Twenty-three residents of Oregon, Washington and California are suing to enjoin the announced $100 billion merger of multinational beer brewers Anheuser-Busch Inbev (ABI) and SABMiller. A merger of the two corporations — which also involves household American companies, Anheuser-Busch and Miller Brewing Company–would combine the largest and second-largest brewers in the United States.
The December 1, 2015 complaint filed in the U.S. District Court for the District of Oregon presents multiple theories of competitive harm to consumers in the form of higher beer prices fewer choices and diminished quality. The plaintiffs’ main argument centers around beer distribution networks and the larger companies’ ability to squeeze smaller brewers’ access to distributors, hence limiting the availability of craft brews—selections entertainingly illustrated in the complaint as “artfully made classics . . . as well as more unusual brews like Breckenridge Vanilla Porter, and the super hoppy Palate Wrecker from Green Flash Brewing Co.”
Beyond its interesting theory of economic impact, this suit is notable because it flips the usual process of merger challenges, where the federal government first completes its antitrust review prior to any suits by private parties. Business decision-makers often think of the Federal Trade Commission (FTC) and Department of Justice (DOJ) as the main antitrust hurdle standing in the way of a deal. Although it is true that these agencies are often the ones to bring an action, Section 7 of the Clayton Act (which prohibits anticompetitive mergers and acquisitions) can also be enforced by competitor companies, private individuals and state attorneys general.
While private suits do not frequently precede government enforcement action, they do happen. Just recently the U.S. Court of Appeals for the Ninth Circuit affirmed a district court decision blocking the merger of St. Luke’s Health System and Saltzer Medical Group in Idaho. Similar to the ABI-SABMiller litigation, a group of competitor hospitals sued to enjoin the merger before governmental authorities had completed their review of the merger. In that case, the FTC and the State of Idaho later filed a separate case in March 2013, and the two cases were subsequently consolidated.
There are a few pragmatic reasons why private enforcement is rarely initiated prior to the government announcing its intentions towards the transaction. First, a private plaintiff decrying a merger in court as illegal is left in an awkward position if the FTC or DOJ subsequently approves the deal. Second, a suit by a private company to block a competitor’s deal could be viewed as self-serving and lack the credibility of an enforcement action brought by the United States. Finally, the federal enforcement agencies are well-staffed with professionals dedicated to this line of work and are often better equipped to conduct the requisite economic analyses that may be prohibitively expensive for a private-party.
One possible explanation for the private citizens’ decision to sue first in the ABI-SABMiller litigation could be the perceived foot-dragging by the federal agencies. The complaint highlights prior deals by ABI, resulting in increased concentration in the American beer market. The complaint implies that the DOJ made a mistake in permitting ABI to acquire large Mexican brewer, Grupo Modelo, stating “Despite warnings and complaints raised at the time of the Justice Department’s settlement in 2013 . . . these warnings were ignored by the Department of Justice and the court which ultimately approved the settlement.” Plaintiffs claim that in hindsight, the acquisition resulted in injury to competition.
As the ABI-SAB Miller litigation moves forward simultaneously with the federal government’s review of the merger, it will be interesting to see what happens. It is unlikely that the suit will place any meaningful pressure on the government to scrutinize the deal more closely than it already is. On the other hand, if the government blesses the merger- with or without divestitures, will this leave the plaintiffs high and dry? For now, it seems like a good idea to crack open a cold one and watch the action play out.