United States v. G. Heileman Brewing Co.

• Decision Date: 09 May 1983
• Docket Number: Civ. A. No. 82-750.
• Parties: UNITED STATES of America, Plaintiff, v. G. HEILEMAN BREWING CO., INC. and Pabst Brewing Company, Defendants.
• Court: U.S. District Court — District of Delaware

563 F. Supp. 642

UNITED STATES of America, Plaintiff, v. G. HEILEMAN BREWING CO., INC. and Pabst Brewing Company, Defendants.

Civ. A. No. 82-750.

United States District Court, D. Delaware.

May 9, 1983.

Anthony V. Nanni, Michael H. Byowitz and Judith N. Batty, Attys., U.S. Dept. of Justice, Antitrust Div., Washington, D.C., and Joseph J. Farnan, Jr., U.S. Atty., Wilmington, Del., for plaintiff.

Bruce M. Stargatt of Young, Conaway, Stargatt & Taylor, Wilmington, Del., and Foley & Lardner, Milwaukee, Wis., of counsel, for defendant G. Heileman Brewing Co., Inc.

A. Gilchrist Sparks III of Morris, Nichols, Arsht & Tunnell, Wilmington, Del., Sutherland, Asbill & Brennan, Washington, D.C., Michael, Best & Friedrich, Milwaukee, Wis., and Wachtell, Lipton, Rosen & Katz, New York City, of counsel, for defendant Pabst Brewing Co.

Robert K. Payson and Peter Sieglaff of Potter, Anderson & Corroon, Wilmington, Del., and Joseph L. Alioto, Joseph M. Alioto and Gary Elion of Alioto & Alioto, San Francisco, Cal., of counsel, for Paul Kalmanovitz, S&P Co. and General Brewing Co., proposed intervenors.

OPINION

LATCHUM, Chief Judge.

This antitrust action was brought by the United States on November 22, 1982 against defendants G. Heileman Brewing Company, Inc. ("Heileman"), and Pabst Brewing Company ("Pabst"). At the same time that the complaint was filed, a proposed final consent decree signed by the parties was also filed.

The complaint alleges that Heileman's acquisition, through a cash tender offer, of control over all the assets of Pabst and Olympia Brewing Company ("Olympia"),¹ may substantially lessen competition in the production and sale of beer, in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18. The United States seeks to enjoin Heileman from retaining any interest in any of the breweries or brands of beer owned by Pabst or Olympia other than the Pabst breweries situated in Pabst, Georgia, and Portland, Oregon; the Olympia brewery situated in San Antonio, Texas; and the following brands of beer: Red, White & Blue; Burgermeister; Blitz-Weinhard; Henry Weinhard Private Reserve; Bohemian; Lone Star; Lone Star Light; and Buckhorn (collectively, the "retained assets"). These brands represent total 1981 shipments of 3 million barrels.

The proposed consent decree limits Heileman to the retained assets, which represent only a portion of the total assets of Pabst and Olympia. At the same time, it prevents Heileman from retaining any interest in, or exercising any control over, the remainder of the Pabst and Olympia assets (the "non-retained assets"). As required by the Antitrust Procedures and Penalties Act, 15 U.S.C. § 16(b)-(h) ("APPA"), this Court's determination that the proposed Final Judgment is in the public interest is a prerequisite for approving and entering final judgment.

On March 19, 1983, Heileman totally relinquished any ownership interest in Pabst in return for the retained assets specified in the Final Judgment.

Presently before this Court is the motion of Paul Kalmanovitz, S&P Company and General Brewing Company (collectively the "movants") to intervene in this action under the provisions of the APPA and to participate in an evidentiary hearing.

BACKGROUND FACTS

Sometime during 1981 or early 1982, Heileman was considering Pabst as a possible acquisition candidate. However, in May, 1982, the Antitrust Division of the Department of Justice concluded that the merger of Heileman and Pabst would violate Section 7 of the Clayton Act in the nation as a whole and in a section of the United States consisting of the northern portion of the United States.²

While the Antitrust Division was reviewing the proposed Heileman/Pabst transaction, Pabst sought to purchase and subsequently acquired 49 percent of the outstanding shares of Olympia. The Antitrust Division declined to challenge the Pabst/Olympia combination under Section 7 of the Clayton Act.³

While Pabst's tender offer for Olympia was outstanding, Heileman sought to acquire part of Pabst by entering into an agreement with JMSL Acquiring Corporation ("JMSL"). Pursuant to this agreement, on June 23, 1982, JMSL, a corporation controlled by certain dissident Pabst stockholders led by Irwin Jacobs (the "Jacobs Group"), commenced a tender offer seeking to acquire a sufficiently large block of stock to give it control of Pabst. If successful, JMSL would have caused Pabst to convey to Heileman the Pabst breweries at Pabst, Georgia, and Newark, New Jersey. Heileman would have also acquired an exclusive license to produce and market all the Pabst brands in a 27-state area, that is, in all states east of the Mississippi River (except Wisconsin, Illinois and Indiana) and in Louisiana, Texas, Arkansas and Oklahoma.

After a detailed review of the JMSL-Heileman proposal, the Antitrust Division concluded that it raised serious competitive problems because the splitting of the Pabst brands inherently created an interdependence between substantial competitors (i.e., Heileman and the JMSL-controlled Pabst), and because a review of the financial structure and business prospects of the surviving Pabst entity led the Antitrust Division to find that its long-term viability was open to serious question. On July 22, 1982, the same day that the Division announced its opposition to the JMSL transaction, this Court issued a preliminary injunction enjoining the JMSL tender offer as a violation of Section 7 of the Clayton Act. JMSL terminated its offer the next day.

The final round in the take-over battles for Pabst began on October 27, 1982 when JMSL commenced a second tender offer for a sufficiently large block of Pabst stock to give it control of the company. At that time, the Jacobs Group and Paul Kalmanovitz controlled JMSL. The Antitrust Division determined not to file a civil antitrust suit challenging JMSL's proposed acquisition of Pabst.⁴

On November 10, 1982, with the second JMSL tender offer pending, Heileman, through its wholly-owned subsidiary, HBC Acquisition Corporation ("HBC"), commenced a tender offer for up to 5.5 million shares of Pabst common stock. This offer contemplated that, following Heileman's acquisition of a controlling interest in Pabst, Heileman would acquire the remaining shares of Pabst in one merger (the "Pabst merger") and Pabst would acquire the remaining 51 percent of the stock of Olympia in another transaction (the "Olympia merger"). Thereupon, Heileman would exchange all of its equity interest in Pabst for the retained assets (the "exchange transaction"). This series of corporate transactions would result in the transfer of the retained assets to Heileman and of the non-retained assets to a separate entity in which Heileman would have no interest.

The Antitrust Division found that Heileman's acquisition of the retained assets would not violate Section 7 of the Clayton Act,⁵ but also advised Heileman and Pabst that it had serious concerns about the competitive implications of the proposed transactions if, for any reason, Heileman obtained control of Pabst.⁶ The United States then filed its Complaint and proposed Final Judgment in this action on November 22, 1982.

While the Antitrust Division's investigations of the two competing tender offers were proceeding, the Jacobs Group and Mr. Kalmanovitz commenced a private action in this Court against Heileman, Pabst and Olympia. (C.A. No. 82-736.) The complaint in that suit alleged that Heileman's offer and the transaction contemplated thereunder would violate Section 7 of the Clayton Act and Section 1 of the Sherman Act and that the Pabst directors had breached their fiduciary duties by agreeing to sell the retained assets to Heileman. The complaint sought, among other things, to enjoin Heileman from acquiring any Pabst shares pursuant to its offer. On November 24, 1982, this Court denied the motion of the Jacobs Group and Mr. Kalmanovitz for a preliminary injunction against Heileman's offer.

As a result of a settlement agreement among Heileman, Pabst and the Jacobs Group announced on November 26, 1982, the JMSL and Heileman tender offers were withdrawn. In connection with that settlement, HBC commenced a new tender offer for Pabst shares (the "HBC Offer") and the Jacobs Group agreed to tender its Pabst shares to HBC. As subsequently amended, HBC offered to purchase up to 5.6 million Pabst shares.⁷

In response to the HBC Offer, Mr. Kalmanovitz made a competing tender offer to purchase 4,150,000 Pabst shares. Mr. Kalmanovitz also brought another action in this Court against Heileman and Pabst.⁸ Mr. Kalmanovitz's complaint in that suit sets forth a variety of claims that are virtually identical to those asserted by Mr. Kalmanovitz and the Jacobs Group against Heileman's earlier tender offer for Pabst. In addition, Mr. Kalmanovitz alleged that Heileman, Pabst and the Jacobs Group had conspired to eliminate bidding for Pabst shares in violation of Section 1 of the Sherman Act. On December 22, 1982, this Court denied Mr. Kalmanovitz's motion for a preliminary injunction with respect to all of his claims. On December 23, 1982, HBC purchased 5.6 million Pabst shares. Mr. Kalmanovitz terminated his offer on December 28, 1982.

Although Mr. Kalmanovitz's motion for a preliminary injunction in C.A. No. 82-797 was denied, his action in this Court is still pending. On January 14, 1983, Mr. Kalmanovitz filed a substantially identical action in the United States District Court for the Northern District of California⁹ ("California Court"). On January 17, 1983, a written comment opposing the proposed Final Judgment was submitted to the Department of Justice on Mr. Kalmanovitz's behalf. Two days later, Mr. Kalmanovitz and two of his brewing companies filed the present motion to intervene in this case.

The transactions contemplated under the HBC Tender Offer have since been fully completed and carried out. On March 18, 1983, the shareholders of Pabst and Olympia, respectively, approved the Pabst...