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

262 Pages·2016·45.76 MB·English

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
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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:
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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:
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SP 1Headquartered in Chicago, Illinois, Crown is a Constellation. Crown sells and markets Modelo’s beers in the United States as the exclusive importer
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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
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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.
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V 2As defined by the SymphonyIRI Group, a market modified to reflect ABI’s current partial ownership
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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.
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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
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ROD Ability to Lead Prices Higher created by not following ABI price also benefited from price promotions
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N1 48. In the past several years, Modelo, increases has constrained ABI’s ability and regional advertising. By 2011,
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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,
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N1 62. ABI is intent on moderating price distinctive clear bottle. As one Modelo ABI’s acquisition of the remainder of
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PT competition. As it has explained executive noted after watching a Modelo is illegal. Defendants thus
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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’
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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
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N1 Crown. Crown’s CEO wrote to avoid acting together on matters of anticompetitive effects, among others:
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PT Constellation’s CEO after Defendants’ competitive significance in the relevant (a) Eliminating Modelo as a
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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
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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>