Executives at Beech-Nut Nutrition Corp. and H.J. Heinz Co. must have an interesting take on Nestlé SA's $5.5 billion deal for Gerber. As regulation wonks will recall, Beech-Nut and Heinz fought a landmark 2001 antitrust battle (remember those?) with the Federal Trade Commission, which the previous year had blocked the ketchup company's $180 million deal for Beech-Nut. After losing the “baby food” case, as it came to be called, in district court, the FTC took the fight to appellate court, which affirmed the agency's argument that the merger would reduce competition for baby food by effectively creating a duopoly consisting of Gerber and a merged Heinz and Beech-Nut. At the time, FTC antirust chief Robert Pitofsky called the ruling one of the most important of his tenure. "If the court began to allow 3-to-2 mergers in these circumstances, the likely consumer harm would be enormous," he said six years ago.
With Gerber, Nestlé will have roughly 79% of the baby food market. Any antitrust issues here? Nope. Gerber is the dominant maker of jarred baby food; Nestle's not, which suggests that the merger won't hurt competition. Of course, in taking on Nestle, Heinz and Beech-Nut will now face a corporate juggernaut in producing turkey purée and other tasty treats for the world's infants. The companies could conceivably argue that, in view of changing market dynamics, they need to merge more than ever to remain competitive. Might such reasoning fly today at an FTC that has proved markedly averse to challenging deals? Doubtful. A strong presumption remains among regulators and antitrust lawyers that so-called 3-to-2 deals harm consumers.—Alain Sherter
See Gerber story from TheDeal.com
See 2001 Beech-Nut story from TheDeal.com
See Pitofsky story from TheDeal.com
See related post from Dealscape
Continue reading below
