Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Cal.: Beer purchasers’ challenge to Anheuser-Busch-Grupo Modelo merger fails, (Sep 16, 2013)

By Tobias J. Gillett, J.D., LL.M.

Beer purchasers have failed in their challenge of the now-consummated merger of Anheuser-Busch InBev SA/NV (ABI) and Grupo Modelo S.A.B. de C.V., the federal district court in San Francisco has decided (Edstrom v. Anheuser-Busch InBev SA/NV, September 13, 2013, Chesney, M.).

In 2012, ABI sought to acquire the 50 percent interest in Grupo Modelo, Mexico’s largest brewer, that it did not already own. Under the terms of the transaction, Constellation Brands, Inc. would also acquire the 50 percent interest in Crown Imports, LLC, Grupo Modelo’s United States importer, that it did not already own.

In January 2013, the Department of Justice filed suit challenging the transaction. Under the terms of a proposed final judgment the parties negotiated with the Department of Justice, Constellation would acquire an irrevocable license to import Grupo Modelo brands into the United States. Constellation would also acquire Grupo Model’s Piedras Negras brewery, permitting it to brew Grupo Modelo branded beers itself. The federal district court in Washington, D.C. entered a Stipulation and Order permitting the parties to proceed with their transactions, but before they could be completed, the beer purchasers filed suit, alleging violations of the Clayton, Sherman, and Tunney Acts, as well as state law. ABI and Constellation Brands moved to dismiss.

Clayton Act. The court rejected the purchasers’ contention that ABI’s acquisition of Grupo Modelo would violate Section 7 of the Clayton Act. The court observed that the parties’ agreements would not permit ABI to sell Grupo Modelo beer in the United States, and therefore ABI’s share of the market would not increase as a result of the transaction.

Moreover, contrary to the purchasers’ contentions, the agreements would not allow ABI to exercise power over Constellation, to run the Piedras Negras brewery, or to control Constellation’s pricing and supply decisions in the United States. Provisions in the Transition Services Agreement regarding employment at the brewery only covered consultation and ancillary administrative services Constellation could contract for in the period during which it transitioned to operating the brewery, services that were not performed by workers at the brewery. Moreover, ABI would provide the services only at Constellation’s request, at prices set forth in the agreements, and Constellation could choose to obtain those services elsewhere. The provisions expressly did not apply to 600 workers employed by Servicios Modelo de Coahuila, S.A. de C.V., a company Constellation purchased as part of the transaction.

Further, Constellation would not be able to assign its sublicense to use the Grupo Modelo trademarks in connection with imports into the United States to ABI, because the agreements prohibited ABI from acquiring such rights for a period of ten years, and any attempt to acquire the rights following that period would be subject to antitrust challenge at that juncture. ABI’s possession of 14 distributors with rights to distribute Grupo Modelo beer in the United States also did not pose an obstacle to the transaction, because, even if the distributors could raise the prices of Grupo Modelo beers, they could have done so before the merger as well, and Constellation held the right under the agreements to direct any ABI-owned distributor to sell its rights to another distributor. The court also found that the purchasers failed to allege any facts that would demonstrate that the firewall provisions in the agreements against the sharing of confidential information between ABI and Constellation were inadequate.

In addition, provisions requiring ABI to supply Constellation with the raw materials and supplies necessary to brew beer at the Piedras Negras brewery for three years, and to supply Constellation with sufficient Grupo Modelo beers to meet demand during Constellation’s expansion of the brewery, would not permit ABI to influence Constellation’s pricing behavior because the prices for the beers and supplies would be governed by the agreements. The agreements also would not prevent Constellation from benefiting from product or production innovations because Constellation would have access to and could adopt at no cost any Grupo Modelo recipe changes made by ABI. Finally, a provision that allegedly would have given ABI a “veto” over Constellation’s expansion into Mexico with non-Grupo Modelo products had not been made part of the final agreements.

Sherman Act. The court found that the purchasers’ complaint made only “conclusory allegations,” without factual support, that ABI and Constellation would fix prices, and that, to the extent the plaintiffs alleged a threat of future price fixing, “a threat of future conduct does not constitute a claim under the Sherman Act.” Moreover, the agreements themselves did not provide support for a price fixing claim, and the purchasers failed to adequately allege any other agreement between the parties. The purchasers also did not demonstrate that ABI and Constellation had “agreed to divide markets and customers” because ABI had not “entered into any agreement allocating the markets for beer,” and no products or competitors had been removed from the market.

Tunney Act. The purchasers also failed to state a claim under the Tunney Act, even if a private cause of action under that statute existed, a question the court did not decide. A district court would retain the authority to take remedial action where it found a proposed consent judgment to be not in the public’s interest, even if the merger had been completed, and therefore the consummation of a merger prior to the end of the Tunney Act’s 60-day comment period and entry of judgment did not violate the Act.

State law claims. The court found the purchasers’ state law claims did not sufficiently identify any specific statute. The purchasers were, however, granted leave to amend the state law claims.

The court denied the purchasers’ motion for preliminary injunction because they did not identify “any other practicable form of injunctive relief” that the court could impose, and because they did not state a claim on which relief could be granted and therefore did not show a likelihood of success on the merits.

The case is No. C 13-1309 MMC.

Attorneys: Derek G. Howard and Jack Wing Lee (Minami Tamaki LLP) for Steven Edstrom. Allen Ruby and Steven C. Sunshine (Skadden Arps Slate Meagher and Flom LLP) for Anheuser-Busch InBev SA/NV. Marie Caroline Bafus (Fenwick and West LLP) for Grupo Modelo S.A.B. de C.V. Margaret H. Warner (McDermott Will Emery LLP) for Constellation Brands Inc.

Companies: Anheuser-Busch InBev SA/NV; Constellation Brands, Inc.; Grupo Modelo S.A.B. de C.V.

Cases: Antitrust CaliforniaNews