Direct shippers won this round. US Dist Ct judge in Mass took deep dive into legislative process of how Mass law got passed. That record "replete with evidence of discriminatory effect," judge found. Law allowed direct shipping for any vintner that produced 30,000 gals or less -- in-state or out-of-state - and even allowed bigger vintners to ship direct under certain circumstances. But no Mass vintner produced over 30,000 gals. And big vintners' supposed "choice" to opt out of 3-tier "is an illusory one," judge found, since "as a practical matter [the law] prevents the direct shipment of 98% of out-of-state wine to consumers but permits all wineries in Massachusetts to sell directly to consumers, retailers and wholesalers." Judge quoted sponsor saying "we are still giving an inherent advantage indirectly to the local wineries." Then too, bill carved out specific exemption for "fruit wine" for single Mass vintner. Not surprisingly, judge found law discriminatory, and "clearly confers disproportionate benefits on" Mass wineries and distribs. Finally, state unable to show law had legit local purpose to outweigh discrimination. Claim that Sup Ct has found 3-tier system "unquestionably legitimate" didn't fly since bill carved out exceptions. "The legitimacy of the three-tier system cannot provide succor to a statute which allows exceptions to that system which benefit in-state interests," the judge wrote.

AB InBev deal closed "without the director to be named later," noted David Nicklaus in St Lou Post Dispatch. Recall InBev had originally said it would add August Busch IV and one other "current or former" AB director. But as closing announced it said board will be "comprised of the existing directors" and AABIV. So wha' happened? InBev "more than likely" was "saving a board seat" for Modelo ceo Carlos Fernandez, sez Dave, but relations between Carlos and Brito "seem to be icy at the moment." First comment underneath article warns/jokes: "Be ready for other shrinking commitments to follow."

Redburn's Chris Pitcher also lists principal assets that he thinks "most likely" to be "prized" assets Brito referred to selling 2 or 3 of to get to $7 bil. Includes: theme parks ($3-4 bil), packaging business ($2-3 bil), InBev's Korean brewing biz ($1-2 bil), InBev's Beck's biz ($2-4 bil) and "other brands/ property/European wholesale."

Beer prices up 3.1% for 10 mos, according to Dept of Labor, compared to 4.5% for all items. So beer still well below inflation for 10 mos. But even tho prices decelerated for all items in Oct and were below Sep, beer prices last mo increased 3.8% compared to a yr ago as prices increased in most of US. For 10 mos, spirits prices up 2.1% and wine up 3.5%. This morning, jobless claims in US hit 16 yr high. That followed news that retail sales down 2.8% in Oct (last Friday) and increased possibility of deflation (yesterday). With relentless barrage of negative news, for how long will higher beer prices and/or volume hold up as well as they have so far in 2008?

Lazard Freres is handling deal to sell Labatt USA for AB InBev and had book out already early this week. Some talk of several interested bidders for 1.4 mil-bbl co with 55 employees. Stay tuned.

Incisive analysis by Redburn Partners’ Chris Pitcher in UK, picked up by Reuters, reminds that AB InBev must not only raise $9.7 bil in equity to pay off bridge loan in 6 mos, and make $7 bil in asset sales to pay off “Tranche B” in 12 mos, but must pay off another $12 bil on “Tranche A” loan within 24 mos.  That adds up to $28.7 bil, or over half what AB InBev has borrowed, that must be paid within 2 yrs.   Chris, who views ABI stock as “attractive” titled his report: “Deal done, huge free cash machine, but the debt clock starts ticking.” 

“Logic of the deal” lies in “free cash machine generating over” $4 bil a yr and debt less than 3x EBITDA  (in 2010-11) presuming debt paid down, which “forms the belief that the shares could double over the next 3 years.”  But Chris acknowledged “this is not one for the faint-hearted…. The company has pulled off a massive (‘old style’) leveraged buyout in one of the toughest credit markets of all time; in itself an achievement.  But with this comes significant risks: none more so than the clock on the debt repayment has now started.”   

Investors perhaps focusing on these risks as ABI stock opened weakly in its first day today, down another 4% or so to under 26 Euros.  Combo of InBev/ABI has dropped about 10% this week as it came into being, and nearly 50% since Sep 1.  Meanwhile, many happy AB shareholders, including lotsa employees, already got their $70 per share, amazing in these miserable economic times.

Despite that, overall mood of many AB employees is increasingly glum.  They are saddened by end of dominant AB culture/empire they once so fervently believed in and fearful of diminished/downsized future under AB InBev.  One of many challenges AB InBev will face will be to improve employee morale.  But InBev mgt team has already implemented such overhauls several times (albeit on a smaller scale), undoubtedly has game plan and timetable and will work it hard.

While acknowledging need for "strong independent distributors," MillerCoors ceo Leo Kiely insisted brewers/distribs also "way interdependent" in talk at Beer INSIGHTS Seminar earlier this week. Gave 3 examples of how brewers/distribs "depend on each other" to win in beer biz. First was 15-yr "overnight success" of Blue Moon. Coors brought "great beer, cool signature, a good lookin' package and we didn't mess up by over marketing it." But Blue Moon "took off" because "our distributors thought it was a cool idea," led by distribs in Boston and Chicago. Distribs "came up with orange slice garnish, they started to sell it as a really cool draft item, and they brought women drinkers into" beer biz with that presentation. Word of mouth followed and now distribs are "making money on it and before you know it we have a million barrel brand." Then too, Miller developed "great beer" in MGD 64, coming off "great platform" of MGD and provided "very clear, very cool" ads. But when Wal-Mart demanded 100% distribution, distribs aligned and now "we're in absolutely most of their stores and we've got a hot product." Finally, Coors Light. In addition to "great" beer, "cool" pkg and "terrific" mktg, "one of the most amazing facts is that over half of growth" in recent run came from increased distribution. "Our distributors did that," said Leo.

Leo also made key point about "most often used 13-letter swear word" in beer biz today: consolidation. Repeated MC position that scale necessary to win in beer biz, that "inexorable" mkt forces now drive distrib consolidation. Said MC will certainly "encourage" further consolidation. But will MC "force" more deals? "Hell no. If it wasn't clear, you've made it perfectly clear." Going into JV a little over 60% of MC volume in shared houses, Leo pointed out, and 10% more "in play" right now. Going into 2010, Leo expects over 80% consolidation.

Extreme beer movement has achieved new level of status with lengthy profile of Dogfish Head's founder Sam Calagione in this week's New Yorker mag (Sam also appeared on panel at Beer Insights Seminar). "Dogfish is something of a mascot for this unruly movement," wrote New Yorker. "We are trying to explore the outer edges of what beer can be," sez Sam. "When you are trying to create new techniques and beer styles, you have to have a certain recklessness," said Boston Beer's Jim Koch approvingly. Sam "has that. He's fearless but he's also got a good palate." But some controversy cropping up among craft guys too. Brooklyn's brewmaster Garrett Oliver (who is editing upcoming Oxford Guide to Beer) said: "I find the term 'extreme beer' irredeemably pejorative" tho he acknowledges Dogfish makes some very fine beers. As for Sam, he relates his biz model to getting kicked out of prep school. He's come a long way and seemingly still has room to run. Click here to read and check out that wild picture of Sam!

After fascinating review of how current mega-brewer deals reversed earlier history of US anti-merger guidelines, Prof Ken Elzinga (a consultant on both MillerCoors JV and AB InBev), dropped that little bombshell at Beer INSIGHTS Seminar yesterday. While antitrust authorities will be less active in "policing" brewer level deals, Ken predicted, "next round in antitrust activity in beer will involve issues at the distributor level." There will be "concern with the level of concentration taking place in beer distribution" across US, Ken believes, that will "eventually be seen as an antitrust concern, not just a franchise law concern." Then too, fed antitrust authorities may consider some 3-tier regulations "to be anti-competitive and fair game for their scrutiny." Ken didn't cite specific regs that might be scrutinized, but did say there's "a lot in regulation of beer distribution that is troubling to me as antitrust economist." That's likely to trouble others at DoJ, Ken believes, and "will get more attention as distribution gets more concentrated." An indirect hint: Ken commended beer industry, especially big brewers' history of fierce head-to-head competition, specifically on pricing. Contrasted that to "blight" of price-fixing history in other bizzes. Warned tho that same environment "needs to remain" at distrib level. "If that changes, if the industry has a reputation for not having fierce head-to-head competition, but instead 'stodgy, get along in bed with my rivals,' the Justice Department will take a very different look at consolidation."

Going forward, deals that result in big MillerCoors/All Others distrib with say 2/3 mkt share might have to be defended on bases of economic efficiency (as MC successfully argued) and barriers to entry for potential competitors, Ken suggested. Would Justice prohibit a MillerCoors/AB deal in big metro area? "I think it probably would prohibit such a combination," said Ken. In comment that may have surprised some, Ken pointed out history of Dem admins being more lenient on mergers than Repubs, in part because Dems don't want to look anti-big biz and Repubs don't want to look pro-big biz. He expects "no radical change" in Obama admin, and if anything more lenient. Will be interesting to see if there's deal involving top 3 auto-makers, which would have been "unthinkable just a few yrs ago," but may be permissible now to protect jobs.

AB announced 2 more strategy committee members leaving, bringing total up to 11 of 17, that is about 2/3 of its most sr execs. Lotsa press about Tony Ponturo, AB's veep global media and sports mkting, described as "one of the most powerful figures in the world of sports marketing" by Advertising Age and others. But another significant departure, Steve Burrows, who has held several exec positions in 30 yrs with co, most recently as chief exec/prexy of Asia Pacific Ops, leaving Dec 1.