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Timestamp: 2017-02-22 07:30:16
Document Index: 753876865

Matched Legal Cases: ['§ 18', '§ 18', '§ 1391', '§ 22', '§ 1331', '§ 25', '§ 25', '§ 18', '§ 7', '§ 18', '§ 18']

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both because Modelo’s share is substantially higher in many local areas than its national share. Because Modelo prices have not closely followed ABI’s price increases. products. Among other things. and diminish ABI’s incentive to innovate with respect to new brands. Modelo’s pricing strategy – “The
Momentum Plan” – seeks to narrow the “price gap” between Modelo beers and lower-priced premium domestic brands. 5. ABI and MillerCoors often find it more profitable to follow each other’s prices than to compete aggressively for market share by cutting price. 4. ABI internal documents acknowledge that Modelo has put “increasing pressure” on ABI by pursuing a competitive strategy directly at odds with ABI’s well-established practice of leading prices upward. this competitive constraint on ABI’s and MillerCoors’ ability to raise their prices would be eliminated. In contrast.
. As the two largest brewers. If ABI were to acquire the remainder of Modelo. ABI typically initiates annual price increases in various markets with the expectation that MillerCoors’ prices will follow.Case 1:13-cv-00127 Document 1 Filed 01/31/13 Page 3 of 27
3. Modelo has resisted ABI-led price hikes. 6.
Modelo would have on competition in the beer industry. ABI and
MillerCoors have been forced to offer lower prices and discounts for their brands to discourage consumers from “trad[ing] up” to Modelo brands. The acquisition would also eliminate the substantial head-to-head competition that
currently exists between ABI and Modelo. and because of the interdependent pricing dynamic that already exists between the largest brewers. And they frequently do. The loss of this head-to-head competition would enhance the ability of ABI to unilaterally raise the prices of the brands that it would own postacquisition. such as Bud and Bud Light. and packaging.
(“Constellation”). be ‘business as usual.Case 1:13-cv-00127 Document 1 Filed 01/31/13 Page 4 of 27
7. thereby giving ABI full control of all aspects of the importation. ABI has agreed to sell Modelo’s existing 50% interest in Crown Imports LLC (“Crown”)1 – which currently imports Modelo beer into the United States – to Crown’s other owner. In reality.C. ABI’s acquisition of the remainder of Modelo would likely substantially
lessen competition and is therefore illegal under Section 7 of the Clayton Act.’” The deficiencies of the “remedy” are apparent from the
Headquartered in Chicago. Constellation Brands.
Accordingly. 9. Illinois. For no substantial business reason other than to avoid liability under the antitrust laws. sale.
. At the end of the ten-year period. Defendants’ proposed “remedy” eliminates from the market Modelo – a particularly aggressive competitor – and replaces it with an entity wholly dependent on ABI. would acquire no Modelo brands or brewing facilities under this arrangement – it remains simply an importer. Specifically. it is not currently or will not. going forward. ABI could unilaterally terminate its agreement with Constellation.
ABI has entered into an additional transaction contingent on the approval of its acquisition of the remainder of Modelo. ABI and Constellation have also negotiated a proposed Amended and Restated Importer Agreement (the “supply agreement”). As Crown’s CEO wrote to his employees after the acquisition was announced: “our #1 competitor will now be our supplier . Crown sells and markets Modelo’s beers in the United States as the exclusive importer of Modelo beers. . . 15 U. Inc. giving Constellation the exclusive right to import Modelo beer into the United States for ten years. required to depend on ABI for its supply of Modelo-branded beer. 8. Constellation. creating a façade of competition between ABI and its importer.S. Crown is a 50/50 joint venture between Modelo and Constellation. and distribution of Modelo brands in the United States. The sale of Modelo’s 50% interest in Crown to Constellation is designed predominantly
to help ABI win antitrust approval for its acquisition of Modelo. however. § 18.
11.Case 1:13-cv-00127 Document 1 Filed 01/31/13 Page 5 of 27
illustrations of the pre. it is unlikely to reverse course after – when it would be fully dependent on ABI for its supply of beer. as alleged more specifically below. would likely substantially lessen competition in violation of Section 7 of the Clayton Act. Given that Constellation was inclined to follow ABI’s price leadership before the acquisition. In addition. if
it does not share Modelo’s incentive to thwart ABI’s price leadership. For these reasons. Constellation consistently has urged following ABI’s price leadership. Constellation would need to preserve a strong relationship with ABI to encourage ABI from exercising its option to terminate the agreement after 10 years. In fact. The likely anticompetitive effects of the proposed acquisition would not be -5-
. the proposed acquisition.and post-transaction chains of supply below. demonstrating how the “remedy” transforms horizontal competition into vertical dependency:
10. and will effectively be ABI’s business partner.
15 U. Michelob. Defendants are engaged in.C. Belgium. ABI is the largest brewer and marketer of beer sold in the United States.C. ABI is found and transacts business in this District through its wholly-owned United States subsidiaries. interstate commerce. § 18.S. This Court has personal jurisdiction over each Defendant. and 28 U. which is then advertised and sold throughout the United States. Venue is proper under Section 12 of the Clayton Act. It owns more than 200 beer brands. over which it exercises control.
.S.C. 15. and 1345. Goose Island. 17. JURISDICTION. Natural Light. AND INTERSTATE COMMERCE The United States brings this action under Section 15 of the Clayton Act. 15 U. Modelo has consented to
personal jurisdiction in this judicial district.S. III. as amended. Stella Artois.C. 16.C. the number one brand in the United States. 15 U. 15
U. 14. § 1391. and 28 U. to prevent and restrain Defendants ABI and Modelo from violating Section 7 of the Clayton Act. This Court has subject matter jurisdiction over this action under Section 15 of the Clayton
Act. THE DEFENDANTS AND THE TRANSACTIONS ABI is a corporation organized and existing under the laws of Belgium. 12. VENUE. including 12 in the United States. 13. and their activities substantially affect. II. including Bud Light. with headquarters
in Leuven. Busch. 1337.S. § 22. §§ 1331. § 25. § 25.
ABI and Modelo annually brew several billion dollars worth of beer.C.S.S. as amended. ABI owns and operates 125 breweries worldwide. and other popular brands such as Budweiser. and Beck’s.Case 1:13-cv-00127 Document 1 Filed 01/31/13 Page 6 of 27
prevented or remedied by the sale of Modelo’s existing interest in Crown to Constellation and the supply agreement between ABI and Constellation.
. Victoria. changes in strategic direction.A. importer.
Modelo is a corporation organized and existing under the laws of Mexico. Modelo must approve Crown’s general pricing parameters. Its other popular brands sold in the United States include Corona Light. de C. Modelo owns half of Crown and may exercise an option at the end of 2013. Modelo is the third-largest brewer of beer sold in the United States. or distribution of Modelo brands in the United States. 21. However.3% direct interest in Modelo. Essentially. Indeed.V.Case 1:13-cv-00127 Document 1 Filed 01/31/13 Page 7 of 27
18. Modelo executives run its day-to-day business. The acquisition gives complete control of Modelo to ABI. Modelo’s Corona Extra brand is the top-selling import in the United States.” 20. marketing. Negra Modelo. and Pacifico. and capital investment above certain thresholds.3% direct interest in
Modelo’s operating subsidiary Diblo. 22. Today. ABI does “not have voting or other effective control of . including Modelo’s relationship and
interaction with its U. . Crown. as ABI stated in its most recent annual report. Mexico. ABI’s current part-ownership of Modelo gives ABI certain minority voting rights and the right to appoint nine members of Modelo’s 19member Board of Directors. ABI and Modelo executives agree that there is currently vigorous competition between
the ABI and Modelo brands in the United States. Grupo Modelo.S. S. firewalls are in place to ensure that the ABI members of Modelo’s Board do not become privy to information about the pricing. and a 23. to acquire in 2016. 19. Modelo also sets the global strategic themes for the brands it owns. the half of Crown it does not already own. with
headquarters in Mexico City. and gives ABI full access to
. borrowing activities. Modelo Especial. ABI currently holds a 35. Crown is a group of employees who report to Crown’s owners: Modelo and Constellation.
. and price. Defendants simultaneously entered into another transaction in an attempt to “remedy” the competitive harm caused by ABI’s acquisition of the remainder of Modelo: ABI has agreed to sell Modelo’s existing 50% interest in Crown to Constellation.Case 1:13-cv-00127 Document 1 Filed 01/31/13 Page 8 of 27
access that ABI does not currently enjoy. IV. beer producers typically also sell. 24. alcohol content. Marketing and brand building take various forms including sports sponsorships. quality. In addition to brewing. market. THE RELEVANT MARKET A. On June 28. For example. ABI agreed to purchase the remaining equity interest from Modelo’s
owners. 26. ABI and Constellation have negotiated a supply agreement giving Constellation the exclusive right to import Modelo beer into the United States for ten years. thereby obtaining full ownership and control of Modelo. and brewed via a process of fermentation. Description of the Product
from a malted cereal grain. These transactions are contingent on the closing of ABI’s acquisition of Modelo. flavored with hops. so that Crown. Beer is substantially differentiated from other alcoholic beverages by taste. As noted above. 23. national television campaigns. As part of this strategy. 25. 2012. and develop multiple
brands. would become wholly owned by Constellation. for about $20. image. and increasingly. print advertising. previously a joint-venture between Modelo and Constellation. online marketing. in an effective acknowledgement that the acquisition of Modelo raises
significant competitive concerns. ABI presently has no day-to-day role in Modelo’s United States business and is walled off from strategic discussions regarding Modelo sales in the United States.1 billion.
Most brewers use distributors to merchandise. such as Natural and Keystone branded beer. The high-end category includes craft beers.” 27. large retailers such as Target and Walmart. and some ales and malt liquors. and convenience stores. which then arranges for distribution to retailers. premium plus. 29. ABI also owns high-end beers including Stella Artois and Goose Island. such as ABI’s Budweiser. the best selling of which is Modelo’s Corona. also referred to as the value segment. restaurants. and imported beers.
. in turn. and deliver beer to retailers. Bud Light Platinum. liquor stores. Bud Light Lime-a-Rita and Michelob Ultra. sell. The sub-premium segment. premium.Case 1:13-cv-00127 Document 1 Filed 01/31/13 Page 9 of 27
Modelo has recently invested in “more national advertising [and] more national sports” in order to “build the equity of [its] brands. and also imported beers. and bars which. made from less expensive ingredients and are generally perceived as being of lower quality than premium beers. made from more expensive ingredients and are generally perceived to be of superior quality. generally consists of lager beers. ABI groups beer into four segments: sub-premium. High-end beers sell at a wide variety of price points. The high-end segment includes craft beers such as Dogfish Head. and the Miller and Coors brand families. Flying Dog. The premium plus segment consists largely of American beers that are priced somewhat higher than premium beers. Examples of beers in the premium plus category include Bud Light Lime. and high-
end. Those
end accounts are primarily grocery stores. sell beer to the consumer. 28. including the “light” varieties. which are often produced in small-scale
breweries. The premium segment generally consists of medium-priced American lager beers. which are priced lower than premium beers. Beer brewed in foreign countries may be sold to an importer. most of which are higher than premium and premium plus beers.
. For example. a market research firm. acting through Crown in the United States. rather than by the locations of breweries. premium beer is priced above sub-premium beer. whose data is commonly used by industry participants. Relevant Geographic Market
The 26 local markets. ABI and Modelo brands are in
regular competition with one another. 33. C. are not sufficiently substitutable to discipline at least a small but significant and nontransitory increase in the price of beer. B. a hypothetical monopolist producer of beer likely would increase its prices by at least a small but significant and non-transitory amount. 30. Relevant Product Market
Act. and in each the acquisition would likely substantially lessen competition. such as wine and distilled spirits. For example. identified in
Appendix A. Each of these local markets currently benefits from head-to-head competition between ABI and Modelo. The relevant geographic markets for analyzing the effects of this acquisition are best
defined by the locations of the customers who purchase beer. Indeed. Beers compete with one another across segments. namely. Other alcoholic beverages. seek to maintain “price gaps” between each segment. Modelo. defined by Metropolitan Statistical Areas (“MSAs”)2. Therefore. Brewers develop pricing and promotional strategies based on an assessment of local
As defined by the SymphonyIRI Group.
. as its benchmark for its own brands’ pricing. and relatively few consumers would substantially reduce their beer purchases in the event of such a price increase. 32. but below premium plus beer. are relevant geographic markets for antitrust purposes. such as ABI. ABI’s Bud Light.Case 1:13-cv-00127 Document 1 Filed 01/31/13 Page 10 of 27
Brewers with a broad portfolio of brands. usually selects “[d]omestic premium” beer.
and brewers commonly compete for national retail accounts. In addition. In addition. Accordingly. each state has different laws and regulations regarding beer distribution and sales that would make arbitrage difficult.11 -
. and local brand strength. the MSAs identified in Appendix A are relevant geographic markets and
“sections of the country” within the meaning of Section 7 of the Clayton Act. and brand building typically take place on a national level. Also. the price for a brand of beer can vary by local market. because arbitrage
across local markets is unlikely to occur. 34. 36. local competitive conditions. distributors’ contracts with brewers and their importers contain territorial limits and prohibit distributors from reselling beer outside their territories. a hypothetical monopolist of beer sold into each of the local markets
identified in Appendix A would likely increase its prices in that local market by at least a small but significant and non-transitory amount. in part. the United States is a relevant geographic market under Section 7 of the Clayton Act.
. General pricing strategy also typically originates at a national level. 35. There is also competition between brewers on a national level that affects local markets
throughout the United States. Therefore. Decisions about beer brewing.Case 1:13-cv-00127 Document 1 Filed 01/31/13 Page 11 of 27
demand for their beer. A hypothetical monopolist of beer sold in the United States would likely increase its prices by at least a small but significant and non-transitory amount. marketing. most beer advertising is on national television. Accordingly. Brewers are able to price differently in different locations. Thus. 37. Consumers buy beer near their homes and typically do not travel to other areas to buy beer when prices rise.
Market concentration is often one useful indicator of the level of competitive vigor in a market and the likely competitive effects of a merger.
38. sales of $2. Concentration in relevant markets is typically measured by the Herfindahl-Hirschman
Index (“HHI”). Pacifico. The beer industry in the United States is highly concentrated and would become
substantially more so as a result of this acquisition. MillerCoors owns the Miller and Coors brands and also many smaller brands including Blue Moon and Keystone Light. .12 -
.500 points are considered highly concentrated. .Case 1:13-cv-00127 Document 1 Filed 01/31/13 Page 12 of 27
V. small player[s]. in one market is as high as 4. and the more a transaction would increase concentration in a market. 7% market share nationally. MillerCoors is the second-
largest brewer of beer sold in the United States. the more likely it is that a transaction would result in a meaningful reduction in competition. ABI is the largest brewer of beer sold in the United States.
concentrated as a result of the proposed acquisition. and there is an increase in the
. the post-acquisition HHI exceeds 2. The remaining sales of beer in the U. and Victoria brands. and a market share that is nearly 20% in some local markets. The more concentrated a market.” 40. Modelo is the thirdlargest brewer of beer sold in the United States.S. which the Defendants characterize as being “fragmented .500 points. Modelo.S.47 billion. 41. Modelo owns the Corona. including many craft brewers. are divided among Heineken and fringe competitors. Market share estimates demonstrate that in 20 of the 26 local geographic markets identified in Appendix A. 39. with annual U.886 points. Markets in which the HHI is in excess of 2.
In most local markets. with an increase in the HHI of 566. The goals of the Conduct Plan include: “yielding the highest level of followership in the short-term” and “improving competitor conduct over the long-term. The specifics of ABI’s pricing strategy are governed by its “Conduct Plan. coupled with the significant increases in
concentration. with an increase of the HHI of at least 387 points. Beer Prices in the United States Today are Largely Determined by the Strategic Interactions of ABI. and in each of those six markets the parties combined market share is greater than 30%. The market concentration measures.822. In the past several years. 43. In six of the local geographic markets. ABI is the market share leader and issues its price announcement first. demonstrate that the acquisition is presumed to be anticompetitive.
. described above. 45. MillerCoors has followed ABI’s price increases to a significant degree.13 -
. The increases vary by region.”
Even if these concentration measures are modified to reflect ABI’s current partial ownership of Modelo.” a strategic
plan for pricing in the United States that reads like a how-to manual for successful price coordination. ABI’s Price Leadership 44. the Defendants will have a combined market share of approximately
46% post-transaction. MillerCoors. the effective levels of concentration would still support a presumption of illegality. B. but typically cover a broad range of beer brands and packs. and Modelo 1. In the United States. 42. purposely making its price increases transparent to the market so its competitors will get in line. ABI and MillerCoors typically announce annual price increases in late summer for
execution in early fall. The post-transaction HHI of the United States beer market will be greater than 2800. the post-merger HHI is at least 1.Case 1:13-cv-00127 Document 1 Filed 01/31/13 Page 13 of 27
HHI3 of at least 472 points in each of those 20 markets.
2.” and “Targeted – consider competition’s structure. The Momentum Plan is specifically designed to grow Modelo’s market share by shrinking the price gaps between brands owned by Modelo and domestic premium brands. Modelo has narrowed the price gap between its beers and ABI’s premium beers.” By pursuing these goals. ABI seeks to “dictate consistent and transparent competitive response. These narrowed price gaps frustrate ABI and MillerCoors because they result in Modelo gaining market share at their expense. Crown implemented its “Momentum Plan” with Modelo’s enthusiastic
support. Under the Momentum Plan.Case 1:13-cv-00127 Document 1 Filed 01/31/13 Page 14 of 27
46. 49. a “Front Line Driven Plan sends Clear Signal to Competition and Sets up well for potential conduct plan response. Modelo brand prices essentially remained flat despite price
increases from ABI and other competitors.
can clearly see the plan.” “Consistent – so competitors can predict the plan. has disrupted ABI’s pricing
strategy by declining to match many of the price increases that were led by ABI and frequently joined by MillerCoors.” 47. In or around 2008. allowing Modelo brands to achieve their targeted
. acting through Crown.” According to ABI. Modelo. The proposed merger would likely increase the ability of ABI and the remaining beer
firms to coordinate by eliminating an independent Modelo – which has increasingly inhibited ABI’s price leadership – from the market. 50.14 -
. encouraging consumers to trade up to Modelo brands. its Conduct Plan “increases the probability of [ABI] sustaining a price increase. By maintaining steady pricing while the prices of premium beer continues to rise.” As one ABI executive wrote. Modelo Has Constrained ABI’s Ability to Lead Prices Higher
In the past several years.” “Simple – so competitors can understand the plan. 48.
53. 51. Modelo brands experienced market share growth. particularly in areas with large Latino populations. . ABI anticipates even more rigorous
. After Modelo implemented its price gap strategy. The competition that Modelo has created by not following ABI price increases has
constrained ABI’s ability to raise prices and forced ABI to become more competitive by offering innovative brands and packages to limit its share losses and to attract customers.” An ABI presentation from November 2011 stated that ABI’s strategy was “Short-Term []: We must slow the volume trend of High End Segment and cannot let the industry transform.” Over the same time period. .15 -
. Competition between the ABI and Modelo brands has become increasingly intense
throughout the country. 52.” Owning the Modelo brands will enable ABI to implement that strategy. Because of the Momentum Plan. prices on the Modelo brands have increased more
slowly than ABI has increased premium segment prices. as ABI has observed. In internal strategy documents. the high-end segment has been gaining market share at the expense of ABI’s and MillerCoors’ premium domestic brands.Case 1:13-cv-00127 Document 1 Filed 01/31/13 Page 15 of 27
price gaps to premium beers in various markets. Thus. ABI has repeatedly complained about pressure resulting
from price competition with the Modelo brands: “Recent price actions delivered expected Trade up from Sub Premium. As the country’s Latino population is forecasted to grow over time. 54. due to non [high-end] increases. the “gap between Premium and High End has been reducing .” “While relative Price to MC [MillerCoors] has remained stable the lack of Price increase in Corona is increasing pressure in Premium. however it created additional share pressure from volume shifting to High End where we under-index. in recent years.” “Consumers switching to High End accelerated by price gap compression.
” – a Modelo brand is “Modelo Especial” – targeted at California’s Latino community.16 -
. which was “losing share” because of “price compression” between ABI and Corona. and ABI responded by dropping its price even further to stay competitive. . 55. Both MillerCoors and Modelo followed ABI’s price decrease. Here are some examples of how the Modelo brands have disciplined the pricing of the market leaders. some Modelo brands began to be priced competitively with
. Because of the aggressive pricing of the Modelo brands. Beginning in or about 2010. ABI recognized that Corona’s strength in California meant that “innovation [is] required. Modelo continued “eating [Budweiser’s] lunch” in California to the point where ABI’s Vice President of Sales observed that “California is a burning platform” for ABI. “Michelob Especial. 56. 57. ABI rescinded a planned September 2010 price increase because of the share growth of Modelo’s Corona brand. ABI’s Bud and Bud Light brands have reported “[h]eavy share losses” to Modelo’s Corona and Modelo Especial. . ABI implemented “aggressive price reductions .” that were seen as “specifically targeting Corona and Modelo. b.Case 1:13-cv-00127 Document 1 Filed 01/31/13 Page 16 of 27
competition with Modelo. 58. acting through Crown. Texas
intense.” Nonetheless. ABI’s concern about losing market share to Modelo in California caused a full-
blown price war. In 2012. ABI also considered launching a new line.” These aggressive discounts appear to have been taken in support of ABI’s expressed desire to discipline Modelo’s aggressive pricing with the ultimate goal of “driv[ing] them to go up” in price. Consumers in California markets have been the beneficiaries of Modelo’s aggressive
pricing. a. has not followed ABI-led price increases in local markets
in California. California
By 2011. aggressive pricing on some Modelo brands forced ABI to lower its prices in
local Texas markets.” ABI ultimately chose to respond by delaying a planned price increase to “limit the impact of price compression on our premiums as a result of the Corona . ABI set “pricing. According to an ABI Regional Vice President of Sales. Modelo. ABI became concerned that “price compression on Premiums by imports” would cause premium domestic customers to trade up to the import segment.” and that its planned price increase was “in jeopardy. Modelo had begun gaining market share at ABI’s expense.
increased innovation. including the ABI brands in New York City. sought to narrow the gap in price
between its brands and those of domestic premiums. meant that ABI would “need to respond in some fashion. 60. ABI’s Vice President of Sales observed that the price moves on Modelo’s Corona brand. and adjust its marketing strategy to better respond to competition from the Modelo brands. acting through Crown. The Elimination of Modelo Would Likely Result in Higher Coordinated Pricing by ABI and MillerCoors
61. In both Houston and San Antonio. ABI recognized Modelo’s aggressive price strategy as an issue contributing to its market share loss. packaging and retail activity targets to address [Modelo’s] Especial” brand. and corresponding reductions by MillerCoors and Heineken.” C.17 -
. c. Ultimately. . . the leading domestic brand throughout the state. 59. Modelo brands also benefited from price promotions and regional advertising.Case 1:13-cv-00127 Document 1 Filed 01/31/13 Page 17 of 27
ABI’s Bud Light. It has also thwarted ABI’s vision of leading industry prices upward with . New York City
In the summer of 2011. deeper discount. ABI also lowered the price of its Bud Light Lime brand to match Modelo Especial price moves.
The case could be made that Crown’s lack of increases has a bigger influence on our elasticity than MillerCoors does.18 -
ABI is intent on moderating price competition. lifting the price of Modelo beers would allow ABI to further increase the prices of its existing brands across all beer segments. In general.” ABI documents show that it is increasingly worried about the threat of high-end brands.Case 1:13-cv-00127 Document 1 Filed 01/31/13 Page 18 of 27
MillerCoors and others following.
. ABI.] [and] [2] Building discipline in our teams to prevent unintended initiation or acceleration of value-destroying actions. would prefer a market not characterized by aggressive pricing actions to take share because “[t]aking market share this way is unsustainable and results in lower total industry profitability which damages all players long-term. ABI would have strong incentives to raise the prices of its beers were it to acquire
Modelo. As one ABI executive stated in June 2011. as the market leader in the premium and premium-plus segments. and as a brewer with an approximate overall national share of approximately 46% of beer sales post-acquisition. such as Modelo’s. D. Second.” 63. First. The Loss of Head-to-Head Competition Between ABI and Modelo Would Likely Result in Higher Prices on ABI-Owned Brands
62. As it has explained internally: “We must
defend from value-destroying pricing by: [1] Ensuring competition does not believe they can take share through pricing[. because a significant percentage of those lost sales will go to other ABI-owned brands. constraining its ability to increase premium and sub-premium pricing. “[t]he impact of Crown Imports not increasing price has a significant influence on our volume and share.” ABI’s acquisition of full ownership and control of Modelo’s brands and brewing assets will facilitate future pricing coordination. coupled with its newly expanded portfolio of brands. as the price leader. ABI stands to recapture a significant portion of any sales lost due to such a price increase.
The Loss of Head-to-Head Competition Between ABI and Modelo Will Harm Consumers Through Reduced New Product Innovation and Product Variety
65. ABI decided to “Target Mexican imports” and began planning three related ways of doing so. ABI likely would unilaterally raise prices on the brands of beer that it owns as
a result of the acquisition. in a project that the responsible ABI manager described as a “Corona killer. ABI would license trademarks to another tropical-style beer.” 66. going so far as to mimic Corona’s distinctive clear bottle. First. ABI would acquire the U. E. ABI’s Bud Light Lime. 67.S. Further. ABI would no longer have the same incentives to introduce new brands to take market share from the Modelo brands.
Modelo’s growth in the United States has repeatedly spurred product innovation by ABI. ABI would acquire a “Southern US or Mexican craft brand.19 -
.” Another executive commented that the commercial itself was “[v]ery similar” to one Modelo.
.” and use it to compete against Mexican imports.
Therefore. and greatly expand Presidente’s distribution in the United States. the product was “invading aggressively and directly the Corona territory. sales rights to Presidente beer. Finally. The proposed acquisition’s harmful effect on product innovation is already evident.Case 1:13-cv-00127 Document 1 Filed 01/31/13 Page 19 of 27
64. As one Modelo executive noted after watching a commercial for Bud Light Lime. the number one beer in Central America. launched in 2008. through Crown. If
ABI were to acquire Modelo and enter into the supply agreement with Constellation. was also targeted at Corona (commonly served
with a slice of lime).
In 2011. Second. ABI would be forbidden from launching a “Mexican-style Beer” in the United States. was developing at the same time.
68. (ii) the substantial sunk costs for promotional and advertising activity needed to secure the distribution and placement of a new entrant’s beer products in retail outlets. and (v) the time and cost of developing a network of beer distributors and delivery routes. 69. ABSENCE OF COUNTERVAILING FACTORS New entry and expansion by existing competitors are unlikely to prevent or remedy the
acquisition’s likely anticompetitive effects. combined with the loss of head-to-head competition between ABI and Modelo. Defendants thus evidently structured their transactions with a purported “remedy” in mind: the sale of Modelo’s interest in Crown to Constellation.
effects.Case 1:13-cv-00127 Document 1 Filed 01/31/13 Page 20 of 27
F. of sufficient size to offset the acquisition’s significant anticompetitive effects. and substantial likelihood of anticompetitive
71. DEFENDANTS’ PROFFERED “REMEDY” DOES NOT PREVENT THE ANTICOMPETITIVE EFFECT OF ABI’S ACQUISITION OF MODELO In light of the high market concentration. (iii) the difficulty of securing shelf-space in retail outlets.20 -
.S. is likely to result in unilateral price increases by ABI and to facilitate coordinated pricing between ABI and remaining market participants. ABI’s acquisition of the remainder of Modelo is illegal. Barriers to entry and expansion within each of these harmed markets include: (i) the substantial time and expense required to build a brand reputation. it cannot
demonstrate acquisition-specific and cognizable efficiencies that would be passed-through to U. (iv) the time and cost of building new breweries and other facilities. coupled with a supply agreement that gives Constellation the right to
. VII. 70. Although ABI asserts that the acquisition would produce efficiencies. VI.
produce in the relevant markets.
leadership. . . A. Constellation Has Not Shown Modelo and Crown’s Past Willingness to Resist ABI’s “Leader-Follower” Industry Plan
72. Constellation’s executives have sought to follow ABI’s pricing lead. a Crown executive stated that Constellation’s plan for annual price increases “put at risk the relative success” of the Momentum Plan. however. While Modelo supported narrowing the gap between the prices of its brands and those of ABI premium brands.” Constellation. Crown executives have recognized the differing incentives. Constellation’s CFO wrote to his counterpart at Crown that he thought price increases on the Modelo brands were viable “if domestics [i. 73. . of
their two owners.Case 1:13-cv-00127 Document 1 Filed 01/31/13 Page 21 of 27
import Modelo beer into the United States.e. “Modelo has a higher interest in building volume so that they can cover manufacturing costs. This proposal is inadequate to remedy Defendants’ violation of Section 7 of the Clayton Act. gain manufacturing profits and build share as the brand owners. Bud and Bud Light] keep going up” but worried that “Modelo gets a vote as well. As one Crown executive observed in a March 2011 email. Constellation’s Managing Director wrote to Crown’s CEO: “Since ABI has already announced an October general price increase I was wondering if you are considering price increases for the Modelo portfolio? . From a positioning and image perspective I believe it would be a mistake to allow the gaps to be narrowed … I think ABI’s announcement gives you the opportunity to increase profitability without having to sacrifice significant volume.” And in June of 2012. as it relates to pricing.”
.” Similarly. in December of 2011.21 -
. “is interested primarily in the financial return on a short-term or at the most on a mid-term basis.
The contingent supply relationship between ABI and Constellation would also facilitate
joint pricing between the two companies. but they blocked it anyway in an effort to secure unwarranted benefits for Constellation. Constellation would no longer be so constrained. Crown’s fears appear well-grounded. In its Complaint. This is in no small part the result of Constellation’s actions over the term of the joint venture to limit investment in the business in the areas of manpower and marketing.
Post-transaction. ABI and Constellation will have every incentive to act together on pricing because of the vast profits each would stand to make if beer prices were to increase. 78. Crown’s CEO wrote to Constellation’s CEO after Defendants’ proposed “remedy” was announced: “the Crown team [] is extremely anxious about this change in ownership. Moreover. seeking to drive profits at all costs. Modelo sued Constellation for breach of
fiduciary duty.” 77. . Crown executives were concerned about what would happen if Constellation gained
complete control of Crown. . 75. In 2010. Constellation would be free to follow ABI’s lead. Constellation would not need to ask Modelo for permission to follow
ABI’s price-leadership. I see a management issue brewing. they would be required to answer to Crown’s new sole owner – Constellation.Case 1:13-cv-00127 Document 1 Filed 01/31/13 Page 22 of 27
74. Even if Crown’s own
executives wanted to continue an aggressive pricing strategy. there would be day-to-day interaction
. Post-acquisition.” 76. after Constellation had refused to invest in marketing the Modelo brands.” Constellation’s CEO responded internally: “[Q]uite something.” In another email. Post-acquisition. Modelo alleged “Constellation [] knew that [Crown] management’s plan was in Crown’s best interests. Crown’s CEO wrote to his employees that Constellation had been “consistently non supportive of the business through Crown’s history .22 -
It would be dependent on ABI for its supply. The loss of Modelo also. ABI would
need to reach agreement with both Modelo and Constellation to ensure that pricing for the Modelo brands followed ABI’s lead. business. After the proposed transactions. ABI and Modelo have sought to avoid acting together on matters of competitive
significance in the relevant markets in the U. by itself. 79.S. 81. B. 80. transportation of product. ABI and Constellation are more likely to decide on mutually profitable pricing.23 -
. and that no one could predict or control. Defendants’ proposed remedy puts . Constellation would be a mere participant in ABI’s supply chain under the proposed arrangement. Constellation Will Not Be an Independent Firm Capable of Restoring HeadTo-Head Competition Between ABI and Modelo
82. The lucrative supply agreement from which Constellation seeks to gain billions of dollars in profits itself incentivizes Constellation to keep ABI happy to avoid terminating Constellation’s rights in ten years. which are horizontal competitors. Thus. ABI and Constellation would have countless opportunities that could creatively be exploited. Today.
Even if Constellation wanted to act at odds with ABI post-transaction. working together on price would be easier because only Constellation would need to follow or agree with ABI.S. Constellation will own no brands or brewing or bottling assets of its own. – to insulate ABI from Modelo’s U. and new product innovation. it would be
unlikely to do so. Accordingly. Post-acquisition. to allow ABI to reward Constellation (or refrain from punishing Constellation) in exchange for Constellation raising the price of the Modelo brands.S. facilitates interdependent pricing. those firewalls would be gone. packaging.Case 1:13-cv-00127 Document 1 Filed 01/31/13 Page 23 of 27
between ABI and Constellation on matters such as volume. Unlike
ABI and Modelo. they have built in several firewalls – including ABI’s exclusion from sensitive portions of Modelo board meetings concerning the sale of Modelo beer in the U.
ABI could terminate the contingent supply agreement at any time. creating a combined firm with reduced incentives to lower price or increase innovation or quality. among others: (a) Eliminating Modelo as a substantial.Case 1:13-cv-00127 Document 1 Filed 01/31/13 Page 24 of 27
Constellation in a considerably weaker competitive position compared to Modelo.S. 84.S. VIOLATIONS ALLEGED 85. independent. in violation of Section 7 of the Clayton Act. 15 U. The proposed acquisition of the remainder of Modelo by ABI would likely substantially
lessen competition – even after Defendants’ proposed “remedy” – in the relevant markets.24 -
. it provides no guaranteed protection for consumers that any of its terms will be followed if ABI is able to secure antitrust approval for this acquisition. The supply agreement may also be renegotiated at any time during the 10-year period. The transactions would have the following anticompetitive effects.C. The United States incorporates the allegations of paragraphs 1 through 84 above as if set
forth fully herein. (b) substantially lessened. § 18. it might simply withhold or delay supply to punish Constellation. And if ABI is
displeased with Constellation’s strategy in the United States. Violation of Clayton Act § 7. (c) Prices of beer would likely increase to levels above those that would Competition generally in the relevant markets would likely be
Thus. VIII. 83. and competitive force
in the relevant markets. § 18 ABI Agreement to Acquire Remainder of Modelo 86.C. which owns both brands and breweries. 15 U.
IX. 87. forcing millions of consumers in the United States to pay higher prices. its stock. (b) The Defendants be permanently enjoined and restrained from carrying out The proposed acquisition be adjudged to violate Section 7 of the Clayton
the Agreement and Plan of Merger dated June 28. (c) (d) and proper.Case 1:13-cv-00127 Document 1 Filed 01/31/13 Page 25 of 27
prevail absent the transaction. understanding. or from entering into or carrying out any agreement. REQUEST FOR RELIEF The United States requests that: (a) Act.C. and (f) The acquisition would provide ABI with a greater incentive and ability to
increase its pricing unilaterally. 15 U. and ABI.25 -
.S. (d) Quality and innovation would likely be less than levels that
would prevail absent the transaction. between Modelo. The United States be awarded costs of this action. 2012. 2012. or plan by which ABI would acquire the remaining interest in Modelo. Diblo. (e) The acquisition would likely promote and facilitate pricing coordination in
the relevant markets. and the “Transaction Agreement” dated June 28. § 18. or any of its assets. and The United States be awarded such other relief as the Court may deem just
FL Minneapolis/St Paul. TN Las Vegas. DC San Francisco/Oakland. UT Tampa/St Petersburg. AZ Raleigh/Greensboro. MN Denver. CA United States 27
. FL Hartford. TX Orlando. CA Baltimore. CA Boston. FL Houston. GA Sacramento. MA San Diego. AL Memphis. VA Chicago. CO Birmingham/Montgomery. NV Dallas/Ft Worth. NC Miami/Ft Lauderdale.Case 1:13-cv-00127 Document 1 Filed 01/31/13 Page 27 of 27
Combined Market Share 64 57 56 55 56 50 47 52 52 49 46 51 51 48 50 48 51 48 35 43 41 40 43 39 36 34 46 Post‐ Merger HHI 4886 3900 3720 3660 3544 3525 3510 3408 3370 3332 3277 3273 3265 3139 3121 3067 3053 3044 2919 2504 2489 2382 2353 2242 1944 1822 2866 Delta HHI 1000 739 621 840 531 733 486 503 482 832 643 570 1207 564 485 964 663 472 542 778 433 697 387 651 465 563 566 Market Oklahoma City. TX Jacksonville. OK Salt Lake City. FL Los Angeles. CT/Springfield. NY Atlanta. IL New York. CA Phoenix/Tucson. MD/Washington. MA Richmond/Norfolk.
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