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Federal Register / Vol. 86, No. 2 / Tuesday, January 5, 2021 / Notices space and sales in the off-premise retail channel. Absent relief, the Acquisition would have substantially lessened the significant head-to-head competition between Andre and Cooks and would likely have increased Gallos ability and incentive to raise prices postAcquisition. Entry into this market is difficult due to the specialized equipment and massive scale needed to produce low-priced sparkling wine. The need for a national distribution network and sales force, and retail relationships sufficient to compete with established brands for retail shelf space, present additional hurdles to entry and expansion.

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C. Low-Priced Brandy Brandy is a distilled spirit made from fruit, typically wine grapes. After distillation, it must be aged for at least two years in order to be labeled and sold as brandy in the United States. There is a large price and quality difference between low-priced brandies, which are typically produced domestically, and high-end imported brandies primarily cognacs. Further, low-priced brandies do not compete closely with other types of spirits such as whiskeys, rums, vodkas, tequilas, and gins, since brandy has a unique taste profile and is often consumed straight rather than as a mixer.
Gallos E & J Brandy and Constellations Paul Masson brandy are the two largest low-priced brandies.
Absent relief, Gallo would have acquired Constellations Paul Masson brand, resulting in significant increases in concentration and a highly concentrated market, and giving rise to a presumption of increased market power under the Horizontal Merger Guidelines. Gallo and Constellation consider each others pricing when determining the price of their own lowpriced brandy brands and compete to develop new products for these brands.
Absent relief, the Acquisition would have substantially lessened the significant head-to-head competition between E & J Brandy and Paul Masson, would likely result in lower quality, and would likely increase Gallos ability and incentive to raise prices postAcquisition. Entry is unlikely to deter or counteract the anticompetitive effects of the Acquisition due to the significant capital investment and distribution network required for large-scale brandy production. Further, the need for certain state and local environmental permits makes entry or expansion difficult.

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D. Low-Priced Port and Low-Priced Sherry Port and sherry are types of fortified wines wines to which a distilled spirit has been added, giving them a higher alcohol by volume that are used for both cooking and consumption. Due to their flavor profile, alcohol level, and use, port and sherry brands are distinct from table wines and generic cooking wines. Further, there is a significant price gap between low-priced, domestic brands of port and sherry and high-end imports.
Gallo, which owns both the Sheffield Cellars and Fairbanks brands, and Constellation, which owns the Taylor brand, are the two largest suppliers, by volume, of low-priced port and lowpriced sherry fortified wines in the United States. Absent relief, Gallo would have owned three of the top four low-priced port and sherry brands. The Acquisition would have resulted in significant increases in concentration and lead to highly concentrated markets, resulting in a presumption of increased market power under the Horizontal Merger Guidelines. Gallo and Constellation are each others closest competitors. Absent relief, the Acquisition would have substantially lessened the significant head-to-head competition between Gallo and Constellation, and would likely increase Gallos ability and incentive to raise prices post-Acquisition. Entry into these markets is unlikely to occur due to the low level of interest in low-priced port and sherry from retailers, distributors, and third-party producers. In addition, producers of high-end imports have cost structures that render them unable to introduce a product at a price similar to domestic brands.
E. High Color Concentrates HCCs are grape-based additives that have been concentrated using sophisticated filtration technologies into a thick, shelf-stable syrup. HCCs are made from a specific grape varietal, Rubired, and are used by winemakers to deepen the color and enhance the taste and texture of red wines. HCCs are also used by food and beverage manufacturers in jellies, juices, and other products. HCCs have unique qualities that are not replicable through the use of lower-level concentrates or other winemaking techniques.
Gallo and Constellation are the two largest HCC producers in the United States, and there is only one other domestic producer. Absent relief, the Acquisition would have resulted in significant increases in concentration and lead to a highly concentrated
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market, resulting in a presumption of increased market power under the Horizontal Merger Guidelines. Gallo and Constellation are each others closest competitors. Absent relief, the Acquisition would have substantially lessened the significant head-to-head competition between Gallo and Constellation, and would likely increase Gallos ability and incentive to raise prices post-Acquisition. Entry into this market is difficult due to the need for technical expertise and significant capital investments in production equipment. In addition to potentially needing certain regulatory permits, firms making attempts at HCC
production can only do so annually during a narrow harvest window, which results in a lengthy development process.
IV. The Proposed Consent Agreement The proposed Consent Agreement remedies the likely anticompetitive effects in the aforementioned product markets. The proposed Order requires that Constellation retain and maintain the assets of the J Roget and Cooks brands. The Order also requires the following divestitures: Constellation will divest its Paul Masson brandy to Sazerac; Gallo will divest its Sheffield Cellars and Fairbanks low-priced port and sherry brands to Precept; and Constellation will divest its HCCs business to Vie-Del, no later than 10
days after the closing of the Acquisition.
The Order further prohibits Constellation from selling or leasing, and Gallo from buying, the Mission Bell production facility without prior Commission approval. Constellation produces Cooks brand low-priced sparkling wine and HCCs at the Mission Bell facility, and will provide an interim supply of HCCs to the purchaser of that business.
The proposed Order and Order to Maintain Assets also appoint William Berlin as Monitor. The Monitor will ensure that the parties comply with their obligations under the proposed Orders and keep the Commission informed about the status of the transfer of the assets and rights to the approved acquirers.
Finally, the proposed Consent Agreement contains standard terms regarding each acquirers access to employees, protection of material confidential information, and compliance reporting requirements, among other things, to ensure the viability of the divested businesses.

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