What a great way to start the new year: give your distribs a pop quiz with the answers attached. In early Jan, AB sales veep Mike Brook sent distribs a detailed 3-pg list of 11 questions and answers on its new cents-per-case and high-end spending program. Recall that AB now demands its "E" distribs match total spending on competitive high-end brands with an equivalent total spending on AB high-end brands. This memo has details, explanations and scenarios galore about what counts and what doesn’t, what brands qualify, how co-op spending is handled and what happens if distribs’ other supplier has different definition of what constitutes "spending" from AB’s (AB’s rules apply, natch).

When Interbrew announced deal to buy Bass, INSIGHTS and many others made much of how Interbrew would become #2 brewer in world, over 60 mil bbls. But now that British govt has ko’d deal and told Interbrew to sell Bass, it’s only fair to point out that when Interbrew sells it will no longer be #2 brewer. Heineken will again be. And Heineken is also 1 of top contenders to buy Bass. Of course, Interbrew still will have sizable war chest, even if it loses lotsa $$ when it sells Bass. Recall that it raised $2.5 bil in what now seems ill-timed public offering. No one is forecasting slowdown of global consolidation trend anytime soon. Finally, Interbrew could appeal British govt decision, but media reports cite legal sources calling its chances "slim to non-existent."

It’s down to the wire. At presstime, as far as INSIGHTS knows, state court judge still hadn’t decided whether to grant Oak and other terminated distribs a preliminary injunction. So both sides had to scramble. If distribs don’t get injunction stopping termination, Heineken presumably awards franchise and 3 mil cases to Phoenix/Beehive, the other large Heineken, Miller and Guinness distrib in metro area. That distrib would have to begin delivering immediately thruout metro area that other distribs serviced. That’s no small task. But if distribs’ get injunction, all of Phoenix/Beehive planning and getting ready would be for naught, at least temporarily. Recall that Oak charged Phoenix, Heineken and Miller were jointly part of a "consortium" that sought to buy both Oak and sister co Boening Bros. Interestingly, Phoenix/Beehive does not currently service suburban counties Westchester and Rockland (pop 1.2 mil), and would be hardpressed to achieve any kind of efficiencies in those areas with just Heineken. Then too, if Heineken succeeds in terminating Oak and others, what will other suppliers do?

In days leading up to Jan 13 when Heineken sought to complete termination and transfer brands, a lot of court papers flew. Following Heineken’s response (see above), distribs in NY filed reply memorandum: "Heineken’s silence is deafening. Not one word in either affidavit of facts submitted by Heineken... is dedicated to disputing any" of distribs’ charges about Heineken’s "bad faith," including that it supported transshipping, started a price war, etc. Meanwhile, Oak disputed Heineken’s charge of "bad faith" on ground water contamination, asserting that it did not withhold info or have leaking underground tanks that led to contamination. Included a Sep 1 letter from Oak prexy Hap Boening to new Heineken prexy Frans Van Der Minne that sez Heineken was negotiating only to assume Oak lease and Heineken had no liability. Distribs separately filed a motion for default judgment against Heineken because Heineken didn’t respond within 20 days to distribs’ lawsuit. (Heineken only filed a motion against preliminary injunction.) Said Heineken’s "willful failure to timely answer" distribs’ complaint is underscored since it had earlier refused to grant Oak a "requested extension for time to answer Heineken’s complaint." Meanwhile, more papers filed (not available at presstime) on Heineken motion to consolidate the 2 cases into 1 and each side.

In big legal battle with Oak and 4 AB distribs in NYC metro, Heineken argues distribs not entitled to injunction to halt terminations. Heineken claims it complied with NY law that allows termination if supplier has regional consolidation policy. What’s more, Heineken flatly denies Oak charges that it acted in bad faith during negotiations to buy Oak and Boening Bros. Sez Oak is "making baseless allegations about alleged improper conduct on behalf of Heineken in the hopes of clouding the issues." Heineken alleges Oak acted in bad faith during negotiations to sell biz by withholding info about "environmental problems at Oak’s facility, including evidence of groundwater contamination" until Aug 2000. (Oak denies this; see below.) That’s why Heineken broke off talks, it now claims.

Heineken has had regional consolidation policy to improve distribution efficiencies "since 1998, and recently began to implement it in the Greater New York Metropolitan Area, as it has in other regions," sez Heineken, tho only other region it mentions is Tex. Under NY law, if supplier has such a policy in place, distrib cannot sue to stop termination, sez Heineken; can only sue for damages. While law "gives certain rights" to distribs, it also "protects the ability of brewers to make decisions with respect to their distribution systems," Heineken points out. Countering other Oak arguments, Heineken sez: 1) it properly notified distribs; 2) it is not obliged to notify 4th-tier home d’s; 3) its failure to notify AB at same time as distribs was an "oversight" that it corrected 2 weeks later. Finally, any potential injury suffered by distribs "is compensable in money damages," Heineken insists. While distribs argued that Uniform Commercial Code also protected their interests, Heineken sez UCC doesn’t apply.

Heineken responded to other distrib arguments too. Tho two NY State Senators filed affidavits that said "regional" consolidation in law refers only to consolidations across state lines, Heineken argues that’s a "tortured view" of law. Besides, 2 guys can’t speak for entire legislature, Heineken adds. Official "legislative history" of law, Heineken claims, doesn’t mention Commerce Clause concerns suggested by state Senators and "almost nothing at all on the entire issue of national or regional policies of consolidation." So those affidavits "should not be given any weight." Distribs had also argued that if Heineken had regional consolidation policy back in 98, it had duty to notify distribs then, not wait until Oct 2000. But Heineken pointed to difference between "developing" policy and "implementing" it. Sez it only has to notify when it implements. "If Heineken had to give notice to all brewers and wholesalers every time it considered terminating a member of one of those groups, Heineken might as well give each group," including competitors, "the keys to Heineken’s board room." How about Oak’s charges that Heineken supported "price war" and transshipping that hurt Oak’s profits? "Wild allegations," retorts Heineken, that are not true and in any case don’t have "any impact" on whether termination was in good faith. What about AB distrib Dana that Heineken terminated just 6 mos after it approved Dana's acquisition of neighboring distrib? "Since Heineken had not yet implemented its regional policy of consolidation," Heineken argues, it "had no basis for stopping the transaction. In fact, to do so would have been a violation" of NY law. Finally, Heineken claims "equities tip" in Heineken’s favor, not distribs’. Injunction stopping termination would prevent Heineken "from making decisions regarding its own business... while being forced to continue business relations with wholesalers that have filed claims against it for over" $100 mil. Lawsuit could take years, Heineken adds, and it "would be prevented" from increasing distrib efficiency.