay supply to punish Constellation. in June of 2012, a Crown executive Post-acquisition, there would be day-to- 84. The supply agreement may also be stated that Constellation’s plan for day interaction between ABI and renegotiated at any time during the 10- annual price increases ‘‘put at risk the Constellation on matters such as year period. Thus, it provides no relative success’’ of the Momentum volume, packaging, transportation of guaranteed protection for consumers Plan. product, and new product innovation. that any of its terms will be followed if 73. Crown executives have recognized ABI and Constellation would have ABI is able to secure antitrust approval the differing incentives, as it relates to countless opportunities that could for this acquisition. pricing, of their two owners. As one creatively be exploited, and that no one Crown executive observed in a March could predict or control, to allow ABI to VIII. Violations Alleged 2011 email, ‘‘Modelo has a higher reward Constellation (or refrain from 85. The United States incorporates the interest in building volume so that they punishing Constellation) in exchange allegations of paragraphs 1 through 84 can cover manufacturing costs, gain for Constellation raising the price of the above as if set forth fully herein. manufacturing profits and build share as Modelo brands. The lucrative supply the brand owners.’’ Constellation, agreement from which Constellation Violation of Clayton Act §7, 15 U.S.C. however, ‘‘is interested primarily in the seeks to gain billions of dollars in 18 financial return on a short-term or at the profits itself incentivizes Constellation ABI Agreement To Acquire Remainder most on a mid-term basis.’’ to keep ABI happy to avoid terminating of Modelo 74. Post-transaction, Constellation Constellation’s rights in ten years. would no longer be so constrained. Even 79. ABI and Constellation are more 86. The proposed acquisition of the if Crown’s own executives wanted to likely to decide on mutually profitable remainder of Modelo by ABI would continue an aggressive pricing strategy, pricing. Unlike ABI and Modelo, which likely substantially lessen S2 they would be required to answer to are horizontal competitors, competition—even after Defendants’ E TIC Crown’s new sole owner—Constellation. Constellation would be a mere proposed ‘‘remedy’’—in the relevant O D with N ab7o5u.t Cwrhoawt nw eoxuelcdu htiavpeps ewne irfe concerned pthaer tpicrioppaonste idn a ArrBaIn’sg esmupepnlty. chain under mClaarykteotns ,A inc tv, i1o5l aUti.oSn.C o. f1 S8e. cTtihoen 7 of the RO Constellation gained complete control of 80. ABI and Modelo have sought to transactions would have the following P N1 Crown. Crown’s CEO wrote to avoid acting together on matters of anticompetitive effects, among others: V PT Constellation’s CEO after Defendants’ competitive significance in the relevant (a) Eliminating Modelo as a S K3 proposed ‘‘remedy’’ was announced: markets in the U.S. Accordingly, they substantial, independent, and S D Y on E KELLVerDate Mar<15>2010 21:24 May 21, 2013 Jkt 229001 PO 00000 Frm 00008 Fmt 4701 Sfmt 4703 E:\FR\FM\22MYN2.SGM 22MYN2 T Federal Register/Vol. 78, No. 99/Wednesday, May 22, 2013/Notices 30407 competitive force in the relevant ‘‘Transaction Agreement’’ dated June 28, JAMES J. TIERNEY (D.C. BAR # 434610), markets, creating a combined firm with 2012, between Modelo, Diblo, and ABI, Chief. reduced incentives to lower price or or from entering into or carrying out any N. SCOTT SACKS (D.C. BAR # 913087) increase innovation or quality; agreement, understanding, or plan by Acting Assistant Chief. (b) Competition generally in the which ABI would acquire the remaining NETWORKS & TECHNOLOGY relevant markets would likely be interest in Modelo, its stock, or any of ENFORCEMENT SECTION substantially lessened; its assets; /s/ lllllllllllllllllll (c) Prices of beer would likely (c) The United States be awarded MICHELLE R. SELTZER* (D.C. BAR # increase to levels above those that costs of this action; and 475482), would prevail absent the transaction, (d) The United States be awarded forcing millions of consumers in the such other relief as the Court may deem Attorney. United States to pay higher prices; just and proper. LITIGATION I (d) Quality and innovation would Dated this 31st day of January 2013. Antitrust Division, U.S. Department of Justice, 450 Fifth Street NW., Suite 4100, likely be less than levels that would Respectfully submitted, Washington, DC 20530, Telephone: (202) prevail absent the transaction; FOR PLAINTIFF UNITED STATES: 353–3865, Facsimile: (202) 307–5802, E-mail: (e) The acquisition would likely /s/ lllllllllllllllllll [email protected]. promote and facilitate pricing WILLIAM J. BAER (D.C. BAR # 324723), SANFORD ADLER coordination in the relevant markets; Assistant Attorney General for Antitrust. JANET BRODY and /s/ lllllllllllllllllll TRAVIS R. CHAPMAN (f) The acquisition would provide ABI JOHN C. FILIPPINI (DC BAR # 165159) RENATA B. HESSE (D.C. BAR # 466107), with a greater incentive and ability to DAVID Z. GRINGER increase its pricing unilaterally. Deputy Assistant Attorney General. DANIELLE G. HAUCK /s/ lllllllllllllllllll DAVID C. KELLY IX. Request for Relief PATRICIA A. BRINK, ANURAG MAHESHWARY (DC BAR # 87. The United States requests that: Director of Civil Enforcement. 490535) (a) The proposed acquisition be /s/ lllllllllllllllllll LOWELL STERN (DC BAR # 440487) MARY STRIMEL(DC BAR # 455303) adjudged to violate Section 7 of the MARK W. RYAN (D.C. BAR # 359098), RYAN STRUVE (DC BAR # 495406) Clayton Act, 15 U.S.C. 18; Director of Litigation. SHANE WAGMAN (b) The Defendants be permanently /s/ lllllllllllllllllll Attorneys for the United States enjoined and restrained from carrying JOSEPH J. MATELIS (D.C. BAR # 462199), *Attorney of Record out the Agreement and Plan of Merger Chief Counsel for Innovation. dated June 28, 2012, and the /s/ lllllllllllllllllll Appendix A S2 E C TI O N with D O R P N1 V T P S K3 S D Y on E KELLVerDate Mar<15>2010 21:24 May 21, 2013 Jkt 229001 PO 00000 Frm 00009 Fmt 4701 Sfmt 4703 E:\FR\FM\22MYN2.SGM 22MYN2 T 30408 Federal Register/Vol. 78, No. 99/Wednesday, May 22, 2013/Notices Relevant Geographic Markets and Concentration Data Combined Post- Delta Market Market Merger HHI Share HHI Salt Lake City, UT 57 3900 739 Houston, TX 55 3660 840 Minneapolis/St Paul, MN 50 3525 733 Birmingham/Montgomery, AL 52 3408 503 Las Vegas, NV 49 3332 832 Orlando, FL 51 3273 570 Phoenix/Tucson, AZ 48 3139 564 Miami/Ft Lauderdale, FL 48 3067 964 Richmond/Norfolk, VA 48 3044 472 New York, NY 43 2504 778 Sacramento, CA 40 2382 697 San Diego, CA 39 2242 651 San Francisco/Oakland, CA 34 1822 563 United States District Court for the Competitive Impact Statement submitted on April 19, 2013, for entry District of Columbia in this civil antitrust proceeding. S2 Pursuant to Section 2(b) of the TICE United States of America, Plaintiff, v. Antitrust Procedures and Penalties Act I. Nature and Purpose of the Proceeding with NO ADenfheenudsaenr-tBs.u sch InBEV SA/NV, et al., (1‘6‘A(bP)P–A(h’)’, oPrl a‘‘iTnutinffn Ueyn Aitecdt’ ’S),t a1t5e sU o.Sf .C. AnOhne uJusenre- B2u8s, c2h0 1In2B, Deve fSeAnd/NanVt (‘‘ABI’’) D PRO Civil Action No. 13–127 (RWR) America (‘‘United States’’) files this agreed to purchase the remaining equity N1 Competitive Impact Statement relating interest in Defendant Grupo Modelo, PTV Judge Richard W. Roberts to the proposed Final Judgment S.A.B. de C.V. (‘‘Modelo’’) for S TKELLEY on DSK3VerDate Mar<15>2010 21:24 May 21, 2013 Jkt 229001 PO 00000 Frm 00010 Fmt 4701 Sfmt 4703 E:\FR\FM\22MYNa2p.SpGrMox2im2MaYtNe2ly $20.1 billion. The United EN22MY13.002</GPH>

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Antitrust Procedures and Penalties Act,. 15 U.S.C. the Department of Justice, Antitrust. Division Mondavi, Clos du Bois, Ruffino, and. SVEDKA
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