Drama in North Carolina: 'Match and Snatch' May be Banned

FILED JUNE 20, 2018

Dear Client:

There are some fascinating machinations going on in North Carolina. If their Governor signs off on House Bill 500 this month, a supplier that makes up more than 5% of a selling wholesaler's business will no longer hold the ability to match and snatch (or match and redirect, as breweries call it. Match and snatch, as you'll recall, occurs when a distributorship has a deal to sell to another distributorship, at which point the main suppliers have a contractual right to match the terms of the deal and re-direct it to another distributor of its choice).

THAT'S NOT ALL. Other potential changes for North Carolina's middle-tier with HB 500 would allow living wholesalers to transfer their ownership interest to a designated family member. As it currently stands, this transfer to a designated family member can only happen upon the death of a wholesaler.

And the other biggie: "A supplier or an officer, director, employee or affiliate of a supplier may not acquire, possess, or otherwise maintain an ownership interest in a wholesaler." A reference, no doubt, to A-B's history of placing its execs as equity managers into wholesalerships.

WHERE DID ALL THIS COME FROM? These three succession provisions and another provision that forbid suppliers from pushing unwanted inventory on wholesalers popped up on HB 500 for the first time earlier this month and the new look bill reached the Governor's desk on June 15. Though we should note that the bill sitting in front of Gov. Roy Cooper right now does not include the provision surrounding unwanted inventory. Why this provision disappeared is unclear.

THE MATCH AND SNATCH DEBATE. Some are celebrating the potential ban on matching and snatching (wholesalers and smaller suppliers included) as they feel they've been wronged by the clause. Probably none more than North Carolina's largest wholesaler, A-B distributor RA Jeffreys, who was shut down by A-B last year when attempting to execute a three way merger with Crown Beverage of SC and Southern Eagle of SC and Georgia (see BBD 04-06-2017). Crown and Southern ended up merging late last year.

THE CONTRARIAN VIEW. But others believe the ban could actually harm the state's middle tier. As one wholesaler put it: "How the hell is A-B or anybody gonna get people in that have have fire in their belly if they can't match and redirect? It's going to be money from Wall Street that's going to own this and the distribution system will look like Pepsi and Coke. We'll lose all of the hometown beer distributors."

He later added, "The suppliers need to have a plan. You can't just have distributors freelancing at will, because these guys [distributors] will get too big and it will be the tail wagging the dog…. I'm good at execution, I'm good at getting tap handles and displays and shelf space and servicing my accounts. Let the smarter minds at the brewers decide big picture stuff, how to shepherd their brand equities, and let me get the beer out to the consumer."

ANHEUSER-BUSCH WEIGHS IN. We checked in with St. Louis to see how they feel about the late hour language in the North Carolina bill. Needless, to say, they are not pleased.

"Anheuser-Busch opposes HB 500 because it is anti-business, legally-flawed, and was passed in the dark of night with no public hearings or input," the company said in a statement to BBD. "We hope the Governor will stand up to the special interests behind this bill and veto this measure."

Indeed, the Governor still has a little over a week to sign on the dotted line or veto the bill and A-B is, of course, holding out for the latter.

A-B (AND OTHERS) URGE NC GOV. TO VETO. As A-B's chief of guv affairs Andrew Baldonado (who just celebrated 20 years with A-B) wrote to Gov. Cooper on Monday, "For at least thirty-five years, the Equity Agreement has included a provision which provides that in the event an Anheuser-Busch wholesaler wants to sell his/her business, Anheuser-Busch has the right to 'match and reassign' [match and snatch] the proposed sale to a third party. The seller is not impacted because the third party is required to purchase the ownership interest at the same price and on the same terms and conditions applicable to the proposed sale."

Andrew continues, "Six years ago, when the North Carolina beer franchise law was last amended, the Legislature made clear that a supplier's pre-existing contractual right to match and reassign was protected. This legislation ignores that codified right and, rather than ensuring the contractual rights are protected, nullifies those same contractual rights."

Andrew also makes the bold contention that the banning of matching and the snatching violates the "Contract Clause of the United States Constitution….. It also violates the Law of the Land Clause of the North Carolina Constitution." And the fact that smaller brewers received a carve-out with the 5% threshold on the match and snatch "raises additional constitutional concerns under the Equal Protection Clause and the Commerce Clause," he concludes.

Bottom line: We hear other bev-alc suppliers have also written to the governor also opposing the ban on match and snatch. At publication time, the governor is expected to sign, but stay tuned…

U.S. CONGRESS CALLS FOR INVESTIGATION INTO COMPLETELY BULLSHIT ALUMINUM PRICING, A RARE CASE FOR BIPARTISANSHIP

Beer makers say aluminum makers and traders are using President Trump's tariffs "as cover for artificially inflating its cost," at their expense, The New York Times reported earlier this week. Now legislators are calling for an investigation into the methodology used to produce the Midwest Premium, which is essentially a bullshit mechanism by which banking firms, (I'm looking at you, Goldman Sachs), have cornered the aluminum market slow-deliver sheet aluminum to buyers at inflated prices.

Some exposition: Those who purchase aluminum pay a Midwest Transaction Price, which consists of two major components: an underlying base price for the aluminum metal as traded daily on the London Metal Exchange, and an additional component known as the Midwest Premium, which is a bit more slippery (see BI chief's explanation below).

So a bipartisan coalition of 32 Congress members, led by Congressman Ken Buck (R-CO), sent a letter to Attorney General Jeff Sessions Monday, asking the DOJ to look into "serious pricing irregularities and potential anti-competitive conduct by aluminum producers, merchants, traders, banks and others."

Beer Institute chief Jim McGreevy applauded the legislators' move in a statement earlier this week. And he explained the conundrum of the Midwest Premium, "originally intended to cover the logistical costs of moving metal into North America - essentially a shipping and handling fee.

"But over time, the Midwest Premium has become a device to speculate and artificially inflate the price." To wit: "Since January it has increased by as much as 135 percent - far more than the 10 percent tariff would warrant."

As for the other side, the Times quoted an S. & P. Global Platts executive's methodology for the Midwest Premium, which it values by "surveying buyers, sellers, traders and end users." (Platts sets the Midwestern Premium, in other words.)

They pointed back to the tariff: "Platts says that its prices accurately reflect a market roiled by the Trump administration push to restrict imports - Canada alone accounts for more than half the aluminum brought into the country - and sanctions set up in April against Rusal, the largest aluminum producer in Russia, where 9 percent of imports come from."

But Congressional letter co-signers are "concerned that Platts' pricing methodologies" used for the U.S "may be flawed and not consistently followed."

COMMENTARY. It appears to me, at least, that S&P Global Platts should not be a trusted arbiter of the pricing of this commodity, given that they and their partner-in-crime Moody's helped create the largest drop in human wealth in history (the crash of 2008). Ya think?

And today we are to trust them with a fair price of aluminum these days? Are you kidding me? Give me an effing break. This is a slam dunk by Congress that should be a rare uber bi-partisan issue. Break this Midwest Premium anticompetitive trust and give Americans a fair price for their beer and soft drinks.



Until tomorrow,

Harry, Jenn, and Jordan


"The greatest obstacle to discovery is not ignorance - it is the illusion of knowledge." - Daniel J. Boorstin



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