AB InBev & WEDCO; It’s Too Quiet

In Beer News by Ryan

“The well has run dry.”

“The state is circling the wagons.”

“All is quiet on the western front.”

You can use whatever cliché you’d like, but the bottom line is no one – and we mean NO ONE – is talking about the current state of AB InBev’s wholly owned subsidiary WEDCO and its ability to conduct business in the state of Illinois or the legality of WEDCO holding a minority stake in distributor City Beverage.

abinbevSo what does that mean? Well, we could have pissed off the wrong person – which, frankly, is not beyond the realm of possibility. Or, and this is the more likely reason; something is going to happen soon on one or both fronts.

In my decade-plus working in broadcast journalism I’ve found that when people stop talking publicly they usually are talking privately and, quite possibly, nearing a decision.

Could that decision come tomorrow? Maybe. The Illinois Liquor Control Commission is meeting in Springfield. And while no timeline was given to make a decision on WEDCO retaining its 30-percent stake in City Beverage the commission hasn’t spoken publicly about it since December of 2011.

The reality is, though, that we don’t know if anything will happen. Because no one is talking. But what we can do is walk you through how we got to this point and the implications for the worlds largest brewer.

Things came to a head back in December, when numerous sources reached out to us with a rather juicy nugget of information; that WEDCO, or Wholesaler Equity Development Corporation, was not registered with the Illinois Secretary of State’s Office to do business in Illinois. We, in turn, reached out to the Secretary of State’s Office who did confirm that WEDCO is not registered and said they would be reaching out to AB InBev with a series of questions, in part, because of our inquiry.

We were kept in the loop when AB InBev responded to those questions and were informed that a series of followup questions would be sent. Since then, however, we have fallen out of that loop. We know that AB InBev responded to both sets of questions but we don’t know if that was enough for the assistant general counsel handling the investigation to reach a conclusion or if more digging was necessary.

Here is what the interested parties told us back in December:

Normally, an investor in a company wouldn’t have to be registered with the state BUT the Illinois Liquor Control Act requires an investor do so, according to Sue Hofer, spokesperson for the Illinois Liquor Control Commission. “The Liquor Control Act requires all owners and officers of a licensed corporation to qualify in the same way that the licensee corporation qualifies.  Thus, WEDCO will likely have to become authorized to do business in Illinois because the licensee in which they are an investor is required to be an Illinois corporation,” said Hofer.

A-B, however, claims they don’t need to be registered with the state, according to Vice President and General Counsel for North American Gary Rutledge. “There is no requirement of law that WEDCO be registered with the Illinois Secretary of State’s Office,” said Rutledge. “WEDCO does not transact business in Illinois and its minority interest in City Beverage does not constitute ‘transacting business’ in the state.  The allegation that WEDCO should be registered is nothing more than an effort to distract the Illinois Liquor Control Commission from the issue at hand.”

After the first round of questions, Assistant General Counsel Terry McConville told us it did not appear that WEDCO was transacting business in the state. But, he still had more questions for AB InBev. But we don’t know what resulted from those answers.

If the brewing giant was supposed to register WEDCO with the state, and failed to do so, then the potential is there that they skipped out on paying franchise taxes and would likely face fines and fees.

But this isn’t even the biggest issue at hand when it comes to the state of Illinois, AB InBev and WEDCO. The bigger concern on AB InBev’s radar is whether WEDCO can retain its 30-percent stake in the distributor City Beverage.

It’s been a while since we wrote about this, so here is a crash course (from December, 2011) to catch you up:

A-B, since 2005, had owned a 30% stake in the distributor, and last year they brokered a deal to buy the remaining 70%. But that deal hit a snag; the Illinois Liquor Control Commission.

You see, the deal had to be approved by the ILCC and they refused to do so. In a March, 2010 decision the commission wrote:

Essentially, the commission said A-B fell in to the category of “Non-resident dealer” because they aren’t based in Illinois and a “Non-resident dealer” can’t own a distributor in the state. Therefore, A-B could not buy up the remaining stake in City Beverage.

What happened next may sound familiar if you followed our Save The Craft movement in the Spring. A-B sued the Illinois Liquor Control Commission in federal court claiming discrimination because in-state brewers can self-distribute but out-of-state brewers can’t. And A-B felt owning a distributor was akin to self-distribution. A federal judge sided with A-B on the discrimination argument but instead of opening up self-distribution to everyone, Judge Robert Dow Jr wanted to shut it down altogether. He did, however, give the legislature a chance to address the issue – and they did with SB 754. While the new law is far from perfect, it did retain the rights for small brewers in Illinois to distribute their own beer.

A-B thinks they should be able to hold the remaining stake in City Beverage. Mark Bordas, region VP of state affairs for A-B, told us the new law doesn’t specify one way or another. “Senate Bill 754 allowed certain small brewers to self-distribute – but failed to address who may hold an interest in a distributor,” said Bordas. A-B will likely point to the fact that they have held this 30% stake since 2005 and have been in good standing with the ILCC over that time as a legit reason to allow the relationship to continue.

On the other side of this issue is the Associated Beer Distributors of Illinois. Bob Myers, VP of government relations for the ABDI, won’t come right out and say the new law prohibits A-B from holding an interest in a distributor – but he does think lawmakers sent a message. “When the General Assembly amended SB 754, it was clear that they understood the importance of an independent three-tier system – a system that has no control or influence of one tier over another,” said Meyers.

Interestingly, Judge Robert Dow Jr weighed in on AB InBev and City Beverage in a recent decision regarding attorney’s fees in the federal case (emphasis added).

“The General Assembly acted while the stay was in place, and its amendment was even less favorable to Plaintiffs than the Court’s ruling would have been—the new statute not only barred Plaintiffs from self-distributing (and hence blocked Plaintiffs’ acquisition of City Beverage), but the General Assembly also extended self-distribution rights to small brewers across the nation, creating more competition for Plaintiffs beyond the two small, in-state brewers who self-distributed prior to this lawsuit.”

The Illinois Liquor Control Commission has remained quiet as a mouse on this issue.

We did catch wind last month that there may be a decision, or at the very least another hearing, on the WEDCO and City Beverage issue. A dozen or so lobbyists showed up to see what would shake out and the commission went in to executive session with nothing to announce when they returned.

We’ve got eyes and ears on this in Springfield and we’ll let you know what, if anything, comes out of tomorrow’s meeting.

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About the Author

Ryan

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Equal parts beer nerd and policy geek, Ryan is now the curator of the Guys Drinking Beer cellar. The skills he once used to dig through the annals of state government as a political reporter are now put to use offering unique takes on barrel-aged stouts, years-old barleywines and 10 + year verticals.

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