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A-B Disapproves MegaMerger in Southeast 

April 7, 2017

Source: Beer Business Daily

April 6th

“‘Three A-B houses in the Southeast are joining forces to form a 35 million case red network operation in what is being described as a mega-merger,’ we reported in early February.

Recall the trio looking to team up included R.A. Jeffreys in North Carolina; Southern Eagle in Georgia and South Carolina; and Crown Beverages in South Carolina.

But word has come down that, after their due diligence, A-B disapproved the transaction Monday.

A source close to the matter walked BBD through it.

WHY DENY? A-B has encouraged voluntary consolidation in their network. (There’s actually a consolidation guide; all wholesaler have a copy.)

But there are limits to the benefits of consolidation. In this case — and these things are evaluated on a case-by-case basis — bottom line: the transaction would have involved large, complicated territories and wholesalers who are already stretched to their limits over the past decade’s-worth of consolidation.

The would-be merged wholesalers were not expected to be able to fulfill the service element expected under A-B’s equity agreement. (Indeed, one part of the merger’s plan was to add only one EAM [Equity Agreement Manager] who would cover the territory via personal plane.)

By now, we understand, both sides have filed suit.

MORE WHY? As we understand from the informed source, A-B had been working with the three wholesalers to understand the proposed transaction. Diligence included interviews with the three wholesalers’ principals to fact-gather and understand effects.

A-B had expressed concerns from the beginning, but became increasingly concerned about the complexity and implications of the proposed merger.

TOO LARGE? With this would-be monolith, you’re looking at basically 500 miles stretching from the southernmost part of Georgia all the way up to North Carolina. It includes major cities like Charleston, and Raleigh, as well as rural markets.

The combined territories would span three states (the Carolinas and Georgia). That also means three sets of regulations, state pricing, etc. AKA lots of complexity.

STRETCHED TO THE LIMIT? Southern Eagle is the southernmost piece.  RA is the northernmost North Carolina piece and Crown is in the middle. Southern Eagle and RA are the two big wholesalers, and each has grown significantly through consolidation in the last 10 years.

How significantly? In 2007, both Southern Eagle and RA Jeffreys added five territories each. In fact, the two of them combined have gone from 5 million cases in 2007 to 28 million today.

We understand that when the wholesalers submitted their proposal, they proposed one EAM would cover the territory with his personal plane.

So… A-B denied approval. Also:

THEY’VE FILED A LAWSUIT FOR DECLARATORY JUDGEMENT IN NC. They have no interest in litigating, we hear, but to protect themselves, A-B filed a lawsuit for declaratory judgment in federal court in North Carolina.

And the other side appears to be litigating, too, natch.”

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