DOJ Antitrust Highlights

August 23, 2016

Senator Grassley Calls For Hearings on Consolidation of Seed and Ag Chemical Industry

On August 23, 2016, Senate Judiciary Committee Chairman Chuck Grassley announced a hearing on the increasing consolidation within the seed and chemical industry.

The hearing will be held in late September. Senator Grassley said that “The seed and chemical industries are critical to agriculture and the nation’s economy, and Iowans are concerned that this sudden consolidation in the industry could cause rising input costs in an already declining agriculture economy.” The hearing will focus on the transactions currently being reviewed by antitrust regulators, and the current trend in consolidation of the seed and chemical industries.

While details have not been finalized, views from the companies under review by antitrust regulators, consumers and antitrust experts will all be represented at the hearing. “In most instances when you have less competition, prices go up, and consumers pay more,” he said in an interview.

August 16, 2016

Senator Grassley Urging the FTC and DOJ to Coordinate Reviews of Seed Mergers

by Doyle, Barlow & Mazard PLLC

On August 16, 2016, Senator Charles Grassley (R-IA), chairman of the Senate Judiciary Committee, wrote a letter to FTC Chairwoman Edith Ramirez and DOJ Antitrust Division Head, Renata Hesse in which he expressed concerns regarding two major mergers in agricultural technology and seeds that could potentially hurt competition in the industry and make it harder for smaller companies to compete.

The senator urged the FTC, which is reviewing the purchase of Syngenta AG (“Syngenta”) by the China National Chemical Corporation (“ChemChina”), and the DOJ, which is analyzing the merger of The Dow Chemical Company (“Dow”) and E. I. du Pont de Nemours and Company (“DuPont”), to coordinate their reviews. Senator Grassley wrote that “it is important that these transactions not be reviewed in isolation.” He urged the DOJ and FTC to collaborate and to gain input from the Department of Agriculture as part of their analysis of the agricultural biotechnology and seed industry and the competitive impact of these deals.

Senator Grassley also expressed concern that “the convergence of these proposed transactions – as well as others currently being discussed – will have an enhanced adverse impact on competition in the industry and raise barriers to entry for smaller companies”; “further concentration in the industry will impact the price and choice of chemicals and seed for farmers, which ultimately will impact choice and costs for consumers”; and “further consolidation will diminish critical research and development initiatives.”

July 28, 2016

DOJ Sues to Block Health Insurance Mergers

by Doyle, Barlow & Mazard PLLC

On July 21, the U.S. Department of Justice’s Department of Justice (“DOJ”) and several state attorneys general filed two lawsuits, challenging two major health insurer mergers: (1) Anthem, Inc.’s (“Anthem”) proposed $48.4 billion purchase of Cigna Corporation (“Cigna”) and (2) Aetna Inc.’s (“Aetna”) planned $37 billion acquisition of Humana Inc. (“Humana”).

While the cases are substantially different, both complaints contain some similar allegations. Both complaints describe the proposed mergers as consolidation of the “big five” insurers to the “big three, each of which would have almost twice the revenue of the next largest insurer.” Taken together, they would cut the number of major health insurers from five to three, with UnitedHealth Group Incorporated (“UnitedHealth”) being the only other remaining large player. Both complaints say the mergers will harm competition by “eliminating two innovative competitors – Humana and Cigna – at a time when the industry is experimenting with new ways to lower healthcare costs.” Both complaints allege that the mergers will restrain competition in the sale of individual policies on the public insurance exchanges.

However, the cases are different in that they focus on different product and geographic markets and that the Anthem/Cigna complaint contains a monopsony claim while the Aetna/Humana complaint does not. The Anthem/Cigna complaint alleges that that merger will restrain competition in the “purchase of healthcare services by commercial health insurers,” as well as the sale of commercial health insurance to national accounts and large-group employers, and the sale of individual policies on the public insurance exchanges. The Anthem/Cigna complaint also includes an allegation that the merger would substantially increase Anthem’s ability to dictate the reimbursement rates it pays hospitals, doctors, and healthcare providers, threatening the availability and quality of medical care. The DOJ alleges that Anthem already has bargaining leverage over healthcare providers and this acquisition would make the situation worse in 35 metropolitan areas. This is otherwise known as a monopsony theory. The Aetna/Humana complaint alleges anticompetitive effects only in the sale of Medicare Advantage policies to individual seniors and the sale of individual polices on the public exchanges. The Aetna complaint does not charge a violation in the market for the purchase of healthcare services, and therefore does not rely on a monopsony theory. Even where the complaints overlap with respect to product market as is the case with the sale of individual policies on the public insurance exchanges, the geographic markets are different.

July 16, 2016

DOJ NEEDS TO STEP UP TO THE PLATE TO PROTECT BEER CONSUMERS

by Doyle, Barlow & Mazard PLLC

Antitrust enforcement has become front and center in the American political economic debate. The Democratic Platform included a plank for greater antitrust enforcement for the first time since 1968. There is increasing evidence that large mega-mergers have cost consumers dearly in the pocket book, increased economic inequality and dampened economic opportunity. In a recent speech Senator Elizabeth Warren highlighted the perils to industries in which companies have grown so large and markets become so concentrated that monopolists can crush their competitors and lock out new entrants.

The beer industry readily falls into this category, with the United States market dominated by two players, Anheuser-Busch InBev (ABI), and MillerCoors, a joint venture between South African controlled SABMiller and Molson Coors. The pending merger between ABI the largest global beer company, and SABMiller, the second largest global beer company, will truly leave ABI in a position in which it can crush its competitors and stifle new entry. The Justice Department has been examining the merger but only tough comprehensive action by DOJ can prevent the significant threat of Brazilian owned ABI becoming the kingpin of the market.

Using the best lawyers, economists and lobbyists money can buy, ABI has tried to engage in a slight of hand with Congress and the DOJ. It claims that there are simply no competitive issues from this merger because it plans to divest all of SABMiller’s U.S. operations, which are held by the MillerCoors joint venture, to Molson Coors. And, while that may appear to be correct at first glance, one doesn’t have to dig too deep to pierce this façade and see major competitive problems looming in the future for the beer industry.

July 15, 2016

ValueAct Pays Record Fine for HSR Violation

by Doyle, Barlow & Mazard PLLC

On July 12, 2016, ValueAct agreed to pay a record fine of $11 million to settle the Department of Justice Antitrust Division’s (“DOJ”) allegations that ValueAct violated the reporting requirements under of the Hart-Scott-Rodino Act (“HSR Act”) by improperly relying on the “investment only” exemption.

HSR Exemption

The HSR Act imposes notification and waiting period requirements for transactions meeting certain size thresholds to ensure that such transactions undergo premerger antitrust review by the DOJ and the Federal Trade Commission. The HSR Act has a narrow exemption for acquisitions of less than 10 percent of a company’s outstanding voting securities if the acquisition is made “solely for the purposes of investment” and the purchaser has no intention of participating in the company’s business decisions. In other words, if a person or company intends to be a passive investor and the investment in securities is less than 10 percent of a company’s outstanding securities, the exemption may apply.

June 2, 2016

Preventing Competitive Harm In AB InBev-SABMiller Merger

by Doyle, Barlow & Mazard PLLC

Few missions are as important to the U.S. Department of Justice’s Antitrust Division as preventing anti-competitive mergers or permitting them with adequate conditions to prevent competitive harm. After all, a merger is forever — fixing it after the fact is too messy.

The DOJ is currently investigating Anheuser-Busch InBev SA/NV’s (“ABI”) acquisition of SABMiller PLC, the largest beer merger in history, as well as its proposed divestiture of SABMiller’s interest in the MillerCoors LLC Joint Venture to Molson Coors Brewing Company. These proposed transactions lock in place the two largest beer competitors in the United States while fundamentally changing the dynamics in the beer industry for smaller brewers, distributors, wholesalers and retailers. While ABI maintains that the proposed transactions do not change the competitive landscape, the DOJ knows better.

Indeed, the DOJ’s recent approach in approving Charter Communications Inc.’s acquisition of Time Warner Cable Inc. (“TWC”) and its related acquisition of Bright House Networks LLC to create New Charter, the merged firm, is instructive. Despite no geographic overlap in any local market, the DOJ required comprehensive behavioral conditions to prevent New Charter from engaging in future anti-competitive conduct against its smaller rivals. The DOJ should take the same tough and sophisticated approach to protecting consumers from the much larger ABI/SABMiller merger and the new ownership by Molson Coors, which will create two beer giants that will dwarf its rivals.

May 31, 2016

AAI, FWW and NFU Urge DOJ to Challenge Dow/DuPont Merger

by Doyle, Barlow & Mazard PLLC

On May 31, 2016, the American Antitrust Institute (“AAI”), Food & Water Watch (“FWW”) and National Farmers Union (“NFU”) sent a letter to the Principal Deputy Assistant Attorney General, Renata Hesse, urging the Antitrust Division of the U.S. Department of Justice (“DOJ”) to challenge the proposed Dow/DuPont merger.

The letter details the groups’ analysis of the proposed merger, which would create the largest biotechnology and seed firm in the United States. According to the AAI, FWW, and NFU, this transaction would further consolidate an already highly concentrated biotechnology industry and would likely curtail innovation, raise prices, and reduce cultivation choices for farmers, consumers and the food system.

The groups urge the DOJ to critically review the implications of the deal. Their letter outlines three major areas of concern, including eliminating head-to-head competition in the corn and soybean markets, reducing vital innovation competition, and creating a large, integrated “platform” of traits, seeds, and chemicals that would make it harder for smaller biotechnology rivals to compete.

May 19, 2016

DOJ Approves Charter’s Acquisition of TWC With Behavioral Conditions

by Doyle, Barlow & Mazard PLLC

On April 25, 2016, the DOJ entered into settlement agreement approving Charter Communications, Inc.’s (“Charter”) acquisition of Time Warner Cable Inc. (“TWC”) and its related acquisition of Bright House Networks, LLC to create New Charter as long as the parties agreed to certain behavioral conditions.

DOJ’s Vertical Concerns Related to the Creation of New Charter

New Charter became the second largest cable company and third largest Multichannel Video Programming Distributor (“MVPD”). MVPDs include cable companies such as Comcast, TWC and Charter, but also direct broadcast satellite providers (i.e., DirectTV and Dish Network) and telephone companies like AT&T and Verizon.

April 8, 2016

Why DOJ Needs To Extend Anheuser-Modelo Consent Decree

by Doyle, Barlow & Mazard PLLC

Corona’s advertising slogan encourages consumers to find their beach, but consumers may soon have trouble finding Corona.

In 2013, the U.S.Department of Justice required Anheuser-Busch InBev (ABI) to grant a perpetual and exclusive U.S. license to some of its Grupo Modelo Mexican beer brands that were at the time competing in the U.S. market, including Corona Extra, Modelo Especial and other popular brands, to Constellation Brand Inc.[1] In addition to the sale, the DOJ put a number of conditions on ABI to ensure that the Grupo Modelo Mexican beer brands, including Corona, remained competitive in the U.S. market, including critical protections to make sure distribution was open and independent. This summer will be the third anniversary of the sale of the Modelo American portfolio to Constellation and the lapse of important protections could leave many Corona consumers scrambling to find their beer of choice.

Prominent among the conditions the DOJ required in its consent decree was the sale of the Piedras Negras Brewery in Nava, Coahuila, Mexico to Constellation. The sale was required so Constellation can brew the Modelo brands itself for importation into the United States, and not rely on its chief competitor, ABI. Accompanying the sale of Piedras Negras was a condition that Constellation obtain its supply of necessary materials from ABI for a three-year period. That provision is about to lapse.

A couple of months ago, ABI and Constellation agreed to extend their supply agreement by another year, making Constellation dependent on ABI for necessary inputs through June 2017. However, this reliance on its chief rival for inputs with no extension of other important protections will be a recipe for disaster, as Constellation is still in the transition of becoming a fully independent brewer. Reliance on ABI has not entirely helped it in its transition, and Constellation is still in a very precarious position. For example, there have been two recalls of Corona due to defective glass bottles in less than two years.

In addition to the supply agreement, the DOJ required protections for independent ABI beer distributors carrying the Modelo American portfolio brands, which have been pivotal to the success of Constellation’s stewardship of the Modelo American portfolio brands. In its review of the ABI/Modelo deal, the DOJ stated that “[e]ffective distribution is important for a brewer to be competitive in the beer industry.” Recognizing that independent distribution is the artery that spurs consumer choice and the explosion of craft beer, the DOJ prohibited ABI from adversely affecting a distributor’s ability to carry the Modelo American portfolio brands, including Corona, for a three-year period.

ABI is known to offer incentives and other tactics to exclude craft and other non-ABI brands from independent distributors’ brand portfolios. In fact, ABI’s current distributor incentive program already encourages the exclusion of non-ABI brands in exchange for marketing payments and favored position. ABI will soon be able to use these incentives and tactics against the Modelo American portfolio brands, including Corona. Accordingly, there is substantial concern that ABI will attempt to ice Corona out of many distributors’ portfolios once this protection provision expires this summer.

Indeed, ABI has strategically timed the roll out of its Mexican beer brand Estrella Jalisco (also under the Modelo brand, which is controlled by ABI outside of the United States), designed to compete with Corona in the U.S. market, to roughly coincide with the lapse of these protection provisions as well as the important Cinco de Mayo and kick-off of summer sales seasons. ABI will undoubtedly push its independent distributors to shift focus away from the Modelo American portfolio brands, including Corona, to Estrella Jalisco once the DOJ protections expire in June.

The DOJ’s consent decree and the protections put in place for distributors of the Modelo American portfolio brands have undoubtedly allowed it to flourish over the last few years in the United States. Hence, Constellation’s growth has exploded since the acquisition of the U.S. rights to the Modelo American portfolio brands, and its growth has far outpaced the overall growth of the U.S. beer market.

To keep the U.S. beer markets competitive, the DOJ needs to act to extend the consent decree and the protection of Constellation through independent distributors or risk losing this important source of competition that gives consumers choice and keeps prices down. The marketplace will be able to “find their beach” if ABI is prevented from pushing out the competition.

[1] Final Judgment, U.S. v. Anheuser-Busch InBev SA/NV and Grupo Modelo S.A.B. de C.V., No. 13-cv-00127-RWR (D.D.C. Oct. 24, 2013), ECF No. 48.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

January 27, 2016

Getting Distribution Right is the Key to Successful Beer Remedies

by Doyle, Barlow & Mazard PLLC

In an indirect way, today’s craft beer renaissance in the United States was made possible by prohibition. The Eighteenth Amendment to the Constitution, normally referred to as prohibition, was in part a reaction to the system of “tied houses” that dominated the alcohol retail market. Brewers at the time exerted tremendous exclusive control over retailers and used that control to pressure sales without concern for the safety of customers or the general public. When prohibition was repealed, the states were tasked with putting in place systems that would prevent a repeat of this harmful state of affairs. The answer was simple, they created a three-tiered system where independent distributors stand between brewers and independent retailers.

The three-tiered system was put in place to prevent brewers from having too much control over what consumers purchase. Truly independent distributors and retailers want to sell beer driven by consumer demand, and do not want to be beholden to one or two powerful brewers. Consumers can seek out whatever beer tastes the best, and retailers can get a diverse array of brands from their independent distributor.

However, large beer brewers are actively working to reverse the benefits of a three-tiered system by exerting control over distribution. To be sure, craft brewers are raising alarm bells over Anheuser-Busch InBev (ABI) incentive programs that significantly reward distributors whose ABI sales reach 98% of their total volume. Besides employing its incentive programs, ABI has become the largest and fastest growing distributor in the United States. ABI is also adding retailer locations at a fast clip so it is involved in all three tiers in various locations around the country. Recently, ABI has employed a strategy of actually purchasing craft brewers in an effort to destroy the craft brews that do not sell out. Indeed, ABI recently announced purchases of Four Peaks Brewing and Breckenridge Brewery. ABI’s purchases of craft brewers harm the remaining independent craft brewers in a round about way. Distributors carry craft brews to meet retailers and its consumers demand for craft brews, but with these craft brew purchases, ABI can replace independent craft brands currently carried by a distributor for ABI owned craft brands. ABI’s move into craft brews allows distributors to meet the demand for craft beer while also hitting ABI incentive targets. Accordingly, distributors will likely carry fewer independent craft brews in the future.