    [Senate Hearing 114-877]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 114-877

                      ENSURING COMPETITION REMAINS ON TAP:
                         THE AB INBEV/SABMILLER MERGER
                          AND THE STATE OF COMPETITION
                              IN THE BEER INDUSTRY

    =======================================================================

                                    HEARING

                                   BEFORE THE

                           SUBCOMMITTEE ON ANTITRUST,
                             COMPETITION POLICY AND
                                CONSUMER RIGHTS

                                     OF THE

                           COMMITTEE ON THE JUDICIARY
                              UNITED STATES SENATE

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                DECEMBER 8, 2015

                                   __________

                               Serial No. J-114-44

                                   __________

             Printed for the use of the Committee on the Judiciary

     [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                            www.judiciary.senate.gov
                                www.govinfo.gov

                                    __________

                       U.S. GOVERNMENT PUBLISHING OFFICE
    52-545                  WASHINGTON : 2025

    -----------------------------------------------------------------------------------

                           COMMITTEE ON THE JUDICIARY

                      CHARLES E. GRASSLEY, Iowa, Chairman
    ORRIN G. HATCH, Utah                 PATRICK J. LEAHY, Vermont, Ranking
    JEFF SESSIONS, Alabama                   Member
    LINDSEY O. GRAHAM, South Carolina    DIANNE FEINSTEIN, California
    JOHN CORNYN, Texas                   CHARLES E. SCHUMER, New York
    MICHAEL S. LEE, Utah                 RICHARD J. DURBIN, Illinois
    TED CRUZ, Texas                      SHELDON WHITEHOUSE, Rhode Island
    JEFF FLAKE, Arizona                  AMY KLOBUCHAR, Minnesota
    DAVID VITTER, Louisiana              AL FRANKEN, Minnesota
    DAVID PERDUE, Georgia                CHRISTOPHER A. COONS, Delaware
    THOM TILLIS, North Carolina          RICHARD BLUMENTHAL, Connecticut

          Kolan L. Davis, Republican Chief Counsel and Staff Director
          Kristine Lucius, Democratic Chief Counsel and Staff Director

                      SUBCOMMITTEE ON ANTITRUST, COMPETITION
                           POLICY AND CONSUMER RIGHTS

                          MICHAEL S. LEE, Utah, Chair
    DAVID PERDUE, Georgia                AMY KLOBUCHAR, Minnesota, Ranking
    THOM TILLIS, North Carolina              Member
    CHARLES E. GRASSLEY, Iowa            CHRISTOPHER A. COONS, Deleware
    ORRIN G. HATCH, Utah                 AL FRANKEN, Minnesota
                                         RICHARD BLUMENTHAL, Connecticut

                      Matt Owen, Republican Staff Director
                   Kirstin Dunham, Democratic Staff Director

                               C O N T E N T S

                                  ----------

                               OPENING STATEMENTS

                                                                       Page

    Lee, Hon. Michael S..............................................     1
    Klobuchar, Hon. Amy..............................................     2
    Leahy, Hon. Patrick J............................................     4
        Prepared statement...........................................    38

                                   WITNESSES

    Brito, Carlos....................................................     7
        Prepared statement...........................................    39
        Responses to written questions...............................   110
    Hunter, Mark.....................................................    15
        Prepared statement...........................................    45
        Responses to written questions...............................   126
    Moss, Diana L....................................................    13
        Prepared statement...........................................    51
    Pease, Bob.......................................................     8
        Prepared statement...........................................    64
        Responses to written questions...............................   132
    Purser, Craig....................................................    10
        Prepared statement...........................................    87
    Wilson, J........................................................    12
        Prepared statement...........................................   105

                                    APPENDIX

    Items submitted for the record...................................   137

                      ENSURING COMPETITION REMAINS ON TAP:
                         THE AB INBEV/SABMILLER MERGER
                         AND THE STATE OF COMPETITION
                              IN THE BEER INDUSTRY

                                  ----------

                           TUESDAY, DECEMBER 8, 2015

                                  United States Senate,
                 Subcommittee on Antitrust, Competition Policy,
                                           and Consumer Rights,
                                    Committee on the Judiciary,
                                                        Washington, DC.
        The Subcommittee met, pursuant to notice, at 10:01 a.m., in
    Room 226, Dirksen Senate Office Building, Hon. Michael S. Lee,
    Chairman of the Subcommittee, presiding.
        Present: Senators Lee [presiding], Perdue, Tillis,
    Grassley, Klobuchar, Coons, Franken, and Blumenthal.
        Also present: Senator Patrick J. Leahy.

               OPENING STATEMENT OF HON. MICHAEL S. LEE,

                 A U.S. SENATOR FROM THE STATE OF UTAH

        Chairman Lee. Welcome to this hearing of the Subcommittee
    on Antitrust, Competition Policy, and Consumer Rights. The
    title that we have chosen for this hearing is ``Ensuring
    Competition Remains on Tap: The AB InBev/SABMiller Merger and
    the State of Competition in the Beer Industry.''
        Before we start, I would like to thank Ranking Member
    Klobuchar and thank her staff for their attention to this issue
    and their assistance in preparing for today's hearing. I would
    also like to thank the Chairman of the Full Committee, Senator
    Grassley, for supporting this hearing.
        A few housekeeping matters before we begin. After, Senator
    Klobuchar and Senator Leahy give some opening remarks about
    this hearing, we will hear from our panel of witnesses who I
    and Senator Grassley will introduce shortly, and then we'll
    have a 5-minute--a series of 5-minute question rounds.
        The subject of today's hearing is the proposed acquisition
    of SABMiller by Anheuser-Busch InBev, the second largest and
    largest beer producers in the world, respectively. AB InBev
    announced the acquisition for approximately $105 billion on
    November 11th. Concurrent with that transaction, the parties
    announced a plan to divest SABMiller's stake in MillerCoors to
    joint venture partner Molson Coors Brewing Company. That stake
    represents the entirety of SABMiller's U.S. presence.
        As a result, the parties expect their merger to have
    little, if any, impact on the American beer market. If true,
    this will obviate the vast majority of the concerns that would
    otherwise accompany a merger of this size.
        Other market participants, however, have voiced concerns
    about AB InBev's influence on distribution channels and the
    market access of small craft brewers, alleging that AB InBev is
    seeking greater vertical integration and attempting to exclude
    craft brewers from the market.
        As we examine these central questions today and look at the
    overall state of competition in the beer industry, we must
    focus that review on how the current competitive dynamics will
    be impacted by the deal at hand. This analysis must consider
    both components of the transaction--the acquisition as well as
    the divestiture of SABMiller's entire U.S. business. Moreover,
    we will do well to remember that antitrust analysis is
    extremely fact-intensive and not driven by mere speculation or
    suggestion.
        While legitimate antitrust concerns may exist with respect
    to AB InBev's relationship with distributors, this hearing is
    first and foremost about its acquisition of SABMiller. Under
    the Clayton Act, the relevant inquiry is whether the effects of
    the deal, quote, ``may be substantially to lessen competition
    or to tend to create a monopoly,'' close quote, not whether
    conditions might be attached to the merger's approval to
    restructure the market to the liking of the Government or
    private plaintiffs.
        When, as is the case here, the acquiring party intends to
    divest the entirety of the acquired company's U.S. business,
    the transaction's effects on competition in American markets
    are likely to be negligible. The American beer market is a more
    than $100 billion business and delivers a product that in both
    its national brand and regional craft brew forms holds a
    special place in American culture and hospitality. Today's
    hearing will provide a much needed opportunity to assess
    competition in the industry as it relates to this particularly
    historic deal. I look forward to hearing from our esteemed
    witnesses and the productive discussion that their testimony
    will no doubt inspire today.
        So, Senator Klobuchar will now deliver her opening
    statement, and then I will swear in and introduce our witnesses
    after we hear from Senator Leahy following Senator Klobuchar.

                OPENING STATEMENT OF HON. AMY KLOBUCHAR,

               A U.S. SENATOR FROM THE STATE OF MINNESOTA

        Senator Klobuchar. Thank you very much, Mr. Chairman. Thank
    you. We have worked on this hearing together, as we have on all
    hearings, and I appreciate the partnership we have in taking on
    these important antitrust matters. I also want to thank each of
    the witnesses who have come today to testify.
        I do not come to this hearing with a conclusion, but I do
    have a goal, and that is to protect and foster competition.
    From one perspective, there has been consistent consolidation
    in the beer industry. Over the last decade, Anheuser-Busch,
    Miller, and Coors all have been involved in major acquisitions.
    Today Anheuser-Busch InBev-ABI--owners of what was Anheuser-
    Busch, and SABMiller account for 70 percent of beer sales in
    the United States. Within the remaining 30 percent, a different
    phenomenon is occurring. Across the country, craft brewers have
    brought new competition to the United States beer market. In
    1978, there were fewer than 50 brewers in the United States. By
    one recent count, there are currently over 4,100 craft brewers,
    and their sales have grown from 1 percent of the beer market to
    11 percent in the last 20 years.
        In Minnesota, we now have more than 70 breweries, more than
    the entire country had back in 1978 when I graduated from high
    school. It was not legal for me to drink beer back then.
        Chairman Lee. You were not interested in beer at that
    point?
        Senator Klobuchar. Yes, I just thought it was a good year.
        Senator Leahy. Did you drink it?
        Senator Klobuchar. We will not--let's just say you could go
    to Wisconsin. Our beers----
        [Laughter.]
        Senator Klobuchar. Our beers stretch from Schell's
    Goosetown to Finnegans Dead Irish Poet to Surly's Abrasive Ale
    and everything in between. I will say, that Mr. Chairman, that
    this was the first official Senate tour I took that was one of
    our breweries that my husband actually asked to accompany me
    on.
        Craft brewers have succeeded, in part, because of the
    three-tier distribution system. Brewers brew the beer,
    wholesalers distribute it, and retailers sell it. Most beer
    wholesalers are independent but rely primarily on either ABI
    products or SABMiller products. Because of their independence,
    wholesalers also distribute a variety of smaller independent
    brands. As a result, today's beer aisle in any retail outlet is
    a cornucopia of choice.
        Within this context, ABI, the largest brewer in the world,
    seeks to acquire SABMiller, the second largest brewer in the
    world. The size of the transaction is not only cause for
    concern; the Department of Justice, is--in investigating ABI's
    previous acquisition of Modelo Group, found that larger brewers
    engage in significant, quote, in ``significant levels of
    coordination, and that coordination has reduced competition and
    increased prices.''
        If ABI were simply acquiring SABMiller, the transaction
    would almost certainly be illegal. The merging parties
    themselves recognize that fact and have offered to divest
    SABMiller's stake in the MillerCoors joint venture to Molson
    Coors. That is why we have asked Molson Coors to testify to
    understand how it intends to compete in the United States
    market. I appreciate that ABI and SABMiller have affirmatively
    offered a solution at the beginning of the process.
        The question today, then, is whether the proposed
    divestiture resolves all competition problems. Because the
    market is highly concentrated, the divestiture needs to be
    nearly perfect. If despite the divestiture ABI's market share
    were to increase even a small amount, the acquisition would
    likely be presumptively anticompetitive under the Department of
    Justice and Federal Trade Commission's horizontal merger
    guidelines.
        For the divestiture to be a successful remedy, MillerCoors
    needs to be as independent from ABI after the merger as it is
    today. We also need to make sure that nothing in this merger
    alters either the incentives or the ability for large brewers
    to foreclose retail access from craft brewers. Unless craft
    brewers have access to wholesalers, they will wither on the
    vine. That's kind of an wine analogy, but it is a good one.
    Wholesalers make decisions every day on what brands and how
    much of each brand to put on their trucks. I want to ensure
    that consumer choice and not producer power drives those
    decisions.
        Mr. Chairman, the beer industry is moving in a good
    direction. Small, innovative companies are transforming the
    marketplace from Vermont to Minnesota. Although the craft
    segment may be beyond its infancy, it is far from mature. We
    need to ensure this merger does not stunt competition, and that
    depends on the quality of the divestiture. Thank you, Mr.
    Chairman.
        Chairman Lee. Thank you. Senator Leahy.

              OPENING STATEMENT OF HON. PATRICK J. LEAHY,

                A U.S. SENATOR FROM THE STATE OF VERMONT

        Senator Leahy. Thank you, Mr. Chairman. I want to thank you
    and Senator Klobuchar for having this hearing. I could legally
    drink beer in 1978. I am considerably older than my colleague
    from Minnesota. But I would say that this hearing on the
    proposed merger of AB InBev and SABMiller is important, as we
    have pointed out, not only to American consumers, but to craft
    brewers and independent distributors--not just to brewers but
    to independent distributors across the country.
        Now, Vermont was one of the earliest incubators of craft
    brewing. We have 40 breweries now. We are a State of only
    600,000 people, but we have 40 breweries. Some of them are
    award-winning beers, world award-winning beers, and people
    travel from all over the country to visit them. And, of course,
    they made--they have improved our economy, but I like the fact
    that it is just one more thing making Vermont a destination
    State. Now, we want to make sure that these craft brewers and
    also the brewers of tomorrow in any State can competent and
    that consumers will have the choice.
        The proposed merger we consider today would join the two
    giants of the beer industry. They are 70 percent of the U.S.
    market. Seventy percent. The parties have announced that AB
    InBev will divest ownership of SAB's stake in MillerCoors,
    selling it to Molson. I welcome that effort; it will address
    some of the concerns we have. But, I think, when you still look
    at the size of what is left, we have to take a look at this
    transaction. I want to know how it is going to operate in
    practice. Will the merger have other consequences for the beer
    market, including given the--given the practice of big brewers
    buying up small craft breweries? But we also have to consider
    the competition in the market for the hops, the barley, the
    glass, and the aluminum. Now, these may sound like prosaic
    things, but you are not going to be able to compete if you
    can't buy hops, barley, glass, and aluminum because the giants
    have cornered the market.
        I want to hear about concerns in distribution. I want to
    hear especially the concerns we have that the large brewers'
    power over distribution is shutting out competitors and
    undermining consumer choice. I met with a number of the
    independent brewers in Vermont here recently, and they pointed
    out that they can only sell their products if a customer can
    find it. And if they are being squeezed off the shelf because
    of restrictive behavior by the dominant companies, well, that
    harms competition and limits consumers' options. So, we have a
    whole lot of things in here--the basic material of the beers,
    the distribution of it.
        Of course, one way for large brewers to influence
    distribution is that they buy up the distributors. AB InBev has
    indicated that, following this merger, it will not increase its
    ownership of distributors above its current level of 10
    percent. Mr. Brito, I will ask you during your testimony to
    make a formal commitment to that. And Molson has indicated
    that, after it gains 100 percent ownership of MillerCoors, it
    will not increase its ownership of distributors, nor change its
    current practice of giving distributors leeway to showcase
    competitors' brands. Mr. Hunter, I hope you'll make a formal
    commitment to that today. It will certainly influence how I'll
    feel about this merger.
        So, the pathway from brewer to buyer is critical if small
    companies are going to compete. State laws regulating
    distribution vary dramatically, and many small brewers feel
    constrained by the current state of distribution. I hope that
    is going to remain a subject of close review.
        But, anyway, as a Vermonter, as one who is so proud of
    these craft brewers in my State--and I see what their
    creativity does--I want to make sure they have a level playing
    field. If they make a bad product, it does not sell. If they
    make a good product, it should sell. But I do not want them
    closed out because they cannot distribute or they cannot get
    the basic parts that they need. So, thank you, Mr. Chairman.
        Chairman Lee. Thank you, Senator Leahy.
        I will now ask the witnesses to stand and be sworn. Do you
    affirm that the testimony that you are about to give before the
    Committee will be the truth, the whole truth, and nothing but
    the truth, so help you God?
        Mr. Brito. I do.
        Mr. Pease. I do.
        Mr. Purser. I do.
        Mr. Wilson. I do.
        Ms. Moss. I do.
        Mr. Hunter. I do.
        [Witnesses are sworn in.]
        Chairman Lee. Thank you. Okay. We will now begin
    introducing our witnesses. I will start with Mr. Brito.
        Carlos Brito is the chief executive officer of AB InBev.
    Born in 1960, he is a Brazilian citizen and received a degree
    in mechanical engineering from the University of Federal do Rio
    de Janeiro and an MBA from Stanford University. He held
    positions at Shell Oil and Daimler Benz prior to joining Ambev
    in 1989. At Ambev he had roles in Finance, Operations, and
    Sales, before being appointed chief executive officer in
    January 2004. He was appointed zone president of North America
    at InBev in January 2005 and chief executive officer in
    December 2005. He is also a member of the Board of Directors of
    Ambev and Grupo Modelo.
        Bob Pease is the president and chief executive officer for
    the Brewers Association. He assumed the role of CEO in August
    2014 after serving for 4 years as the organization's chief
    operating officer. He worked at the Brewers Association--has
    worked at the Brewers Association for over 21 years. Mr. Pease
    has a degree in political science from the University of
    Colorado. He is a member of the American Society of Association
    Executives, a graduate of the Siebel Institute Professional
    Beer Tasting and Styles course, and is a certified TIPS
    trainer.
        Craig Purser serves as the president and chief executive
    officer of the National Beer Wholesalers Association. Purser
    serves as a trustee for the Alcohol Beverage Medical Research
    Foundation and the Center for Alcohol Policy. He also serves as
    a member of the U.S. Chamber of Commerce's Association
    Committee of 100, the ASAE's Key Industry Association
    Committee, the Association Executives Council of the National
    Association of Wholesale Distributors, and the Bryce Harlow
    Foundation's Board of Governors. Purser has served as a guest
    lecturer at the University of North Carolina and the George
    Washington University and the University of Oklahoma. A native
    of Oklahoma, Purser is a graduate of the University of
    Oklahoma.
        And now Senator Grassley would like to introduce the
    witness from Iowa.
        Chairman Grassley. Yes, I am happy to introduce J. Wilson.
    He is a constituent of mine. Mr. Wilson is from a small
    community, Prescott, Iowa. He represents the Iowa Brewers
    Guild, organized to represent the interests of Iowa's craft
    brewing industry. Mr. Wilson is a certified beer judge and an
    award-winning home brewer. He's a published author and a
    freelance writer for several print and online publications. I
    appreciate the Chairman inviting Mr. Wilson so that he can give
    a small business perspective on the possible impact of the
    proposed acquisition on the marketplace and ultimately the
    American consumer. Thank you.
        Chairman Lee. Thank you, Senator Grassley.
        Diana Moss became the president of the American Antitrust
    Institute in January 2015. Her work spans both antitrust and
    regulation with industry expertise in electricity, petroleum,
    agriculture, airlines, telecommunications, and health care.
    Before joining AAI, Dr. Moss was a senior staff economist at
    the Federal Energy Regulatory Commission where she coordinated
    competition analysis for electricity mergers. From 1989 to
    1994, she consulted in private practice in the areas of
    regulation and antitrust at the National Economic Research
    Associates and Putnam Hayes and Bartlett. Dr. Moss has spoken
    widely on various topics on antitrust and regulation, testified
    before Congress, appeared before State and Federal regulatory
    commissions, and made numerous radio and television
    appearances. She has published articles in a number of economic
    and legal academic journals, including American Economic
    Review, Journal of Industrial Organization, the Energy Law
    Journal, and the Antitrust Bulletin. She's editor of Network
    Access, Regulation and Antitrust. Dr. Moss is adjunct faculty
    in the Department of Economics at the University of Colorado at
    Boulder. She holds an M.A. degree from the University of Denver
    and a Ph.D. from the Colorado School of Mines.
        Mark Hunter is a graduate of the University of Strathclyde
    and has spent the last 32 years in a variety of sales,
    marketing, and general management positions, primarily in
    Europe and North America. As president and CEO of Molson Coors
    Brewing Company, based in Denver, Colorado, Mark leads one of
    the world's leading beer companies with extraordinary brands
    such as Coors, Molson, Carling, and Staropramen. The Molson
    Coors purpose is to delight the world's beer drinkers, and Mark
    is a passionate believer in championing beer and building
    respect for the category through responsible drinking.
        We will now hear opening statements from the witnesses,
    beginning with Mr. Brito. Go ahead, Mr. Brito.

               STATEMENT OF CARLOS BRITO, CHIEF EXECUTIVE

                     OFFICER, ANHEUSER-BUSCH INBEV,

                         GREENWICH, CONNECTICUT

        Mr. Brito. Thank you. Chairman Lee, Ranking Member
    Klobuchar, Chairman Grassley, Ranking Member Leahy, and Members
    of the Subcommittee, thank you for the opportunity to appear
    before this Subcommittee. My name is Carlos Brito, and I am CEO
    of AB InBev.
        AB InBev is a global brewer and the parent company of
    Anheuser-Busch. We have the privilege of continuing Anheuser-
    Busch's proud history as a brewer in America since 1852. We
    have more than 16,000 U.S. employees across 49 States, and we
    committed in June to investing an additional $1.5 billion by
    2018 in our U.S. operations. I am proud to say that 98 percent
    of our products sold in the U.S. are made in the U.S.
        I am here today to discuss AB InBev's proposed acquisition
    of SABMiller and our agreement with Molson Coors to divest
    SABMiller's interest in MillerCoors conditioned upon completion
    of our culmination with SABMiller.
        I would like to share with you the rationale for this
    transaction and the impact--or more precisely, the lack of
    impact--that this transaction will have on our competitive
    position in the United States.
        The purpose of this transaction is to enhance our ability
    to serve new markets, particularly in Africa, Asia, and Central
    and South America. It's about bringing more choices to more
    consumers around the world, including extending the reach of
    iconic American brands such as Budweiser to new markets. What
    this combination is not about is changing the competitive
    landscape of the U.S. beer market.
        The U.S. beer industry is more competitive than ever, with
    more than 4,000 breweries in all 50 States and, on average, two
    new breweries opening every day. Just take a walk down the
    aisle of your local grocery store, and you will see the
    incredible amount of choice beer drinkers have, more than ever
    before.
        This competition is being driven first and foremost by the
    growth of craft brewers, which rose from 3.8 percent of the
    market in 2007 to 11 percent in 2014, and is expected to reach
    20 percent market share by 2020.
        In addition to robust competition from craft, the beer
    industry itself faces ever-growing competition from wine and
    liquor. Nothing in AB InBev's combination with SABMiller will
    lessen that competition.
        The divestiture of MillerCoors ensures that our market
    share in the U.S. will not change as a result of the
    combination. Our total beer production will not increase. Our
    utilization of beer ingredients and supplies will not change.
    Our distribution system will not be impacted. And our
    commitment to the three-tier system will not waver.
        Beyond the transaction, let me address two other topics
    within the industry: distribution, and ingredients and supplies
    for beer.
        I would like to state very clearly that we do not expect
    any changes to the Anheuser-Busch distribution system as a
    result of the combination or divestiture. There are
    approximately 3,300 wholesalers across America, and more than
    35 States allow for some form of self-distribution of beer.
    Together, these distribution options ensure that brewers of all
    sizes can access the market.
        It is our intention that approximately 90 percent of our
    volume be distributed by independent wholesalers. Around 10
    percent of our volume will be distributed by our wholly owned
    distributorships.
        In addition to a strong, independent distribution tier, the
    industry is supported by broad, responsive markets for the
    ingredients and supplies that brewers rely upon, including
    aluminum cans, barley, and hops. These ingredients and supplies
    are generally produced within large, highly responsive local,
    national, or global markets. In none of these markets would the
    combined company be in a position to constrain competitors'
    access to those ingredients and supplies. The marketplace sets
    the prices and terms of ingredients and supplies.
        In closing, we are proud of our contribution to the highly
    competitive U.S. beer market and excited for the future of
    beer--both in the U.S. and around the world. The combination of
    AB InBev and SABMiller will bring more choices to consumers. We
    look forward to the day when American travelers can find a cold
    Budweiser anywhere in the world.
        Again, thank you for the opportunity to appear before you.
    I look forward to answering your questions.
        [The prepared statement of Mr. Brito appears as a
    submission for the record.]
        Chairman Lee. Thank you, sir. Mr. Pease.

                STATEMENT OF BOB PEASE, CHIEF EXECUTIVE

            OFFICER, BREWERS ASSOCIATION, BOULDER, COLORADO

        Mr. Pease. Mr. Chairman, Senator Klobuchar, Chairman
    Grassley, Members of the Subcommittee, good morning. My name is
    Bob Pease. I am the chief executive officer of the Brewers
    Association. My organization represents over 2,800 small and
    independent craft breweries and over 1,100 industry suppliers.
    My members are located in every State and in virtually every
    congressional district.
        At the outset, I would like to make it perfectly clear that
    the Brewers Association is not opposed to fair competition. My
    members have built thousands of successful small and medium-
    sized business from scratch in a very competitive environment.
    Many others have failed at great personal loss. My members are
    the embodiment of the American entrepreneurial spirit. We
    understand that antitrust laws are designed to protect
    competition and they are not designed to protect any specific
    individual company or any segment of the industry.
        The proposed acquisition of South African Breweries by
    Anheuser-Busch InBev must be viewed in light of other
    developments affecting competition in the beer industry.
        To understand the competitive landscape, we need to review
    the basic beer industry regulatory framework. Federal alcohol
    laws and the 21st Amendment to the U.S. Constitution authorize
    each State to regulate beverage sales and distribution within
    their respective borders. That's important because the beer
    industry does not operate under the normal principles of
    interstate commerce. Beer and other alcohol beverages are
    subject to 50 different State regulatory systems.
        State laws in many places effectively mandate the use of
    beer wholesalers and prevent a brewer from changing wholesalers
    absent extraordinary circumstances. State laws are generally
    intended to protect the independence of wholesalers, which is a
    laudable goal. If the wholesale tier of the beer industry is
    truly independent of the major brewers, it can then promote
    competition. But that goal has been thwarted by other
    developments.
        Two of largest international brewers now control over 70
    percent of U.S. beer sales. They have also actively fostered
    the rapid consolidation of the wholesale tier and the evolution
    of the multistate wholesaler networks under common ownership.
    Today, the 30 largest wholesalers control almost one-third of
    all U.S. beer sales to retailers.
        Most markets in the U.S. are now served by only two
    substantial wholesalers--an ABI wholesaler and a MillerCoors
    wholesaler. While the two primary wholesalers are generally
    known by the names of their largest suppliers, the wholesalers
    will also sell other brands. So, for example, an ABI
    distributor will sell Corona, Sam Adams, and dozens of other
    smaller brands. But newer craft brewers face significant
    challenges in gaining access to retailers and consumers.
        States have generally failed to respond to changes in the
    beer industry to the detriment of new competitors and new
    business models. Over the last three decades, the Federal Trade
    Commission has consistently, repeatedly called out States for
    enacting or refusing to change blatantly anticompetitive
    distribution laws, most of which are still on the books and are
    aggressively enforced through private and Government action.
    States have granted exceptions to allow limited self-
    distribution by craft brewers, but those exceptions are
    insignificant in terms of the overall market and total and
    totally inadequate to address the imbalance that currently
    exists.
        In 15 States, large brewers are allowed to own wholesalers.
    So, at present, Anheuser-Busch InBev is the largest supplier of
    beer in the United States, and in nine States it is the largest
    beer distributors. In major population centers in those nine
    States, Anheuser-Busch InBev effectively controls one of the
    two routes to market that craft brewers must effectively use to
    sell their beer to retailers. Moreover, Anheuser-Busch also
    enjoys the same privileges--licensing privileges and franchise
    protections that were intended to protect independent
    wholesalers.
        ABI has further diminished the independence of the
    wholesalers that it does not own through several different
    strategies. ABI has a subsidiary that finances wholesaler
    acquisitions and consolidations. ABI also maintains incentive
    programs that provide millions of dollars to wholesalers that
    severely limit the sales of brands of competing beers.
        As a condition of approving the ABI acquisition of South
    African Breweries, the BA strongly believes that the Department
    of Justice should require ABI to divest its company-owned
    wholesalers and modify its anticompetitive assistance and
    incentives to wholesalers to refrain from distributing other
    brands of beer.
        Left unchecked, these practices will further restrict
    competition and access to market for the smallest players.
    Alternatives such as Government oversight, supervision, and
    enforcement would take years of effort.
        In conclusion, the Department of Justice must also closely
    scrutinize ABI's activities that affect U.S. and global markets
    for goods and services used by brewers. ABI is already
    vertically integrated through ownership of agricultural and
    packaging subsidiaries. Its increasing global presence creates
    many opportunities to adversely affect competition for goods
    and services in the beer industry.
        We applaud the Subcommittee for asking the hard questions
    to support aggressive antitrust enforcement and fair
    competition in the beer industry. On behalf of the over 4,100
    small and independent craft breweries and their 115,000
    employees, I thank you for the opportunity to appear before you
    today.
        [The prepared statement of Mr. Pease appears as a
    submission for the record.]
        Chairman Lee. Thank you, sir. Mr. Purser.

                       STATEMENT OF CRAIG PURSER,

                 PRESIDENT AND CHIEF EXECUTIVE OFFICER,

                 NATIONAL BEER WHOLESALERS ASSOCIATION,

                          ALEXANDRIA, VIRGINIA

        Mr. Purser. Thank you. Chairman Grassley, Chairman Lee,
    Ranking Member Klobuchar, and distinguished Members of the
    Subcommittee, on behalf of the Nation's independent beer
    distributors and their 133,000 employees, thank you for the
    opportunity to testify today.
        There is no question that America is in a golden age for
    beer, with unprecedented variety and quality offered by more
    than 4,000 breweries, compared to fewer than 50 in the 1980s.
    Sales by craft brewers grew nearly 18 percent in 2014,
    representing more than 11 percent of the beer market. You would
    be hard pressed to identify another industry that has
    experienced the same explosive growth in such a short period of
    time.
        The true winner is the American consumer, who enjoys a
    broad spectrum of innovative, independently produced beer
    products for every taste.
        But what makes this consumer choice possible? The answer: a
    robust and competitive system of independent distribution.
    Independent distributors, or wholesalers, provide access to
    market for brewers of all sizes. They create a competitive
    playing field, and they keep pricing fair for consumers.
        A critical issue before this Committee is how to preserve
    America's golden age of beer and the effective system of
    independent distribution which delivers benefits to beer lovers
    everywhere.
        Now, consumer advocates, craft brewers, retailers, and
    independent distributors have all expressed concern about the
    global transactions around the ABI/SABMiller tie-up and how it
    could reduce access to distribution--reducing choice and
    potentially raising prices for consumers. Included with my
    written testimony is a study by the Boston Consulting Group,
    which finds that America's independent beer distribution system
    is, quote, ``open, freely competitive, and driven by consumer
    choice.''
        Independent distributors provide access to capital. They
    provide access to scale for mid-sized and small brewers.
    Distributors also take on responsibilities, including
    warehousing, marketing, promotion, sales, and delivery of a
    heavy, perishable product. Distributors have solid, time-tested
    relationships with retailers in their markets, from the corner
    pub on Main Street to your hometown grocery store. In other
    words, distributor interests are perfectly aligned with that of
    the American consumer.
        Allow me to provide a snapshot of the value that
    independent distributors offer and contrast that with other
    beverages. Think about walking down the beer aisle in your
    favorite store. Think about the vast choice and selection right
    on the store shelves, from the most familiar and iconic
    national brands to imports from around the world and new,
    innovative American craft beers.
        Now, head over to the soft drink aisle. You pretty much
    have a choice between two suppliers. Quite a contrast between
    the beer aisle and the soft drink aisle.
        There are concerns that the proposed acquisitions could
    result in less craft beer and fewer imported brands getting to
    market and on the trucks of independent distributors. For one
    thing, consider ABI's recent purchase of some independent
    distributors. Anheuser-Busch InBev is the fastest growing
    distributor in the country. The very day that the merger was
    revealed, it was announced that the Department of Justice and
    the California Attorney General were investigating some of the
    recent ABI acquisitions of its independent distributors. Some
    have suggested that ABI's business tactics could stifle growth
    for independent distributors who represent brands that are not
    approved by ABI.
        It's also worth noting that the Department of Justice
    placed restrictions on ABI's previous acquisition of Modelo to
    protect distributors and consumers. ABI claims that the
    proposed MillerCoors divestiture solves any competitive
    problems, yet some have cast doubt that the proposed sale of
    SAB's stake in the Molson Coors joint venture would be an
    effective remedy.
        Recent studies have shown that mergers often fail to
    deliver true consumer benefits, and the Modelo deal actually
    underscored the limitations even of judicial intervention to
    reach a reasonable remedy that included vertical restraints. In
    order to ensure that a combination with the size and scale of
    this one does not disrupt the American beer market, DOJ needs
    to do the following:
        Number one, protect independent distribution by prohibiting
    any termination of local distributors as a result of this
    global combination. Number two, DOJ must make certain that
    these independent distributors are free to provide their best
    efforts to all brewers and importers.
        Let me say that again: DOJ must ensure that these
    independent distributors are free to provide their best efforts
    to all brewers and importers. I look forward to answering your
    questions, and thank you for the opportunity to join you this
    morning.
        [The prepared statement of Mr. Purser appears as a
    submission for the record.]
        Chairman Lee. Thank you, Mr. Purser. Mr. Wilson.

                  STATEMENT OF J. WILSON, MINISTER OF

             IOWA BEER, IOWA BREWERS GUILD, PRESCOTT, IOWA

        Mr. Wilson. I would like to thank the Subcommittee as well
    as my home Senator, Chairman Grassley, for this opportunity. I
    speak on behalf over 50 IBG members and perhaps thousands more
    small brewers around the country that share our concern over
    the proposed Anheuser-Busch InBev, or ABI, acquisition of
    SABMiller.
        Our disquiet is two-fold. If this deal is allowed to
    proceed, growing craft breweries in Iowa and elsewhere fear
    difficulty with access to both market and raw materials.
        Critical to our success, a licensed and regulated alcohol
    beverage distribution system was designed following the repeal
    of Prohibition to curtail overly aggressive sales and marketing
    practices. With the help of this independent wholesale tier,
    our members have created new Iowa brands and helped the U.S.
    craft beer industry grow from 0 to 11 percent of the market
    since the 1970s.
        Our colleagues in the wholesale tier in Iowa and around the
    country have embraced the diversity that craft beer offers
    their portfolios in a time when palates are shifting, and
    consumer knowledge and demand are asking that these beers be
    made available to them. Like many brewery owners I have spoken
    to, independent wholesalers have also expressed their
    apprehension about the power a larger ABI would hold over the
    market and especially the distribution tier.
        With deep pockets already allowing ABI to hold sway over
    many wholesalers on marketing incentives, the amount of
    influence a combined company of this magnitude would have over
    market access is startling. This is especially the case given
    ABI's past actions toward vertical integration in countries
    like Brazil and efforts currently to procure wholesalers here
    in the U.S.
        Currently the United States' fastest growing wholesaler,
    ABI has acquired 12 independent distributors in nine States
    since 2012. In addition, according to a June 2008 article in
    the St. Louis Business Journal, Busch family members personally
    own five additional ABI distributorships in three more States,
    carving out market shares as high as 74 percent. One of those,
    Krey Distributing Company, made headlines in the St. Louis
    Post-Dispatch in March 2013 when it dropped six craft breweries
    from its portfolio.
        While Krey asserted that these brands were underperforming,
    Wolfbrau House of Beer owner Ryan Wolf indicated in the article
    that Krey wouldn't deliver the craft beers he had ordered, and
    I quote: ``I have not had a single case of 2nd Shift in here in
    almost a year despite the fact that I ordered three varieties
    every week, week after week, for 6 months,'' end quote.
        Due to my proximity and friendship with the owners of one
    of the affected breweries--Nebraska Brewing Company--I am privy
    to how their situation was handled--poorly--and at this time,
    they no longer sell their award-winning beers in the St. Louis
    market.
        Washington State's beer market has been hit especially hard
    by ABI's aggressive tactics after ABI acquired Anheuser-Busch
    Sales of Washington, or ABSW.
        According to Heather McClung, the Washington Brewers Guild
    board president, ABSW's hostile tactics have grown so egregious
    that they have now drawn the attention of and an investigation
    by the Washington State Liquor and Cannabis Board. Please refer
    to my written testimony for specific examples of what is
    happening in Washington State.
        While market access is an ongoing battle that small craft
    brewers have infiltrated by offering a wide range of locally
    produced, flavor-forward products, the ability to produce or
    package them could soon be hindered if the merger is allowed.
    This megabrewery would have an even greater impact on brewing
    inputs such as malted barley and hops and packaging materials
    like bottles and cans. The hop supply is already tenuous, and
    while malt production can easily be increased, expansion of hop
    acreage is costly and hop plants take 3 years to reach
    maturity. If there is a hop shortage, the price per pint will
    undoubtedly rise for consumers.
        As the craft brewing industry continues to represent true
    job and sales growth in an otherwise flat sector, craft
    breweries may encounter problems if this acquisition proceeds.
    I favor healthy competition, but a merger of this magnitude
    could impact supply access and threaten the wholesale tier of
    the system. I urge you to protect competition and consumer
    choice in the beer market by recommending the divestiture of
    ABI-owned distributors, a halt to incentives designed to push
    other brands out of ABI distributorships, and a careful
    monitoring on how the transaction will impact raw materials.
    Thank you.
        [The prepared statement of Mr. Wilson appears as a
    submission for the record.]
        Chairman Lee. Thank you, Mr. Wilson. Dr. Moss.

                   STATEMENT OF DIANA L. MOSS, PH.D.,

                PRESIDENT, AMERICAN ANTITRUST INSTITUTE,

                           BOULDER, COLORADO

        Dr. Moss. I would like to thank Chairman Grassley, Chairman
    Lee, Ranking Member Senator Klobuchar, and the Members of the
    Subcommittee for holding this hearing. I appreciate the
    opportunity to share the American Antitrust Institute's views
    on competition in the U.S. beer industry and the proposed
    merger of ABI and SABMiller.
        My final testimony highlights the landscape of the U.S.
    beer market against which this proposed merger will occur.
    There have been five major mergers in the last 10 years. ABI
    and MillerCoors account for over 70c, if over 70 percent of the
    U.S. market. There is now economic evidence of price increases
    for beer in the wake of previous mergers even against declining
    demand for popular, mass market beer.
        These developments pose real challenges for competition and
    consumers, particularly in regard to the downstream part of the
    supply chain--distribution. For consumers that prefer
    traditional mass market beers or the craft beers that have
    emerged from a growing entrepreneurial business model, the goal
    should be to ensure competitive prices, choice, innovation, and
    quality.
        We know that the ABI/SABMiller merger would produce a large
    increase in market concentration. We also know that the merged
    firm would control wholesale distribution that is critical for
    smaller rivals to get their products onto retail shelves. If
    unremedied, the merger would result in stronger incentives to
    exercise market power.
        Given what we know, the debate is here not whether the
    merger is likely to lessen competition in the U.S. market for
    beer. Presumably, if the merger were not potentially harmful,
    the parties would not have offered up front to divest
    SABMiller's share of the MillerCoors JV. The AAI has,
    therefore, focused attention on the substantive debate about
    whether this proposal would make for an effective remedy.
        For example, it is unclear--excuse me. An effective remedy
    fully restores competition lost by a merger. But there are now
    multiple examples of failed remedies, especially in highly
    concentrated markets. In both Safeway/Albertson's and Hertz-
    Dollar/Thrifty, buyers of divested assets proved unviable,
    filed for bankruptcy protection, and fully or partially exited
    the market. These cases are warning signs. In an ABI/SABMiller
    merger, a well-crafted remedy would fully restore competition
    lost by the merger at the same time it would promote
    competition moving forward.
        The parties may well reveal more of their divestiture
    proposal to the DOJ when the time comes. Now, based on publicly
    available information, it is not clear how or whether the
    current divestiture proposal will accomplish this important
    objective.
        For example, it is unclear how the independent distribution
    contracts currently controlled by MillerCoors will be handled
    as part of a divestiture proposal. As compared to ABI,
    SABMiller has reportedly taken a less adversarial approach to
    distributors that carry rival brands. The loss of this dynamic
    after the merger is important. It should focus attention on the
    distribution policies that Molson Coors will adopt when it
    takes control of all the MillerCoors assets and contracts.
        There is also concern that the proposed divestiture not be
    a moving target. Public announcements regarding the closure of
    the MillerCoors plant in Eden, North Carolina, raise questions.
    Is it a preemptive attempt to withdraw capacity from the
    market? It would change the package of assets that Molson Coors
    takes control of. Could this affect post-merger incentives and
    dynamics?
        It is also unclear what SABMiller brands not currently
    imported into the U.S. might be imported after the merger. A
    changed portfolio of post-merger brands, particularly one that
    includes more craft beers, could change incentives for
    strategic conduct by the merged company toward smaller rivals.
        These are major sources of uncertainty over the proposed
    divestiture. Given the magnitude and implications of an ABI/
    SABMiller merger, the AAI believes more specificity is needed.
    A fully effective remedy would, at a minimum, address at least
    a number of issues.
        For example, a remedy would create a fully independent
    Molson Coors. Molson Coors would, therefore, not depend in any
    way on ABI for contract brewing of former MillerCoors brands or
    similar supply agreements for any services.
        Equally important is to ensure the independence and
    impartiality of the independent wholesale distribution channel.
    Policies designed to incentivize independent distributors to be
    exclusive or to discriminate against smaller rivals would be
    prohibited.
        ABI and Molson Coors should also compete head to head in
    the independent distribution channel, minimizing any
    opportunities for tacit coordination. As such, some thought
    should be given to whether distributors can carry both ABI and
    MillerCoors brands.
        These are just a few considerations that will factor into a
    remedy that will fully restore competition lost by the merger.
    There are likely to be other considerations should a merger
    review proceed to that point. Thank you very much for the
    opportunity to testify.
        [The prepared statement of Dr. Moss appears as a submission
    for the record.]
        Chairman Lee. Thank you, Dr. Moss. Mr. Hunter.

                STATEMENT OF MARK HUNTER, PRESIDENT AND

                 CHIEF EXECUTIVE OFFICER, MOLSON COORS,

                            DENVER, COLORADO

        Mr. Hunter. Good morning, Chairman Lee, Ranking Member
    Klobuchar, and Members of the Committee. My name is Mark
    Hunter, and I am the CEO of Molson Coors Brewing Company. We
    are a U.S.-listed company principally based in Denver,
    Colorado, with a brewing heritage that goes back well over 200
    years, and I appreciate the opportunity to explain our role in
    serving as the solution to U.S. antitrust concerns related to
    the proposed AB InBev/SABMiller merger.
        Let me say up front that our transaction does not injure
    competition but enhances it. Molson Coors' purchase of the
    remaining interest in MillerCoors means ABI gets nothing in the
    United States. MillerCoors will remain unchanged after the
    merger. The only difference is that Molson Coors would be the
    single U.S. owner rather than a partial owner of MillerCoors.
        Having played a crucial role in the direction of this
    business for the past 7 years, there is no company more
    knowledgeable than Molson Coors to operate it going forward.
        Now, before I get into specific comments, I would like to
    tell you about Molson Coors, the creation of MillerCoors, and
    how we help support competition in this increasingly dynamic
    beer industry. Molson Coors was created in 2005 and brought
    together the family brewing legacies of John Molson in Montreal
    and Adolph Coors, who set up his first brewery in 1873 in
    Golden, Colorado.
        In 2008, we formed the MillerCoors joint venture with
    SABMiller to create a more effective number two player in the
    U.S. beer market. At that point, all of SABMiller's U.S.
    operations were contributed to the joint venture. We have 50/50
    governance rights and split the economic interest, with Molson
    Coors owning 42 percent and SABMiller owning 58 percent.
        MillerCoors has approximately 8,000 U.S.-based employees
    and pays more than $1.1 billion in annual compensation and
    benefits. We spend more than $5 billion annually for goods and
    services and pay more than $1 billion in Federal excise taxes.
        MillerCoors goes to market in the U.S. through an
    independent network of 569 distributors who know how deeply we
    value the three-tier system, and we have received positive
    feedback from these distributors because they also know they
    can continue to have access to a wide range of beer brands,
    including craft brands.
        By way of example, MillerCoors owns only one distributor,
    which distributes 625 brands, from 29 suppliers, and almost 67
    percent of these brands are craft brands. To be clear, we have
    no intention of purchasing other distributors. Both MillerCoors
    and Molson Coors take seriously our role as an economic growth
    engine for our employees, our communities, and the many
    businesses that support us. This will only be enhanced through
    single ownership of the U.S. business.
        For example, growth would allow MillerCoors to boost
    production at its nine U.S. breweries, including the
    Leinenkugel brewery in Wisconsin. It would open up
    opportunities to purchase more barley from the four Western
    States and North Dakota and malt more barley in Minnesota. And
    it would allow the company to spend more on hops from
    Washington as well as corn from Iowa and Illinois.
        Although we and SABMiller have been successful in building
    MillerCoors into a strong number two player in the U.S., it's
    important to note how much the beer industry has changed since
    we set up the JV.
        The craft brewing industry in the United States has grown
    very rapidly over the past few years. As of June of this year,
    there were 5,525 active brewery permits registered with the
    TTB, and the growth of craft has helped create a renaissance in
    beer and has created a far more diverse and competitive
    marketplace.
        In closing, nothing changes for our consumers, our
    customers, our distributors, or our communities as a result of
    our purchase of SABMiller's ownership interest in MillerCoors.
    It will not change consumer choice, it will not change the
    competitive pricing environment, and it will not change our
    market share or our longstanding support for the three-tier
    system. It will not change our support of U.S. growers and
    suppliers, and it will certainly not change the explosive
    growth of craft brewers or their access to the market through
    the MillerCoors distributor network.
        The transaction will allow us to simplify decision-making
    and reduce the complexities of dual ownership. It will allow us
    to become a more integrated and efficient brewer. In simple
    terms, MillerCoors will evolve from two shareholders--SABMiller
    and Molson Coors--to one shareholder--Molson Coors. Molson
    Coors is a U.S.-listed and domiciled international brewer. It
    is still served by our founding families and, despite being the
    third largest brewer globally, will have 70 percent of its
    profit generated in the U.S.
        On behalf of Molson Coors, I thank the Committee for
    inviting me to appear and testify today, and I am happy to
    answer any questions that you may have. Thank you.
        [The prepared statement of Mr. Hunter appears as a
    submission for the record.]
        Chairman Lee. Thank you very much. Thanks to all of you for
    your statements.
        I will now start the questioning. I would like to start
    with Mr. Pease and Mr. Purser. Gentlemen, the two of you have
    each identified concerns relating to the way that AB InBev
    interacts with its distributors, suggesting that this
    acquisition could make that situation worse.
        Now, if AB InBev is not acquiring any assets in the U.S.,
    how will this deal have any impact on distribution? And going
    along with that, can you identify any way in which--in which
    this transaction in particular will lead to any new problems or
    any more severe existing problems for distributors? And also
    going along with that, along the same vein, isn't it true that
    AB InBev's negotiating leverage will be no greater the day
    after this deal closes than the day before? We will start with
    Mr. Pease and then go to Mr. Purser.
        Mr. Pease. Thank you, Senator. Well, I think you have, you
    know, to examine that question from a variety of perspectives.
    The combined company that could come out of this merger will
    now control 58 percent of the global profit pool in the beer
    industry. This is a $107 billion deal. This is the fourth
    largest merger of all time. Our biggest concern will be that
    the company like this will be able to use its increased market
    power to even greatly--further greatly influence the
    independent distributors that ABI interacts with. The Anheuser-
    Busch incentive programs that currently are in place, while we
    certainly understand incentivizing your distributors to sell
    their products, but it seems to us that at some level some of
    those incentive programs are more designed to encourage their
    distributors not to sell the products of the independent
    smaller players, and we feel that is anticompetitive.
        Chairman Lee. Mr. Purser.
        Mr. Purser. I would--I would echo the sentiments as it
    relates to the increase in the global profit pool. By
    comparison, if you look at the distinction of 57 percent of the
    global profit pool with a newly combined ABI/SAB compared to
    its largest American contributor--competitor right at three
    percent, that's a big disparate competitive disadvantage as it
    relates to share of the global profit pool.
        But I also think you have got to move on and look at recent
    behaviors. You have got to look at the recent Modelo
    acquisition and the supplier behavior as it relates to what's
    being investigated in California. What, I think, you want to do
    is ensure that the remedy is sufficient to ensure that you
    don't have additional problems.
        There's a lot of talk about carrots and sticks and the
    whole notion of incentives. There is a very fine line between
    an incentive program and when that incentive can switch and
    become actually, you know, a stick that is held over an
    independent distributor.
        Chairman Lee. Mr. Brito, as we have heard, one of the
    concerns regarding this acquisition is that the deal will have
    some impact on beer distributors right here in the United
    States. Can you respond to that concern generally and also
    answer the question of whether AB InBev's acquisition of
    SABMiller is likely to trigger the renegotiation of AB InBev's
    distribution contracts or change those relationships in any
    way?
        Mr. Brito. Well, thank you, Chairman, for the opportunity
    to clarify. This transaction is really about the rest of the
    world. It is not about the U.S., so much so that we sold
    whatever assets were owned by SABMiller to Molson Coors the
    same day we announced the global transaction. This transaction
    is really about getting access to markets where today we have
    no presence, like Africa, parts of Asia, parts of Latin
    America. And, again, because of that, there will be no impact
    on the way we conduct our business in the U.S.
        Chairman Lee. Okay. So, your response then to these
    statements is that with respect to the U.S. market it's not
    going to have an impact that is significant for U.S. antitrust
    law purposes.
        Mr. Brito. No.
        Chairman Lee. Mr. Pease and Mr. Purser, how do you respond
    to that?
        Mr. Purser. Well, I think that the acquisition itself could
    trigger terminations, and that is one of the things that we are
    seeking, that is one of the things I tried to talk about in my
    comments, is assurances that because of this global
    combination, there will be no terminations of either company's
    independent distributors, because if we all agree that
    independent distribution facilitates competition, that ought to
    be at the minimum something that is guaranteed as a condition
    of approval for this transaction.
        Chairman Lee. Okay. Senator Klobuchar.
        Senator Klobuchar. Thank you very much, Mr. Chairman.
        I think I'll start by following up on that. Both Mr. Brito
    and Mr. Hunter have stressed that, due to the divestiture,
    there is no impact on the U.S. market. Dr. Moss raised concerns
    that under some States' laws a change in ownership structure
    could create an opportunity to renegotiate or terminate
    wholesaler relationships. There may be other issues that are
    raised by the Justice Department with regard to distribution.
        If it turns out that the divestiture creates opportunities
    to alter relationships with wholesalers, are you willing to
    agree not to take advantage of such relationships? Are there
    conditions you would agree to that would assuage some of these
    concerns to the--from the craft brewers and also from the
    distributors?
        Mr. Brito. Well, Chairman, in terms of our transaction, the
    company that will change its ownership is SABMiller, because we
    are going to be acquiring them. There will be no change in
    ownership for our company, and, therefore, there will be no
    trigger of any contracts in the U.S. market because, again,
    this transaction is about the rest of the world, not about the
    U.S.; therefore, no impact on the way we operate our business
    in the U.S.
        Senator Klobuchar. Okay. Mr. Hunter.
        Mr. Hunter. Senator Klobuchar, I can confirm that certainly
    from a Molson Coors and a MillerCoors perspective, there are no
    anticipated changes. It will be very much business as usual at
    MillerCoors. All that is happening is, as I mentioned in my
    comments, the ownership of that business moves from two
    shareholders--SABMiller and Molson Coors--to one shareholder--
    Molson Coors. And business continues on a business-as-usual
    basis. All of the brands that are currently available to all of
    our distributors through the MillerCoors arrangement will
    continue to be available. And I think it is very important as
    well to just factor in the fact if you consider the Molson
    Coors business, we started as a craft brewer in Colorado. We
    know what it is like to build your business over the long term
    in the United States of America. And we have a policy of
    supporting the three-tier system. We only own one distributor.
    And we welcome the renaissance in beer that we are seeing
    through the growth in craft over the course of the last two
    decades in particular.
        Senator Klobuchar. The three of you there in the middle,
    Mr. Pease, Mr. Purser, and Mr. Wilson, could you--it sounds
    like a good law firm.
        [Laughter.]
        Senator Klobuchar. Could you--could you talk through, if
    the Justice Department decides to approve this merger, what
    kind of conditions you think would be helpful to you to assure
    that the craft brewery industry can continue to grow and that
    distribution is open and free?
        Mr. Pease. Well, as I mentioned in my opening statement,
    Senator, we believe that ABI should be required to divest its
    wholesale operations and that they should also be forced to
    limit these incentive programs which we feel exist now, which
    already we feel are anticompetitive.
        Mr. Purser. I would reiterate my concerns about ensuring
    that there are no terminations of local distributors as a
    result of this global deal, and that independent distributors
    be guaranteed the freedom to give their best efforts to
    competing brands. That's part of what competition is all about.
    And, I think, part of this exercise is so important, and it's
    very important for the Department of Justice as they review
    this, but the old adage of ``Trust, but verify'' comes to mind
    here. We want to provide assurances to help make certain that
    we aren't looking a year from now at behavior that is somehow
    anticompetitive.
        Senator Klobuchar. Thank you. Mr. Wilson.
        Mr. Wilson. I will come back to my final paragraph here. My
    three asks were basically to protect competition and consumer
    choice in the beer market by, you know, the divestiture of the
    ABI-owned distributors, halt these incentive programs. We saw
    just last Friday in the Wall Street Journal discussion about
    some of their incentive programs that feel much less pro-sell
    more ABI products and much more don't sell any of those, and
    here's the opportunity, the financial opportunity, that you get
    in exchange for that. Certainly careful monitoring of how the
    transaction will impact raw material supplies, which is also a
    concern.
        Senator Klobuchar. Very good. And going back to that, being
    from Iowa like you are, and as Mr. Hunter noted, there is
    barley in Minnesota and there is corn in Minnesota and Iowa,
    and maybe some barley, too, but could you talk about just how--
    Mr. Hunter made the point he thinks we are going to have
    expanded need for those raw materials because of the merger,
    just because of the growth, and just how do you see it
    impacting those--those products?
        Mr. Wilson. Well, I guess maybe I could come back to a
    comment that Mr. Brito made in his opening statement,
    mentioning that there would be no increase in ingredient usage,
    among other things, and to me that sounds like freezing
    production and being happy with just exactly where they are in
    the U.S. market. I guess, I mean, that's delightful if that's
    the case, but that doesn't sound like somebody looking to
    compete, I guess. That feels like just a simple statement that
    comforts you in my view, I think. So, I guess they are
    expecting us to take market share, and we are happy to do that.
        Senator Klobuchar. Okay. You know what I think I will do?
    Because I want to--I will have a second round here, and I see
    our colleagues--and we will get back to this hops/barley
    discussion. I know Mr. Brito wants to respond later in the
    second round, so thank you very much. I appreciate it.
        Chairman Lee. Senator Grassley.
        Chairman Grassley. I have a short statement and only one
    question now that we have had this discussion by my two
    colleagues.
        As a result of the growth of craft breweries throughout the
    country, Americans are enjoying a tremendous variety of
    options. Not only has this trend increased choices for
    consumers, it has created new economic opportunities. In Iowa,
    for example, the craft industry has grown from just one brewery
    in 1985 to approximately 60 breweries today, and that expansion
    has generated new businesses and jobs and also has spurred
    tourism. So, it is important that we maintain robust and
    competitive marketplaces.
        We've heard concerns voiced by small and independent
    brewers, as you have heard here today, but also from retailers,
    independent distributors, and consumer advocates about this
    merger to adversely impact inputs and supply chains,
    distribution avenues, competition generally is a vibrant
    market. Many of the concerns are about the increased leverage
    that the combined company would enjoy and what that might mean
    for the thriving industry as well as consumer choice and
    products.
        Obviously, the antitrust regulators will be looking at this
    deal to determine whether there are any anticompetitive aspects
    that need to be addressed. But it is important that we, in
    Congress, have an opportunity to flesh out these concerns.
        So, my one question is to Mr. Wilson, which basically gives
    him an opportunity to expand on some of the things that he
    can't do in those 5 minutes, and I would ask if they have
    something to add, Mr. Purser and Mr. Brito, to share a
    reaction.
        Mr. Wilson, you've indicated in your testimony that small
    and independent brewers are concerned about the proposed merged
    company's ability to engage in anticompetitive conduct and
    aggressive practices. Please give us some more specifics than
    you have already expressed about your concerns with the
    proposed merged company's ownership of multi-brand beer
    distributors in some States and how that could impact market
    access.
        Mr. Wilson. Certainly. So, we've seen situations where
    craft brands have been pushed out of--you know, the St. Louis
    example that I gave earlier. If I were to scooch on over to
    Washington State in the Seattle market, what we have seen are
    some questionable tactics. One, craft breweries are certainly
    being squeezed out of those distributorships. ABSW had a really
    vibrant craft portfolio prior to the purchase, and now that has
    been almost completely diminished, as I understand it.
        One of the things that we've seen happen--there is no
    problem with buying paid advertisement with, say, the football
    stadium in Seattle, but there is terminology that I guess is
    better left for somebody at a higher pay grade than me to
    determine what that means, but no undue influence, and so the
    number of ABI or ABI-sanctioned or approved brands on sale at
    the football stadium is awfully skewed toward ABI. There is
    another similar deal, not exactly, as I understand it, paid
    advertisement but a, quote-unquote, alignment deal with a large
    music--most of the large music venues, and they are almost 100
    percent ABI products, and that's one that I believe is being
    investigated out that way.
        Chairman Grassley. Mr. Purser and Mr. Brito, do you have
    anything you want to respond to that?
        Mr. Brito. Yes, sure. I think in terms of supplies, that's
    a very important issue, and I would like to bring to the
    attention of this Committee some numbers in terms of supplies.
        First, this deal will have no impact in the U.S. business
    and, therefore, will have no impact on the amount of supplies
    we purchase and procure today. For example, in hops, we
    purchase 8 percent of the hops in the U.S. Eight percent. Okay?
    On cans, we purchase--we manufacture some, but in the open
    market we purchase 12 percent of the cans available in the
    marketplace. In barley, we purchase 25 percent of the barley
    available in the marketplace, and all those figures will remain
    the same pre- and post-transaction. And in terms of bottles, we
    purchase in the open market 27 percent of what's out there.
        So, all those numbers will remain the same and will have no
    impact because, again, this transaction is about the rest of
    the world.
        Chairman Grassley. I will yield back my time.
        Chairman Lee. Thank you, Senator Grassley. Senator
    Blumenthal.
        Senator Blumenthal. Thanks, Mr. Chairman, and thank you and
    Ranking Member Klobuchar for having this hearing on a very
    profoundly important topic. I want to thank our witnesses for
    being here today, all of you with diverse and different
    viewpoints. Mr. Brito, thank you for making the trip from
    Connecticut today. We welcome you, and thanks for your
    involvement in our community in Connecticut.
        I want to say that I am a nondrinker, so I have to disclose
    that fact right at the outset, although our four children I
    think at various points may have imbibed. And I have had the
    privilege of visiting a number of our brewers in Connecticut--
    Thomas Hooker Brewing Company, Blackie's Brewing Company--and
    have hosted here in Washington, DC, a number of others--Two
    Roads Brewing Company, Shebeen Brewing, Stony Creek Brewery. In
    fact, I am going to ask, if there is no objection, to enter the
    list of Connecticut brewers, which is very extensive, into the
    record because I am very proud of them.
        [The information appears as a submission for the record.]
        Senator Blumenthal. Let me be very blunt. What we have seen
    over the past years is a trend toward mammoth beer behemoths in
    our market, and the result has not been a happy one for many
    consumers. As you remarked, Dr. Moss, what we have seen as
    consumers is higher prices. Whatever the complex analyses may
    be of the market and the metrics and the legal issues, through
    the eyes of consumers, the result has been higher prices. These
    mega mergers may have been good for shareholders, but not so
    much for beer drinkers.
        So, I think we need to be very careful here and to regard
    with a high degree of skepticism the kind of conventional
    divestiture that is proposed as a remedy. And I would urge the
    Department of Justice to think beyond the divestiture that has
    been proposed to other safeguards for consumers, because I
    think that this merger has tremendous ramifications for
    consumers here, despite the representations--and I take them in
    good faith--that there will be no impact on the U.S. market.
    Maybe not on day one, but on day two and three and year two and
    three, the ramifications could be huge. And we have seen this
    movie before in the airline industry, to take one, and it may
    not end all that happily for consumers.
        So, let me just be very direct, Mr. Brito. You've heard Mr.
    Purser say that what he is looking for--and I think I am
    quoting almost directly--is that there be no termination of
    independent distributors. Will you commit to this Committee
    that there will be no termination of distributors as a result
    of this merger?
        Mr. Brito. That is a very good point, Senator, and thank
    you for the question. Again, this transaction is not about the
    U.S. It's about the rest of the world, and, therefore, and
    therefore nothing that relates to the transaction, to this
    transaction, will impact any distributor.
        Senator Blumenthal. And I don't mean to be impolite, but I
    take that as a ``no'' answer. You can commit to this Committee
    there will be no termination of any distributor and no
    renegotiation that will end contracts with any distributors. Is
    that correct?
        Mr. Brito. Yes, I can commit as a result of this
    transaction there will be no such a thing.
        Senator Blumenthal. And let me ask you, ABI intends to own,
    you have said in your testimony, no more than 10 percent of its
    distribution. Can you commit to maintaining no more than 10
    percent?
        Mr. Brito. That's correct. I mean, that is our commitment
    we have out there in the marketplace with our wholesalers, our
    investors, our stakeholders in general, around 10 percent. And
    today, by the way, Senator, if I could expand a little bit, we
    are between 7 and 8. So, we said 10. It could be 7 or 8; it
    could be 11 or 12. But it is going to be around 10. That I can
    commit.
        Senator Blumenthal. Well, 11 or 12 is different from 7 to
    8. If you----
        Mr. Brito. That is why we said ``around 10.''
        Senator Blumenthal. You said it would be no higher than 10
    percent.
        Mr. Brito. That is why we said ``around 10.''
        Senator Blumenthal. And let me ask, furthermore, in terms
    of retail penetration, can you commit that there will be no
    effort to penetrate the retail market?
        Mr. Brito. Well, what we have done in terms of the retail
    market--and I thank you for the question. The three-tiered
    system in the U.S. is regulated at the State level, so 50
    different States, 50 different sets of regulations. So, in some
    States, for example, 15 States, brewers can own wholesalers. In
    the others, we can't. In other States, we can own brew pubs. In
    some others, we cannot. So, we comply with the law. We have
    been owning wholesalers for more than 100 years, and let me
    tell you why we do this. The beauty of this is that if you own
    a couple wholesalers--and, again, it is 7 to 8 percent of our
    volume, and it is going to be around 10 percent; that is our
    commitment--you are able to develop people within the company,
    our colleagues, that understand the distribution system, that
    understand the second tier, and, therefore, are able to talk to
    wholesalers on an equal basis because they face their realities
    that our wholesalers face on a daily basis in our company-owned
    wholesalers.
        So, that's the reason why we have been in this business for
    100 years, because it provided us the knowledge about being
    closer to the market and being able to talk and understand
    wholesalers in a much better way.
        Senator Blumenthal. My time has expired. I thank you for
    that.
        Mr. Brito. Thank you very much.
        Senator Blumenthal. And I look forward to the second round.
    Thanks, Mr. Chairman.
        Chairman Lee. Thank you, Senator Blumenthal. Senator
    Perdue.
        Senator Perdue. Thank you, Mr. Chairman. I appreciate you
    guys being here. I just have a couple quick questions.
        Look, I appreciate the fact that we are here on an
    information basis talking about antitrust and the consequences
    on not only consumers but also investors--without one, the
    other doesn't exist--and also with your employees, really
    fulfill the three stakeholders that you as CEOs have to deal
    with. I just have a question for the two people who are going
    to make this deal happen, possibly, Mr. Brito and Mr. Hunter. I
    would like both of you to respond.
        Why is the 10-percent number, Mr. Brito, important to you?
    In other words, I know that number just does not come out of
    the air. And when you look at going vertical, there is balance
    in your own business when you look at the matrix you have to
    deal with, going across products and across countries. Talk to
    me just a little bit about how that calculation--why that is
    important.
        Mr. Brito. Sure. Thank you. Thank you for the question.
    Again, if you look at the last few years, Senator, our volume
    done through our company-owned wholesalers has always been
    around 7 to 8 percent. So, we said around 10. And the reason
    for having those wholesalers, company-owned wholesalers, I
    explained to Senator Blumenthal, is that we can develop people
    that understand that business.
        But the biggest asset we have other than our people and
    brands is our wholesalers in the U.S. These are savvy business
    people, independent business people. They carry, by the way,
    competitive brands. They can carry whichever brands they want.
    They are non-exclusive, totally open, and they are amazing.
    They really execute in the marketplace, and they really build
    brands in the marketplace.
        So, our intention is to continue to have the bulk, that is,
    90 percent of our volume, being done by the savvy, independent
    entrepreneurs as opposed to our people. Our people, it is good
    because we learn about the business, and we can talk to them
    and exchange best practices in a more direct way.
        Senator Perdue. Thank you. Mr. Hunter, do you have anything
    to add to that?
        Mr. Hunter. Senator, the only thing I would add is that
    currently we own one distributor. It is a local distributor in
    Denver. And I can commit that certainly at this stage we have
    no plans to extend our direct ownership and distributor
    network. We partner with 569 distributors. We rely on them as
    business partners. They take our brands to market, and they are
    the face of our company in their local markets. We are strong
    advocates of the three-tier system, and certainly under Molson
    Coors ownership there will be no change at MillerCoors.
        Senator Perdue. In one of the recent communications to your
    shareholders, you talked about the synergies of this deal. Can
    you explain a little bit more in detail about what those
    synergies are from your perspective, your shareholder
    perspective?
        Mr. Hunter. Certainly. Our aspiration is to be a growth
    business. We want to be a stronger, more assertive competitor
    in the United States, and we believe that under the ownership
    of one shareholder, Molson Coors, we can move with more pace,
    and we can build our business to be a long-term stronger
    business in the United States.
        One of the advantages that we have on the back of this deal
    is that we can start to look at our network from a North
    American perspective. We have a big business in Canada, so when
    it comes to breweries, distribution, procurement, shared
    services, and our ability to move our brands between markets
    more quickly, that will make us certainly a more able
    competitor in the marketplace.
        Senator Perdue. So, one of the most important pieces of
    your business, as I understand it, is procurement of raw
    material--the hops, the barley, et cetera. Do you anticipate
    any impact, both CEOs, on the agricultural business by this
    transaction? And have you heard from any of your primary
    suppliers of barley, hops, other agricultural commodity
    providers? Do you want to start, Mr. Hunter, since your light
    is on?
        Mr. Hunter. Sure. I would anticipate an impact, if I am
    successful and the business is successful, when we grow our
    business on the basis that we go to procure more in the United
    States. We have longstanding relationships with barley owners
    in a number of States, and Pete Coors still regularly visits,
    and we have long-seated personal and business relationships
    with those barley growers. Interestingly, the National Barley
    Association has said this deal will have no impact in terms of
    availability of raw materials.
        There is a pinch point at the moment in the hops market.
    Craft brewers have been growing very successfully. They are
    about 12 or 13 percent of the market. They are using about 50
    percent of some variations of hops because they are very
    flavor-forward beers. So, clearly, some work needs to be done
    there to improve some of the supply chain management and
    procurement and forecasting, but generally there's no issue
    with availability of hops. And certainly from bottles, as you
    heard from Mr. Brito, the glass manufacturers have said that
    there is no issue with supply. And aluminium, or aluminum, is
    certainly something that is not controlled by us. It is a much
    bigger game in the global market, and, interestingly, Bill
    Coors, who was 99 back in August, the grandson of our founder,
    invented the aluminum can. So, some things that is close to our
    heart, but we see no pressure in that part of the market from a
    supply point of view.
        Senator Perdue. Thank you. Mr. Brito.
        Mr. Brito. Yeah. Since this transaction will have no impact
    in the U.S. market--it is about the rest of the world--what we
    procure today in terms of supplies and raw materials will be
    the same pre- and post-transaction. So, for example, today we
    procure 8 percent of the hops supply in the U.S. That will not
    change. Of course, as we grow the business, yes, but as a
    result of the transaction, it will not change. We procure in
    the open market 12 percent of the cans because we also self-
    manufacture cans. That will not change. We procure 25 percent
    of the barley. That will not change. We procure 27 percent in
    the open market of the bottles because we also produce some on
    our own, and that will not change.
        So, there will be no change or pressure in any supply
    system in the U.S. as a result of this transaction.
        Senator Perdue. Thank you. Thank you, Mr. Chairman.
        Chairman Lee. Senator Coons.
        Senator Coons. Thank you, Chairman Lee and Ranking Member
    Klobuchar, and thank you to all the witnesses for your presence
    here today and for testifying on this important subject matter.
        Craft breweries are an important part of my home State of
    Delaware. From Dogfish Head to Twin Lakes to 16 Mile, we have
    got some great craft brewers that are creating jobs and
    innovating new products and, frankly, brewing some great beer.
    And I think we all want to make sure that we have an open
    marketplace in which they can continue to thrive and grow and
    where we safeguard their ability to compete on a fair and level
    playing field and where we also maintain access to distribution
    options and consumer choice. So, I just want to make sure I
    have asked some relevant questions on that as we consider this
    very large merger.
        Mr. Brito, in the wake of increased competition from
    independent brewers, ABI has made an effort to acquire craft
    breweries and distributors, and some have suggested ABI is
    using these acquisitions to constrain some of the distribution
    channels of competitors, including craft breweries.
        How do you respond to these questions, these allegations?
    And will ABI be using profits from the merger to continue the
    process of acquiring craft brewers and their related
    distributors?
        Mr. Brito. Well, thank you for the question. I think the
    facts can help us here.
        In terms of the 4,000 breweries that we have in this
    country and opening two a day, we own five, and we have a
    minority stake in a sixth one. So, let us say five plus a
    minority stake. So, the reason we do that, just like we do with
    our company-owned wholesalers, is that we can learn from those
    amazing entrepreneurs who created brands and how they connected
    to local constituencies so that we can learn from that. We
    build our company by learning from others, so that's one thing.
        In terms of--in terms of WODs, out of the 500-plus
    wholesalers that are so-called AB wholesalers, we own 21, and
    we do 7 to 8 percent of our volume through those WODs. And the
    reason for owning those WODs--and we have owned them for more
    than 100 years--has been always to learn and develop people
    through the WODs so they understand the marketplace.
        But what I can say is that, first, this transaction has no
    impact on the U.S. market, and the U.S. market has never been
    so competitive and so open. I mean, never--if you walk down the
    aisle of your grocery store, I bet you'll find more options
    than you would 5 or 10 years ago. So, that attests to the fact
    that this market is very open, very fragmented, and craft beers
    have no issues in finding ways to get to the shelves. I would
    like to remind the Committee that 35 States out of the 50
    permit or allow some sort of self-distribution of beer. And
    other than that, in any market you go, you have at least two or
    three or four wholesalers, one being ours.
        So, there are many options to distribute. And wholesalers,
    let me tell you, 94 percent of our wholesalers carry
    competitive brands, and what a wholesaler wants at the end is
    to carry brands that consumers want to buy and customers want
    to stock. And that's what they do. That's why the craft brewers
    have been growing.
        I would offer one last comment. When you think about it, we
    have been in the business since 1852, so more than 160 years.
    And together with our wholesalers, we have built a whole
    system--trucks, warehouses--to get products from breweries to
    shelves. And the craft brewers have been enjoying that system
    that was set by others, and I think that's the beauty of the
    American market. It's a very open market, and nothing in this
    transaction will change the competitiveness and the openness of
    the U.S. market.
        Senator Coons. Thank you. Mr. Pease, nobody wants to take a
    seat at a bar and discover their only choices are between a Bud
    and a Miller. We want to continue the dramatic growth in craft
    breweries, in opportunities for consumers, and in the jobs that
    they create. And I found the testimony of Mr. Brito
    encouraging, but I would be interested in hearing your view on
    how these huge international companies and their potential
    mergers may or may not impact craft breweries, distributors,
    and the impact on consumers. Have your companies faced
    competition or challenges due not only to ABI's ownership of
    distributors but also due to some of their use of market
    pressure on distributors?
        Mr. Pease. Thank you, Senator. I think there's--you have
    to, again, look at that question from a variety of different
    levels. I think fundamentally Mr. Brito and I probably differ
    on the degree of independence that currently exists at the
    distribution tier. I think everyone has to keep in mind that my
    members, by and large, are required by State-based regulation
    to use a distributor to get their beer effectively to a
    retailer. Self-distribution is an option in some States, but
    usually that is very limited.
        If you want to grow your business as a craft brewer, if you
    want to get your beer into a chain store, if you want to get
    your beer into the stadium, you need to use the Anheuser-Busch
    distributor or the MillerCoors distributor. Those are the only
    two options in most markets that have the horsepower to
    effectively bring your beer to the retail market.
        If the ABI distributor is a wholly owned distributor, which
    it is in nine States, then that option is pretty much
    effectively shut off for a craft brewer, so then you are down
    to really just the MillerCoors distributor.
        So, at the end of the day, we don't feel the existing
    playing field is exactly level, and we're very concerned that
    the increased market power of the combined entity will be able
    to further influence the distribution tier to the disadvantage
    of Dogfish Head, 16 Mile, you know, companies like that.
    Dogfish Head now employs over 200 people in Milton, Delaware,
    and we just want to make sure that those American success
    stories are not negatively impacted by this merger.
        Senator Coons. Well, thank you. If I might, Mr. Chairman,
    could Mr. Purser just comment on that same question in closing?
    I know we are running tight on time, but do you agree with that
    same assessment about the access to distribution options?
        Mr. Purser. I think that there is a scalability that comes
    with a more established distribution network, and the
    MillerCoors and the Anheuser-Busch InBev distribution networks
    are more established. They have got that access to scale. That
    is part of the economic reality.
        Interestingly, those networks were preceded 50 years ago
    with different brewers, you know, with Schlitz or Falstaff or
    built on other brand names that once upon a time were more
    dominant players. Beer's history was more bifurcated. There
    were more regional players, a whole host-we could wax poetic
    and open a couple of cold ones and talk about the history of
    beer in America. Oh, I see somebody is getting a head start
    there.
        But in all--but in all seriousness, the outlets and the
    access need to be maintained through these independent
    channels. And when you do have the presence of a company-owned
    distributor, that precludes the ability of some of those
    products to get to market. And sometimes, Senator, even the
    presence in a State of a small player can limit the ability of
    some of those brands to get to market because when some of Mr.
    Pease's members want to go into a new State, when Dogfish Head
    was growing and getting established, they would decide to go
    into a State, and they might make an investment or make a
    decision based on an entire statewide network with one of the
    legacy brewers. And if one of--some of those legacy brewers are
    owned by their competitor, they may choose--they may in their
    mind only have one choice, or they may not choose to enter that
    State that has a company-owned presence in it.
        Senator Coons. Thank you. Dogfish Head is celebrating 20
    years, and I recognize that there are other players who are
    decades older or a century older. What we're just trying to do
    here, Mr. Chairman, is make sure that we preserve
    competitiveness, a level playing field, and opportunities for
    our consumers and constituents.
        Thank you all very much.
        Chairman Lee. Senator Tillis is next, but I wanted to
    comment briefly. They're about to call a vote in a few minutes,
    so I'll be leaving in a few moments to go vote. I'll come back.
    Senator Klobuchar will chair while I am gone, and we will sort
    of trade on and off while we continue the hearing. Senator
    Tillis.
        Senator Tillis. Thank you, Mr. Chair. Dr. Moss and
    gentlemen, thank you for being here as witnesses.
        As everybody has bragged on their States, I have to brag on
    North Carolina. We have got nearly 150 microbrews now. In fact,
    over about the last 5 or 6 years, we have also added Sierra
    Nevada, Oskar Blues, and are about to bring New Belgium online.
    So, this is obviously a very important industry to our State.
    As a matter of fact, App State is offering now a bachelor's
    degree in fermentation sciences.
        I actually want to go to a more parochial issue for the
    State of North Carolina. I think my colleagues have done a good
    job of covering the broader landscape. Mr. Hunter, I would like
    to maybe start with you. I have got a letter signed by about
    115 of the State legislators and a similar letter from the
    Governor that I am going to submit for the record and provide
    you with an opportunity to respond to the specific questions.
    But I do want to go back and ask one that is a consistent theme
    with some of the people I have heard from back in my State.
        They feel like that the decision to close the Eden plant--
    for those of you who are not familiar, this is a plant that has
    been in North Carolina for about 30 years, employs about 500
    people, that is going to be closed. Many of them believe that
    there is a curious timing between the announcement of the
    merger and the announcement of the closing of the plant
    sometime next year. Can you explain the timing of the
    announcement of the merger and the decision to close the
    brewery and when the decision was made to close the Eden plant
    and whether or not it had anything to do with the merger
    discussions? And, Mr. Brito, I will ask you, just for the
    purposes of closing the loop at the ends of the witness stand?
    But with you, Mr. Hunter?
        Mr. Hunter. Thank you, Senator Tillis, and let me start
    with your last question first. The merger discussions that
    emerged between SAB and ABI had absolutely no impact at all on
    the discussions that had been taking place for a long period of
    time within the MillerCoors organization with regard to how we
    manage our brewing network and our brewing infrastructure.
        So, to get to the specifics, the board and executive team
    of MillerCoors had been reviewing our brewing requirements for
    quite a significant period of time, at least a year, as they
    have been building through their 2015 plan, so through the
    middle part and toward the end of 2014 had been discussing and
    looking at some of the challenges within the MillerCoors
    business.
        Since the MillerCoors business was created in 2008, the
    business has lost about 10 million barrels in total volume, and
    if you look at our brewery network, that meant that many of our
    breweries were underutilized, not performing efficiently or
    effectively. And the decision was taken that one of the
    breweries would need to close to take some capacity out of our
    network to ensure that our network was efficient so we can
    compete effectively.
        As you can imagine, long discussions, because these are
    probably the last kind of discussion any business wants because
    it affects our people, and we were faced with a decision that
    we have a very modern brewery in Shenandoah, about 180 miles
    away from Eden, which has been well invested. And we had to
    look at routes to market, our geographical footprint and
    presence, and the decision was made as we came into 2015 to
    close the Eden brewery. And, clearly, something like that then
    takes months of planning to ensure that all of our
    communication and all of the welfare considerations for
    employees are put in place effectively. And it was nothing more
    than coincidence, and clearly I am certainly not party to ABI's
    intent and their approach to SAB. It was pure coincidence that
    our announcement occurred at roughly the same time that ABI
    announced that they had approached the board of SAB. It was
    further, I think, 4 or 6 weeks after that date before ABI and
    Molson Coors connected to talk about a remedy in the U.S. So,
    the two events are in no way connected.
        Senator Tillis. Mr. Brito, from your side of the
    discussions, was there any, to your knowledge, any discussion
    between the two entities with respect to the disposition of the
    Eden facility?
        Mr. Brito. No, never.
        Senator Tillis. The only question I would have--and I think
    it is very important, Mr. Hunter, that I think if you go at
    least in reference to the letter that I received from the
    president pro tem, they viewed the Eden plant as a state-of-
    the-art facility, that it had had some capital improvements in
    the recent past, and so many of the people down there are
    wondering what the real differences are between, say,
    Shenandoah, which would, I guess, take on some of the capacity
    over time as your demand increases. So, it sounds like that at
    a minimum there is a disconnect in terms of some of the
    communications on the ground, and I think it is something
    that's very important for us to look at. It is a significant
    economic impact to an area that's already struggling, and as we
    move forward, I'll pass on some additional questions I've
    because I believe we are about to move to the vote, and the
    questions from the legislative leadership, I look forward to
    your responses.
        Thank you. Thank you all for being here.
        Senator Klobuchar [presiding]. Thank you very much,
    Senator.
        Senator Franken, from the home of 70 breweries, the State
    of Minnesota.
        Senator Franken. Yes, beer is very important to
    Minnesotans, and I want to thank you, the Ranking Member, and
    Chairman Lee for holding this important hearing.
        Beer is extremely important to Minnesotans, and nothing
    illustrates this more than the 2011 State government shutdown.
    We faced a--we had a 3-week government shutdown that suspended
    critical State services, including transportation construction,
    criminal background checks, the issuing of fishing and hunting
    and boating licenses, and this was during the summer, and it
    had an effect on our lodges and resorts. But Minnesotans really
    weren't putting pressure on the State legislature and the
    Governor to resolve this. But then the State beer licenses
    expired.
        [Laughter.]
        Senator Franken. And more than 300 bars and liquor stores
    were no longer able to sell beer because the license had
    expired, the alcohol license had expired, and then the public
    became outraged. And this got settled right away.
        [Laughter.]
        Senator Franken. So, beer is very important to Minnesota,
    and this was also obviously about a lot of businesses, too. It
    was beer. And the beer industry in the United States has
    evolved in recent years, and we have our craft breweries, great
    craft breweries in Minnesota. But I want to discuss how, given
    the importance of beer to Minnesotans, how we can keep a truly
    competitive landscape in the United States. And we really have
    to review the impact of this deal at hand.
        Now, Mr. Brito, I understand that deals of this size often
    involve very complex business decisions, especially when
    companies take on a significant amount of debt to complete the
    deal. I also understand that you have an obligation to look out
    for your shareholders and save money wherever possible.
        Unfortunately, those decisions can have harsh consequences
    for American families. In 2008, following InBev's acquisition
    of Anheuser-Busch, the newly formed entity announced--and a few
    weeks before Christmas, I might add--that it would be laying
    off 1,400 U.S. workers and over 400 contractors.
        This time around, AB InBev is taking on $75 billion in
    debt, over $20 billion more than last time, and I know you'll
    be facing some tough decisions about where to cut costs.
        So, Mr. Brito, my question is pretty simple: What can
    Americans expect this time around? Where will you be cutting
    costs? Will there be job losses, brewery closing, distributor
    terminations? Or will you face pressure to raise prices to pay
    back that debt?
        Mr. Brito. Senator, thank you for the opportunity to
    clarify. This transaction we are proposing here today is about
    the rest of the world. It is about getting access to new
    markets like in Africa, parts of Asia, parts of Latin America.
    This transaction has nothing to do with the U.S. Therefore, it
    will have no impact in our operations in the U.S. market. That
    I can guarantee.
        Senator Franken. So, basically what you are saying is that
    this $75 billion of debt is not going to have any effect on--on
    decisions that you might have to make in the same way you did
    last time.
        Mr. Brito. Well, last time, we have to remember, we had an
    economic crisis, 2008. Last time, we have to remember that the
    transaction in terms of the size of InBev was a similar size.
    Today this transaction, as big as it is, is way smaller than AB
    was at the time. So, what I am saying is that there is no
    impact--there will be no impact as a result of this transaction
    in the way we conduct business in the U.S. We are going to
    produce the same amount of beer. We are going to have the same
    market share. We are going to carry the same brands, no impact
    on our distribution system. This transaction is about getting
    access to new markets.
        Senator Franken. Is anybody here skeptical about that
    answer? Would anyone like to speak to that skepticism?
        Mr. Pease. Senator Franken, I would comment. I do take Mr.
    Brito at his word that this transaction is more about the rest
    of the world than it is the United States. The point I want to
    make is that it is the small and independent craft brewer that
    is the growth segment of the American beer market. Now, it is
    the American craft brewer that is creating jobs in every State
    and in every congressional district. And we just want to make
    sure that nothing arises or is the result of this transaction
    that would hinder that. If the American beer drinker is left to
    be the deciding force and their access to products from small
    and independent breweries is unfettered, then we are going to
    be comfortable. But we have significant concerns about how this
    deal could impact both access to market for the small craft
    brewers and access to raw materials.
        Senator Franken. Mr. Hunter, could you just respond briefly
    to my question, the question I asked of Mr. Brito?
        Mr. Hunter. Certainly, Senator. From a MillerCoors
    perspective, it is business as usual. As I tried to explain
    earlier, the MillerCoors business currently has two
    shareholders: Molson Coors and SABMiller. It will have one
    shareholder going forward, which is Molson Coors, and we will
    continue to build our business and attempt to be a very
    assertive competitor in the U.S. beer business. We need to
    invest more in our business because of the changing nature of
    the competitive environment. The U.S. beer industry has
    probably never been as competitive as it currently is.
        Senator Franken [presiding]. Thank you. Thank you for your
    indulgence. Senator Blumenthal, as Chairman, I recognize you.
        [Laughter.]
        Senator Franken. And I deputize you as Chairman.
        Senator Blumenthal. I am the last man sitting. And I know
    that Senator Lee is going to be returning. I have to leave
    shortly to vote as well. We have a vote that is going on right
    now.
        Let me just ask, Mr. Brito, I take it by your unequivocal
    representation to me that there will be no termination of
    distributors that you would be willing to incorporate that
    commitment in a consent order as part of the resolution of this
    merger.
        Mr. Brito. Well, that is for the DOJ to decide. What I am
    saying is that----
        Senator Blumenthal. Well, it is for you to decide whether
    you would be willing, since a consent order is dependent on the
    consent of the parties, whether you as the CEO of your company
    would consent to that condition incorporated in an order that
    there be no termination of distributors.
        Mr. Brito. Well, what we tried to do here when we draft the
    contract of the divestiture is we look at the consent decree
    that we had for the Grupo Modelo deal 2 years ago, and we tried
    to replicate all the important clauses in that new contract so
    as to mirror what we had back then negotiated with them. But,
    again, it is their final decision----
        Senator Blumenthal. But in terms of--I take that, I hope,
    as a yes, because you've made the commitment here, and for it
    to be enforceable more easily, it should be part of an order
    that the Justice Department would join. And I would just say I
    take it at full face value the commitments that you are making
    here in good faith. But I think the important lesson of many
    mergers is trust, but verify. And verification and enforcement
    are critically important in this watershed moment for this
    industry. And so, I hope that you will be willing to
    incorporate that commitment as part of a legally binding
    document. That is essentially what the consent order is.
        Mr. Brito. Yes, we as a company, when we commit, we
    deliver. And what I would like to remind us here, the fact I
    think can help us here, this industry has never been more-the
    beer industry in the U.S. has never been more open to new
    entrants. When you look at the market share of craft beers in
    1997, it was under 4 percent. Last year, it reached 11 percent.
    And the trajectory points, according to the Brewers
    Association, that this market share will get to 20 percent, 1
    in 5, by 2020. So, this tells you that this is a very----
        Senator Blumenthal. That may be little benefit to consumers
    if the 80 percent of the industry, or the, 85 percent or
    perhaps larger, if you go into purchasing those craft brewers,
    as your company has done, is in the hands of a small number of
    behemoth beer makers and the consumer has, in effect, less
    choice.
        Mr. Brito. Well, my view here is today we have five micro,
    you know, beers that we bought out of 4,000, and we have a
    minority stake in one more, so six. That's it. I think in
    4,000, having five, that is, again, more to learn, to have
    those entrepreneurs join us as partners, and to get us the DNA
    of what they know that we do not know. That's the beauty of
    this transaction. The same thing as owning company-owned
    wholesalers. That is the only reason why we do it.
        Senator Blumenthal. In the limited time I have left, I
    would like to ask Ms. Moss, you raised the concern in one of
    the papers that I read about the need for a remedy to establish
    the Molson Coors enterprise as a completely independent company
    given the evidence of anticompetitive coordination after the
    MillerCoors JV in 2008. Could you perhaps tell us whether you
    think that the existing divestiture plan provides sufficient
    guarantees of the independence of that new competitor?
        Dr. Moss. Thank you, Senator. I think that's the million
    dollar question. This merger is not over until a remedy is in
    place. The fact that the companies have stepped forward to
    offer an up-front fix I think is evidence that this deal does--
    does have potential anticompetitive implications.
        So, the importance of a remedy, a fully effective remedy, I
    think is critical. And I think there are really open questions
    about that. The disposition of MillerCoors independent
    distributor contracts, how those contracts will be
    renegotiated, any change in the dynamic in the market post-
    merger would be important.
        Miller has taken a reportedly much less adversarial
    approach to independent distributors than has ABI. We want to
    make sure that an effective remedy would, in the hands of
    Molson Coors, would not change--or create a dynamic where
    independent distributors are pressured to create exclusivity or
    to discriminate against smaller rivals.
        Anything that changes the incentive or the ability of the
    company post-merger to compete effectively I think would be--
    would be suspect. These are things that the DOJ I think will
    have to look very carefully at. And there's quite a bit of
    murk, or the devil will be in the details, shall we say, about
    how that remedy is ultimately negotiated. And I think the DOJ
    had a very good approach in Grupo Modelo. I think that is a
    template, but it is--it is something that will require very
    close scrutiny.
        Senator Blumenthal. I thank you very much. I thank all the
    witnesses. I think you have really hit the nail on the head. On
    its face, this merger would clearly break the law. The
    divestiture is an effort to avoid that issue. Whether the
    remedy can be fashioned effectively I think is, in fact, the
    million dollar or maybe billion dollar question. Again, my
    thanks, Mr. Chairman.
        Chairman Lee [presiding]. Thank you, Senator Blumenthal.
        Mr. Pease, why should AB InBev be required to divest
    wholesalers when it is not acquiring any wholesalers, let alone
    any assets at all in the United States?
        Mr. Pease. You are referring to that ABI is not acquiring
    any distributors through the purchase of South African
    Breweries.
        Chairman Lee. Right.
        Mr. Pease. Because they are acquiring independent AB
    distributors currently. They have acquired five in the last few
    months and consolidated those into company-owned
    distributorships that then reduced the access for my members to
    get to market. I think we have to keep in mind that, again, my
    members are required by State-based regulation to use a
    distributor to get their products to market, and in the States
    where--in the metropolitan areas where ABI controls that
    distributor, they have a wholly owned distributor, that
    effectively shuts off one of the two plausible paths to market
    for my members.
        Chairman Lee. Mr. Brito, what is your response to that?
        Mr. Brito. Well, we have owned wholesalers for more than
    100 years. This transaction will have no impact in the U.S. in
    the way we go to market, in our brand portfolio or anything. We
    own 21 wholesalers out of a universe of 500-plus AB
    wholesalers. And it's interesting to see that despite us having
    owned wholesalers for 100 years, crafts have grown from 4
    percent in the 1990s to 11 percent last year, to and the
    Brewers Association is saying it will get to 20 percent by
    2020. And, more interesting, the major wholesalers that we own
    are in New York, Boston, San Diego, and Denver, one of the, you
    know, hottest beds for the growth of craft beers in this
    country.
        So, I do not see any link between us owning wholesalers and
    craft brewers being disadvantaged in the marketplace. The facts
    prove quite the opposite, and I think the facts can help us
    here.
        Chairman Lee. Dr. Moss, your testimony indicates that the
    discussion really comes down to the sufficiency of the
    divestiture and the scope of the divestiture. Given that AB
    InBev has stated that Molson Coors will acquire 100 percent of
    SABMiller's, quote, ``brands, breweries, intellectual property,
    and other assets,'' close quote, doesn't that mean that--that
    this merger will have little or no effect on the state of
    competition in the United States?
        Dr. Moss. Senator, thank you for the question. I think you
    raise sort of the critical point in this case. Were there no
    remedy in this merger, it would be a presumptively illegal
    merger--a big increase in concentration, lots of control of
    really critical distribution.
        I would note that this merger is occurring against a
    relatively troubled backdrop in the U.S. beer market, evidence
    of coordination in the wake of the MillerCoors JV, lots of
    control of distribution, but also a growth of a really
    important segment that provides choice and diversity to
    consumers.
        So, I think getting it right, getting this merger right--
    and that means getting the remedy right--is really critically
    important in this case. So, backdrop is important, context is
    really important, which means, moving forward, whether that
    transfer of the MillerCoors assets fully to Molson Coors really
    is fully effective, that has to be scrutinized very carefully.
    And so, that means really digging into the details of how that
    divestiture is going to occur and whether it will, in fact,
    create a fully independent Molson Coors.
        You know, I think this provides a really good opportunity
    to not only address some of the competitive concerns that are
    in the industry, at the same time we look at a remedy that
    fully restores competition. So, I think moving forward there's
    an opportunity here to make some significant improvements in
    terms of protecting the independent distribution channel
    because craft brewers are so dependent on it, and to--to
    perhaps prohibit certain types of behaviors that have
    historically been entrenched in the industry that make it more
    difficult for rivals to compete.
        Chairman Lee. So, ultimately the effect of the divestiture
    will depend on how it is executed, the implementation and the
    details of how it is actually carried out.
        Dr. Moss. Yes.
        Chairman Lee. Mr. Hunter, let's talk about this for a
    minute. Tell us how the operation of MillerCoors will be
    expected to change after Molson Coors acquires SABMiller's
    interest in the joint venture.
        Mr. Hunter. Thank you. thank you, Chairman Lee, and I think
    I am probably best placed to talk about the independence of
    Molson Coors. So, Molson Coors as a business is a U.S.-listed
    business. We will be the single shareholder, the single owner
    of the MillerCoors business going forward. Currently, we have
    50/50 governance and 42 percent economic interest in the
    business. And this is an asset transaction, so all of the
    MillerCoors assets will transfer to Molson Coors, and the
    MillerCoors business will be run as one of our business units.
    We have a business unit in Canada, one in Europe, an
    international business unit, a global office, and the U.S. will
    be our fifth business unit.
        All of the brands are currently available to consumers, to
    customers, and distributors through MillerCoors will remain in
    place. For those brands that we do not own--and it is a very,
    very small percentage of the volume--we have agreed a
    perpetual, royalty-free license arrangement. So, those brands
    are basically our brands to do as we see fit and grow those
    brands in the United States. So, it was very, very important
    that we could talk to our distributors about the maintenance of
    the business that they know and have been investing in since
    the joint venture was formed back in 2008.
        So, it really is business as usual, and I am very clear on
    the independence of Molson Coors. We are a U.S.-listed
    business, an independent business, and we still have the
    benefit of the governance from our founding families on our
    board, which makes us quite unique in the world of beer.
        Chairman Lee. Thank you. Senator Klobuchar.
        Senator Klobuchar. Thank you very much. Thank you, all of
    you. Just a few more questions.
        Mr. Hunter, in the consent order resolving ABI's
    acquisition of Modelo, the buyer of the divested assets,
    Constellation Brands, was made a party to the order. If the
    Department of Justice determines that Molson Coors should be
    named as a party for the purposes of a remedy, would you have
    any objections to that?
        Mr. Hunter. Senator Klobuchar, our view at this stage is
    that there is nothing anticompetitive about this arrangement
    and our taking full ownership of MillerCoors, and that is
    something I think we would need to discuss with the DOJ in due
    course.
        Senator Klobuchar. Okay. According to your testimony, you
    talked about how this will allow you to boost production at
    MillerCoors' nine U.S. breweries, create the opportunity to
    increase the barley purchases, which you mentioned about
    Minnesota. Could you provide a little more detail on how
    changing from the joint venture to the single ownership will
    actually boost competitiveness for you, make you a more
    effective competitor?
        Mr. Hunter. Yes. The challenge for our business is to grow
    our business, and that is my intent as the CEO of the
    organization, and it is the intent of the 8,000 people that we
    have who are beer champions right across the MillerCoors
    organization. Our business has, since the joint venture was
    formed, been an effective number two in the U.S. market, but
    the market has changed pretty significantly, as I think we have
    heard in detail through the course of this morning. Our intent
    is to get the business back into a stable position by 2018 and
    back into volume growth by 2019. That's the ambition we have
    set for the business. And by being part of the Molson Coors
    organization, we move from two shareholders to one, simpler and
    faster from a decision-making perspective. We can utilize our
    total North American footprint, so our Canadian business and
    our U.S. business, to drive further operational efficiencies
    and allow us to invest even more assertively at the front end
    of our business to compete more assertively. That is what we
    are about as a business. We have been here for the long term,
    and we want to be here for the long term.
        Senator Klobuchar. Thank you. Mr. Brito, why does ABI want
    or need this acquisition?
        Mr. Brito. Well, the main reason, Chairman, for this
    acquisition is really to get access to new markets in Africa,
    parts of Asia, parts of Latin America, and complement our
    portfolio. The beauty of this transaction in terms of strategic
    rationale is that the footprints of both companies are highly
    complementary, the markets where they operate. So, with this
    operation, with a few exceptions like the U.S., where we
    divested the assets, there will be no increase in market
    concentration in any of our markets around the world on either
    companies. So, that is the beauty of it.
        Senator Klobuchar. All right. Thank you.
        Mr. Pease, just one more question on sort of the wholesaler
    issue. There have been described in your testimonies some
    allegations about wholesalers being coerced into dropping--
    dropping craft brew products by the major brewers. Some say
    there are many ways to distribute beer and that access to
    wholesalers that also carry ABI or MillerCoors products, not
    necessary. That is what some people say. I did notice from
    Exhibit C of your testimony that each of the 30 large--largest
    beer wholesalers carries either ABI or MillerCoors. So, do you
    think using non--and these guys are not alleging that is what
    they want, of course, but using non-ABI or MillerCoors
    wholesalers, is that even a possibility for the market?
        Mr. Pease. It is a possibility if you only are content to
    take your brand to a certain level. The true distribution
    horsepower is with the ABI option or the MillerCoors option.
    The small, independent option is feasible, again, to a degree,
    but you are basically going to be constrained to a fairly small
    geographic footprint. If you want to grow your business, say
    like a Surly, and you want to get into the chain grocery store
    or you want to get into the big-box retailer, you want to get
    into the sports venue, you are pretty much limited to one of
    those two options. And so, that's why our focus on all of this
    is just about fair access to market for the smallest players.
    If nothing negative comes out of this deal that further
    restricts access to market for small and independent craft
    brewers, we're going to be more comfortable. But there has been
    past and even current behavior of the relatively so-called
    independent ABI distributors that we would call into question.
        Senator Klobuchar. Okay. And I will say that--you know, we
    have mentioned some of our brewers. Everyone has mentioned
    their own. But I think it is important to note there are big
    ones like what we have, Schell's and some of the large--
    Surly's, and then there are ones like Fitger's, which is a
    restaurant in Duluth, and Canal Brewing, Lake Superior Brewing,
    and one that I visited called Castle Danger, which is literally
    in kind of--it is not a garage. That would be more dramatic.
        Mr. Pease. But it is close.
        Senator Klobuchar. It is close, in Two Harbors, Minnesota.
    So, as you know, the distribution is everything for these
    brewers. So, thank you for acknowledging that.
        Dr. Moss, one more question. I will ask you this question--
    or maybe someone else did when I was gone--but as we look at if
    there is some kind of--if the Justice Department believes there
    should be conditions on this but approves it, what conditions
    do you think would be helpful?
        Dr. Moss. Thank you. So, again, I think that is--that is
    the key question here. I think, as I said earlier, any remedy
    will have to create a fully independent Molson Coors for it to
    fully restore competition in the market. And, again, this is a
    troubled market landscape against which this merger is
    occurring. So, I think lifting up the Grupo Modelo divestiture
    package of conditions and moving it over to this particular
    merger may not be a sufficient approach. I think additional
    details, additional conditions on post-merger conduct of the
    companies will be important.
        For example, a remedy--a remedy would include at a minimum
    any prohibitions on contract brewing. Any supply agreements
    would continue to link the two companies together between
    Molson Coors and ABI. So, full independence means no supply
    agreements, no contract brewing.
        I think a good remedy would include prohibitions on any--
    any contracts with independent distributors that created
    incentives for exclusivity. I think that has been conduct that
    has greatly troubled this industry. Now, is the time where that
    conduct can be dealt with effectively through a merger remedy.
    So, prohibitions on exclusivity provisions.
        I also think a remedy would address even preemptively any
    closures of capacity that are in very close proximity to this
    merger. I have to say those types of closures are highly
    suspect given the proximity to this merger deal.
        Senator Klobuchar. What was the last one?
        Dr. Moss. Any preemptive closures of capacity at any
    existing MillerCoors facilities. And I would emphasize that a
    fully independent Molson Coors would--would not have incentives
    to tacitly coordinate with ABI. We have economic evidence that
    shows that there was tacit coordination and price increases
    came out of that. So this, again, is an opportunity in creating
    a fully independent Molson Coors to prevent any further tacit
    coordination in the industry. So, I think a remedy is going to
    have to be really carefully thought out.
        Senator Klobuchar. Very good. Thank you. Responses, anyone?
    I think we got through the barley/hops discussion. Mr. Brito,
    you responded to another Senator. Very good. So, we do not have
    to go there. All right. Well, I do not have any further
    questions. Thank you very much, Mr. Chairman.
        Chairman Lee. Thank you, Senator Klobuchar. Thanks again to
    all of our witnesses. This has been an informative hearing. We
    appreciate your testimony today.
        The record will remain open for 1 week. We will be
    adjourned. Thank you.
        [Whereupon, at 12:03 p.m., the hearing was adjourned.]
        [Additional material submitted for the record follows.]
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                A P P E N D I X

                                       to

                      ENSURING COMPETITION REMAINS ON TAP:

                       THE AB INBEV/SABMILLER MERGER AND

                          THE STATE OF COMPETITION IN

                               THE BEER INDUSTRY

    The following submissions are available at:

      https://www.govinfo.gov/content/pkg/CHRG-114shrg52545/pdf/CHRG-
        114shrg
        52545-add1.pdf

    Miscellaneous submission for the record:

     Brewers and Beer Chart...........................................     2

     Brewers Association, letter......................................     3

     Connecticut Breweries List.......................................     6

                                     [all]