After Rudy described at length Maris Dist and that it grew to 64 share, $1.10 profit per case (much higher than most other AB distribs), and the pressures AB put on him to sell, AB counsel Peter Moll opened fire in cross-exam that lasted many hours. Did Rudy know that Irvin Philpot, man he worked with to make initial efforts to sell the biz, was a con man with a long criminal record? "You didn’t know he was in federal prison" when he phoned you between 1992-96, Peter asked, noting that Rudy had known him for 25 years. Rudy replied he had learned about Philpot’s record "about a year after we filed our federal lawsuit." Rudy defended Philpot despite his record. "He’s from a good family? ... knowledgeable and well connected." "Do you still have a favorable impression of him?" "I put it all in perspective." Would Rudy do business with him now? "I have no reason to hesitate," tho he responded to another question: "I really don’t know a lot about him." Then Peter asked Rudy about several possible deals. One supposed deal with Philpot as go-between died when a potential buyer who had submitted a financial statement showing only $2.3 mil of assets including a $452,000 home, found out there is a ban on public ownership. So no deal. But plenty time wasted on this and other phantom deals.

Five names of real buyers tho came into discussion. Bill Adams, an Ala AB distrib, found Rudy’s $60 million price too high, wanted to buy just Ocala, offered at $36 mil, also too high. John Dobbs of Memphis, owner of AB New Mexico, looked at possible purchase, and one of his men placed a figure of $32 million on Ocala and Gainesville distribs of Maris. Rudy didn’t try to negotiate a higher price. Deal died. "I knew what it was worth," he insisted. As the 45-day window to sell permitted in the AB contract was running out, Rudy contacted neighboring AB distrib Tom Pepin. "You gotta move quick," he told Tom. Almost immediately, Tom responded with a letter of intent, offering $42.5 mil + inventory cost. But Rudy didn’t respond. "All you had to do was sign," Peter pointed out. "Did you counteroffer the next day?" No. Rudy didn’t contact Tom till he met him about a month later at AB distrib mtg. Told Tom then he needed to get his price up. A 4th deal talked about was with Center St Capital, in which Philpot said that Center St prexy Mike Roher had thought Maris was valued at $50 million. Peter persisted. "You didn’t have anyone evaluate" Maris Distrib? "No, I did not." "You never had anyone do a fair market valuation?" "That’s correct." While under pressure to sell, Rudy had offers to do valuations of Maris Distrib from 2 experts, Andy Christon and Bill Moore. But Rudy didn’t accept either offer. Why not? "I started to get skeptical of Mr Christon." But, Peter pointed out, your legal counsel later hired him as consultant in this lawsuit. Did Philpot ever value an AB distrib, Peter asked? "I wouldn’t know. I doubt it," responded Rudy. Turns out, Rudy said, that he got his idea on valuing the biz from reading about John Saputo’s $37 mil purchase of 3.7 mil case distrib in Sarasota and other deals of brands at much higher per case prices. "Mr Adams, he was wrong," Peter noted, "and Mr Dobbs and Tom Pepin were wrong. And you are the only one who is right about the value of your business"! Later, testimony showed that Maris also paid (thru his atty) "over $500,000" to another valuation consultant who had never valued a beer distributorship.

Maris competitor distrib Doug Cone told jury he had several mtgs about possible deal with Rudy in 96 when it was "fairly common knowledge" Maris having trouble with AB. But Rudy wouldn’t name price and Doug wouldn’t make offer. Doug said he had $43-45 mil in mind given what he knew of Maris biz. Never saw Maris financials and never made offer. Also from Doug: tho no Coors distribs publicly owned now, some looking at prospect and "until Miller tells me no," he figures possibility of going public a "viable option." (Miller contract doesn’t ban public ownership outright, but Miller has to approve.) Ex-Center St Capital exec Mike Roher testified he told Philpot his preliminary estimate of Maris value was $50 mil, but never made formal offer. Philpot told Roher he had others willing to pay $60 mil. Roher said "God Bless You" and told him to go for it. Roher also spoke to AB exec Bruce Sandison and said Bruce may have said there were "other plans" for Maris, but Mike testified too that AB never told him to back off.

"Don’t feel sorry for Rudy Maris," AB atty Peter Moll told Ocala jury: "Rudy Maris took millions of dollars every year out of this business and invested very little back in." Key elements for antitrust violation not found in this case, Peter asserted. "The product market is not beer wholesalers"; potential investors have plenty of options besides beer distribs, "and competition was not substantially harmed, there is no evidence of that." If no "relevant" mkt, then "that is the end of plaintiff’s case," according to Peter. Besides, even if distribs are relevant mkt, AB doesn’t have market power. Owns only 12 branches as it has for 20-30 yrs. Even if you include distribs financed by AB, it has less than 1% of all beer distribs. Finally, Maris itself was not hurt by ban. "Maris is looking for a higher price and not just for its own company but for all beer distributors," Peter told jury. Antitrust laws, he reminded, were passed to protect competition, not individual bizmen. Not designed to "help Rudy Maris to sell his business for 2 or 3 or 4 times more than it is worth." The $123 mil figure Maris claims as biz value if public co could buy it is built on "house of cards." "Not a single person was willing to pay Rudy Maris even $60 million," said Peter. "Why would a public company pay two times, three times, four times what a company was worth?" Besides, public ownership bans "very, very common," claimed Peter, including McDonald’s. Since AB introduced equity agreement, competition "alive and well" in beer biz; CPI for beer has risen more slowly than general inflation. That’s "good for consumers." (In fact, Peter said Rudy Maris "always wanted to raise" prices while AB "was always saying we have to try to keep the price down.") During same yrs, AB built share from 18 to 48, and AB distribs "best in the business."

"Basic sales principle of personal service to consumers is under attack and AB needs that to continue to be successful" since distrib is "lifeline" to AB customers, Peter stressed. "When stock is traded widely, sold from one party to another, it destroys the basic notion of public service and personal service." And tho Maris claims public ownership ban cut out potential buyers, "potential purchasers for AB distributors... are lined up from here to Miami to buy these things." Peter reminded "not a single peep" from Maris about public ownership ban for 30 years; Rudy signed 4 contracts; 3 included ban. And even after Rudy sued AB, he allegedly had discussions about buying Miller distrib even tho Miller has similar provision.

Why wasn’t Maris biz sold despite lotsa bids? According to Peter, 3 reasons: 1) Price too high. 2) Irvin Philpot, guy hired to help Rudy sell, was "con man... convicted felon," who never did valuation, never checked financials, never inspected biz. Simply came up with 10X pre-tax profit figure of $60 mil. 3) Rudy didn’t want to sell.

Other points from Peter: Sure AB has relatives in biz; so did Rudy, including his 4 sons (all are attys). Ex-AB employees "extremely knowledgeable" about beer biz. Sure friends of AB own distribs. That’s how Maris brothers got the biz. 1971 AB memo (see above) listed cons of public ownership too: other major co’s buying up AB system; corrupt ownership of major distribs; distribs buying out other distribs with competing brands; infusion of capital would diversify interest, take focus off beer; personal involvement diminished; inability to react to changes; slower reaction time. AB has no consolidation "plan" either, insisted Peter. "There is no control.... There is a written contract."

This case is about "control," Maris lead atty Bernie Dempsey asserted in his 2-hr opening statement. "It’s about AB wanting to and doing everything within its corporate power... to control its distributorships." Antitrust laws maintain a "level playing field" for competitors, said Bernie, but there was "never a level playing field when it came time for Maris to sell its business." Relevant mkt is beer distribs, Bernie maintained, and AB distribs a "sub-market." Ban of public ownership has a "substantial harmful effect" on efficiency, decreased capital to grow biz. Ability to sell to a public entity "would have resulted in a substantially higher price than what Maris could otherwise have received." AB’s justifications for the ban are "either self-serving or pure myth," he asserted. AB itself is publicly-owned and has 12 branches, Bernie pointed out, and tho AB sez distrib owners have to have face-to-face contact with customers, not all owners even live in their mkts. Ban has been used to "hold down and depress" sale prices, he alleged.

AB came up with "road map" for consolidation in mid-90s, according to Bernie. The plan: identify "target"; ask if distrib for sale; if answer is no, institute "heavy crew pressure"; then force sale. This happened to Maris, Bernie alleged, in summer of 96, when AB summoned Maris to St Loo after crewing him. Told him "our relationship is over" and offered $20.4 mil for 4.6 mil case-biz and all assets and allegedly threatened to terminate if Maris didn’t agree to sell. Maris then reluctantly signed letter of intent to sell. On day 40 of 45-day period when Maris could only talk to AB about sale, AB upped offer to a contingent $21.4 mil and gave him another 45 days to decide. But Rudy Maris figured biz worth at least $60 mil and "as it turns out" it was actually worth over $70 mil, claimed Dempsey; so he rejected AB offer. Rudy Maris had mtgs with half-dozen potential buyers with "midpoint" of offers of $55 mil. Fla distrib Tom Pepin made firm offer for $42.5 mil in early Jan 97, which Bernie said Pepin knew was a "depressed price" because of Maris’ problems with AB. But Rudy wanted "full value." So he sued AB in Jan 97. Bernie asserted: "Public company is equally as capable and actually more capable in many instances to address issues that arise from time to time," such as quality control. In fact, 1971 AB memo (reviewing pros and cons of public ownership) acknowledged several benefits, he said: greater efficiency; improved access to capital, increase in stability, improved customer service; distribs would be worth more; consumer prices would be lower.

Other info: Dempsey sez Maris brothers invested $250,000-300,000 when they bought 400,000-500,000-case Ocala/Gainesville territory from Art Pepin in 1967. Maris sold 600,000 cases in 1st year, $3 mil rev. In 96, Maris sold 4.6 mil cases, $50 mil sales. 68 profits: $133,000; 96 profits: $5.9 mil. (So operating margin more than doubled, from 4.4% to 11.8%.) "That’s why AB wanted Maris," sez Bernie. Maris had 2d biggest increase in Fla 92-96 of AB distribs, while distribs owned by Peter Busch and Jim Orthwein (relatives of August III) declined.... Bernie sez Dillon Reed told AB in late 60s that ban reduced value of distrib 35-60%; Univ of Pa prof told AB ban will "facilitate your gaining control of a good operation, and... aid you in gaining entry into a rich market"; former AB exec Bill Finnie told August that Ford "disliked" public ownerships in part because they were "harder to terminate." Less than 8% of AB distrib deals purchased by independent buyers 86-94 (not AB exec, AB distrib or distrib employee). Dempsey claimed Center St Capital exec Mike Roher called AB exec Bruce Sandison in Nov 96, said he was looking at Maris and that Roher had $50 mil figure "in mind." Sandison supposedly told Roher "stay away from Maris. We have other plans for that territory."

Long-awaited fed court trial of Maris vs AB started Sep 25, 3-1/2 yrs after AB terminated Maris Dist. Fed suit limited to single question: does AB ban of public ownership of distribs violate fed antitrust law? (Maris suit about its termination on tap in state court next year.) Lotsa lawyers, including about a dozen for AB on 1st day, and tons of documents in Ocala, Fla courtroom. One of AB's top execs, group veep Steve Lambright there every day. AB chairman August Busch III will be AB's 1st witness. So far thru 2-1/2 weeks, Rudy Maris on stand 3+ days, AB execs and most others appeared via video depositions for another week. Competing Miller/Coors distrib Doug Cone live on stand for most of day 12. But there's still not much specific antitrust talk. Indeed, clearly frustrated judge had told attys on day 9 that "this is an antitrust case, not a breach of contract case," and "90% of what I’ve heard so far is irrelevant." He then "urged" Maris attys to bring on their experts to testify about "what the jury and I have to decide." What’s that? "Whether there was an effective market for the purchase and sale of beer distributors" at time, and if so, did public ownership ban have "actual effect" on that market, or if AB had "sufficient market power such that an anti-competitive effect can be inferred." Finally, jury’s gotta decide that if there was anti-competitive effect, was it "counterbalanced" by any pro-competitive effects of ban. If jury decides AB violated antitrust law, AB faces big damages: "at a minimum" Maris attys want difference between what their experts say is value of distrib with ban in place and value of distrib without ban, multiplied by 3. Maris claims its 4.6-mil-case biz was worth $73 mil with ban, $123 mil if it could sell to public co. (AB’s top offer was $21.4 mil.) At stake for AB: not only key contract provision that keeps AB distribs from going public or selling to public co, but many mil $$. Decision has potential implications too for valuations of all beer distribs.

Eight days spent so far on testimony and cross-exam of Maris experts trying to show that beer distribs a "relevant market" (needed under antitrust law). First expert, Dr Lanzillotti, argued beer distribs are unique: they buy from brewers, warehouse beer, sell to distinct group of customers, invest in special equipment, are subject to special laws and regs. That’s a relevant mkt, he concludes. Eliminating AB’s antitrust violation of banning public ownership, he argued, would lead to greater efficiency, improved access to capital, increased business stability, lower risk, improved customer service, more professional mgt, more valuable distribs, and lower prices for consumers. Another Maris expert, Dr Pisarkiewicz argued AB beer distribs are relevant submarket because dealing with only one brewer with their larger volume "gives tremendous advantage" enabling them to command higher price for distrib. Argued too that ban of public ownership keeps "a whole class of buyers out." The public ownership ban, he said, "has a depressing effect on price? . By keeping prices down there is less of an incentive to sell and we have seen in the Adkins study (see above) that if it were lifted there would be financial incentives for consolidation to occur more quickly." He also pointed to some relevant markets okayed by courts: soft ice cream, soft drinks, wine and dist spirits, NFL franchises, warehouse stores serving office market. And blasted AB reasoning on several points: that ban keeps out criminal element. "AB has 60,000 owners? .It doesn’t seem to be a problem for a brewer of beer"; that equity contract as personal service contract "doesn’t seem to carry any weight," pointing to John Dobbs’ 6 warehouses in New Mex, the 86 owners of Ben E Keith, absentee owners of many distribs. When AB counsel pointed out that the one public distrib lost money, Pisarkiewicz countered: "Do you think it would be good for me to test the theory that AB knows how to run a distributorship by looking at its results in Hawaii?"

AB counsel didn’t take all this lying down. Attacked their conclusions and reputations, noting their high fees that one might infer affected their judgment (one got $400 an hr for about 100 hrs, another got over $150,000, and yet another got about $1 million). Got two to admit that some federal courts rejected their opinions and that courts have ruled that Mercedes dealers, Pepsi dealers, Domino’s Pizza’s, Waffle House, Popeye’s Fried Chicken franchises are not relevant markets. Got Lanzillotti to concede privately held Maris was efficient, that Maris didn’t need more capital. Pointed out that beer distribs aren’t unique as they sell other products, that there is large group of potential buyers of AB distribs who own other bizzes outside beer industry. "I’m not denying that in some respects," Lanzillotti said, "there is some overlap." "In the face of facts,... you still won’t admit that the relevant market for buyers is larger than for beer distributors?" AB counsel Moll replied. Also got Lanzillotti and Pisarkiewicz to admit that neither had done any technical cross-elasticity, regression and 5% test studies (standard economist procedures for defining relevant markets), that they didn’t look at specific transactions. Both argued that insufficient available data made such studies useless. AB counsel elicited that neither did expert analysis of how much lower prices of distribs are because no public ownership allowed, that neither expert about beer biz, that neither knew much about regs and laws or how beer is made, that if price of distrib goes up too high, investor might look elsewhere. At one point, AB atty Peter Moll stated: "You didn’t do a single scrap of analytical work after the draft of your report." Silence. Then moved on to next point. Spent a lot of time on this theme, that neither expert had dug into details, didn’t even know that many beer distribs in Fla, NY and Mich, for example, sell soft drinks too. Emphasized that AB wholesalers in Calif carry many other products. Got Lanzillotti to admit wine and spirits wholesalers are similar to beer distribs; they bring product to warehouse, sell it, are subject to state and fed regs, tho Lanzillotti pointed to differences like refrigerated warehouses, emphasis on freshness, etc. ....Next issue in 3 weeks after Beer Insights Seminar.

AB atty Peter Moll told judge, "It's another one of these 'what if' scenario documents." He stressed that document, "bears no resemblance to the reality of the marketplace." Exec who led work on study said he presented plan to top AB execs. He noted, "What we brought forward was a vision, a future design that was somewhat abstract in nature." Eleven AB mid-level execs made this study, concluding in 1994 that "significant wholesaler consolidation needs to occur" as they looked at increasing needs of large retailers and the consolidation in soft drink biz. What AB sr mgt thought of its conclusions has not been made clear in testimony. Study concluded that number of AB distribs should be reduced from 757 to 200. Said 152 distribs averaging 218,000 cases should drop to 40 distribs averaging 750,000 cases. (No growth of distribs’ volume factored in this total). Another 366 distribs, doing avg 800,000 cases, would consolidate down to 65 distribs, avging 1.65 mil cases. And 239 distribs with avg 3.73 mil cases would become 95 distribs, avg 5.8 mil cases. Study suggested 3 steps in consolidation process: first, consolidation rate of less than 1%; second, "assist and promote consolidation" to bump consolidation rate to 5-10%; third, "aggressive financial incentives" to jump consolidation rate to 50%. Maris’ expert witness testified that "only financial incentive" identified in document is public ownership, that the AB document sez that prices of distribs would then go up. A later more-detailed study is also subject of courtroom discussion.

Coors needed that great volume growth in 3d qtr to achieve its profit objectives because its costs per bbl went up considerably faster than its revs per bbl for 2d qtr in a row. Coors total oper profits up $18 mil to $51 mil and up 9% per bbl. About 1.5% of Coors 2% rev per bbl increase came from "higher domestic pricing"; rest from "mix-shift" towards higher priced products, said cfo Tim Wolf. In 99, Coors rev per bbl had been up 5%. Tim also said that Coors has "front-line" price increases in about 1/5 of its volume in 4th qtr 2000, averaging about 2.5% per bbl. That’s much less than 40% of AB’s volume (see above). Coors 3.5% increase in cost of goods per bbl "primarily because" of increased sales "of more expensive products and packages," like long-neck bottles. "Benefits" of Coors’ "higher capacity utilization" were "more than offset" by "higher overtime, freight and other costs related to meeting unusually high demand." Coors will up capital expenditures to $200-240 mil in 2001, compared to $145-155 mil in 2000. About 75% of incremental spending is on packaging, much of it to build new long-neck bottle line. Coors will also add capacity. While Coors Light, Zima and Killians continued strong growth, Original Coors sales-to-retailers "were down slightly" in 3d qtr. Coors also announced that 2 Coors family trusts will sell 4 million shares of Coors stock to public. Coors family trusts still have all of voting shares, and 1/3 of non-voting shares.

At presstime, Coors and Molson have letter of intent to form joint venture 50.1% owned by Molson and 49.9% owned by Coors to sell Molson in US. Coors will pay Molson $65 million, wrote Molson. Molson had just paid Miller $133 mil to extricate itself from its alliance with Miller in US. Molson will do a little over 1 mil bbls in 2000, down double-digits. Joint venture begins in 2001. Part II of announcement: Molson will contract brew unspecified brands for Coors in US "up to 700,000 barrels" per year over next several years, said Coors. Coors committed to "having Molson as the priority brand in its import portfolio," said Molson. Coors doesn't sell any other imports in US, tho it once sold Steinlager and had short-lived joint venture with Molson and a German brewer in 80s.

As Miller shipments down over 5% in 3d qtr (see above), Miller revs down $4 mil, 0.3%, implying rev per bbl up about 5%. Miller’s oper income up $5 mil, 3.6% in 3d qtr, "driven by the impact of higher pricing and contract brewing, offset by lower volume and higher marketing," wrote PM. But Miller’s oper income still up a respectable $37 mil, 8% to $491 mil for 9 mos. Tho PM reported that Miller Lite continues up for qtr and yr-to-date, Miller Lite shipments up just 0.5% during peak-selling season. And Gen Draft dropped 6% in 3d qtr. Others: High Life –4%, Mil Best –5%, and Icehouse –1.5. Foster’s up in qtr.

AB "accelerated" its rev per bbl growth in 3d qtr to 3%. Rev per bbl up 2.5% for 9 mos, and AB expects it to be up 2.5% for full yr. Gave "preliminary guidance" to Wall St of 2.2-2.7% rev per bbl increase next yr. AB has increased rev per bbl by 2% or more for 8 qtrs in a row. There was "further reduction in summer discounting," said cfo Randy Baker to Wall St analysts. Did it have any effect on volume? "We may be seeing a little bit of consumer reaction," Randy acknowledged. But he cautioned investors not to get too hung up on quarterly swings in shipments or STRs, subject to many factors. AB expects volume to be up 3% for yr and 2-3% next yr. AB has taken pricing actions in 40% of its volume in 4th qtr. "Vast majority" of 4th-qtr increases were "front-line," the rest discount reductions. And while there were exceptions, competitors followed for most part. Bud family STRs up 4% for 9 mos; Bud Light up 11%. AB income before income taxes from domestic beer jumped another $63.6 mil, 10% to $703 mil in qtr. AB earned $2.05 bil from domestic beer thru Sep, up $198 mil, 11%. AB equity income from its Modelo investment has jumped $33 mil, 26% for 9 mos to $158 mil, including 24% gain in 3d qtr. While AB earnings on target, sales-to-retailers less than Wall St expected. AB said it lost about 1 point of 3d qtr STR growth because the retailer buy-in for July 4th holiday occurred in June this yr.