Counsel for InBev N.V./S.A., retained Professor Kenneth G. Elzinga of the University of Virginia and Cornerstone Research to respond to a private antitrust suit that threatened to derail what ultimately became the largest cash acquisition in history.
Retained by Sullivan & Cromwell
Counsel for InBev N.V./S.A., retained Professor Kenneth G. Elzinga of the University of Virginia and Cornerstone Research to respond to a private antitrust suit that threatened to derail what ultimately became the largest cash acquisition in history. The suit, brought in the U.S. District Court for the Eastern District of Missouri, was filed while InBev’s proposed acquisition of Anheuser-Busch was under review at the Department of Justice and at various foreign competition agencies. Plaintiffs requested a preliminary injunction to block the acquisition. Professor Elzinga filed a Declaration in the district court case explaining why the acquisition would not lessen competition. On November 18, 2008, InBev completed the $52 billion acquisition after receiving regulatory approval from the U.S. Department of Justice and foreign competition agencies. On the same day, the district court judge denied plaintiffs’ request for a preliminary injunction.
Prior to the acquisition, Anheuser-Busch was the largest brewer in the U.S. with a market share of 48%. InBev had only a small presence in the U.S. market with no U.S. production facilities, but had extensive international operations and was one of the world’s largest brewers. Plaintiffs alleged that InBev’s presence outside the U.S. made it a potential entrant to the U.S. market that effectively disciplined the market conduct of Anheuser-Busch and other U.S. brewers. Plaintiffs conjectured that InBev was “well equipped and well financed to be able to enter the market de novo, building its own breweries and establishing its own national distribution network.” Without the threat of entry by InBev, plaintiffs claimed, incumbent U.S. brewers would raise beer prices, reduce product diversity, and suppress smaller competitors.
The economic analysis conducted by Professor Elzinga and Cornerstone Research demonstrated that the InBev–Anheuser-Busch transaction posed no threat to competition in the U.S. market for beer, and showed that plaintiffs’ potential competition theory was not grounded in the economics of the industry. In his Declaration, Professor Elzinga testified that InBev was not poised to enter the U.S. market with domestic brewing capacity and a new distribution network, that there is no historical precedent for large-scale, de novo entry into the U.S. beer market, and that recent InBev actions contradicted plaintiffs’ claim that it was likely to undertake large-scale U.S. entry.
Professor Elzinga also showed that plaintiffs’ theory was economically implausible because large-scale U.S. production of InBev’s flagship brands would erode the brands’ value as high-quality imports and require substantial, high risk, long-term investment to re-position them as essentially new, domestic brands. His Declaration also explained that Anheuser-Busch faces significant competition in the U.S. market from MillerCoors and other domestic and foreign brewers, and that the merger would not give the combined firm any more market power than Anheuser-Busch had as a stand-alone firm.
The court denied plaintiffs’ request for an injunction, noting that “InBev has provided objective evidentiary support for its claim that it was not a potential de novo entrant into the United States beer market,” and that “…[d]efendants have provided significant economic facts to support a finding that InBev cannot realistically be considered a potential competitor….”