Baby-Food Makers Heinz, Beech-Nut Call Off Merger Following Court Ruling

Wall Street Journal 27apr01

WASHINGTON -- H.J. Heinz Co. has called off its $185 million acquisition of Milnot Holding Co.'s Beech-Nut after a U.S. Court of Appeals temporarily blocked the proposed combination of the nation's No. 2 and No. 3 baby-food makers on antitrust grounds.

Heinz said it will have to re-evaluate its U.S. infant-food strategy in the wake of Friday's decision and added that it is keen on remaining a global leader in the category. "Infant feeding is a billion-dollar global business for Heinz," Heinz Chairman, President and Chief Executive William R. Johnson said in a written statement. "Half of the world's infant foods are still home-prepared, which represents significant upside opportunity for strong global brands like Heinz."

Last summer, the Federal Trade Commission voted 3-2 to file a preliminary injunction blocking Pittsburgh-based Heinz's acquisition of the unit of Milnot, a closely held company whose headquarters are in St. Louis. The agency said it was concern that the combination could violate federal antitrust laws by reducing the number U.S. baby-food marketers from three to two.

Combined, Heinz and Beech-Nut would control 25% to 30% of the market. Fremont, Mich., baby-food maker Gerber Products Co., a unit of Switzerland's Novartis AG, controls 70% of the market.

But the U.S. District Court for the District of Columbia denied the FTC's request for the injunction, pending conclusion of the agency's investigation. The court said the merger will increase competition in jarred baby food.

The appeals court disagreed, however, saying the FTC raised questions "so serious, substantial, difficult and doubtful" that an injunction was warranted pending final determination by the agency.

The FTC has said that a merger would create a duopoly, as no new significant competitors have entered the U.S. prepared baby-food market in more than 60 years, and could lead to pricing collusion between the two remaining firms.

FTC Chairman Robert Pitofsky said he regarded Friday's ruling "as among the two or three most important during my six years here." If the court had allowed the merger, he said, "the likely consumer harm would be enormous."

Heinz said that neither company has the capacity to distribute products nationwide and that there was little overlap in their distribution.

Former special prosecutor Kenneth Starr argued for Heinz and Beech-Nut, and former Appeals Court Judge Robert Bork and former White House Counsel C. Boyden Gray filed briefs on behalf of the companies.

U.S. Court Injunction Impedes H.J. Heinz in Bid for Beech-Nut

Wall Street Journal 9nov00

PITTSBURGH -- H.J. Heinz Co. said a federal appeals court Wednesday issued an emergency injunction barring Heinz from completing its proposed $185 million acquisition of rival baby-food maker Beech-Nut.

The decision by a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit requires Heinz to refrain from closing the transaction while the Federal Trade Commission appeals a lower court's refusal to block the merger.

Heinz, a food maker, said it is confident that upon full review, the Court of Appeals will agree with the lower court's Oct. 18 opinion that the merger "will actually increase competition in jarred baby food" in the U.S. While the lower court approved the deal, it also ordered Heinz to hold off on the acquisition after the FTC appealed that decision. "This is a procedural ruling which does not reverse the district-court opinion which found the Heinz-Beech-Nut merger to be pro-competitive," said Heinz spokesman Ted Smyth.

The FTC has argued that the combination of Heinz and Beech-Nut, the second- and third-largest baby-food makers, respectively, would hurt competition. Beech-Nut is owned by Milnot Holding Co., a closely held St. Louis company. Milnot is owned by Madison Dearborn Partners Inc., a Chicago equity firm. Combined, Heinz and Beech-Nut would control 25% to 30% of the market, far less than Novartis AG's Gerber Products Co., the Fremont, Mich., baby-food maker that controls 70% of the market.

FTC Aims to Block Heinz's Bid For Beech-Nut Baby-Food Products

Michael Schroeder and Jonathan Eig / Wall Street Journal 10jul00

WASHINGTON -- Federal antitrust regulators plan to block H.J. Heinz Co.'s bid to acquire rival baby-food producer Beech-Nut Products, which is owned by Milnot Holding Corp. The companies pledged to contest the decision.

The Federal Trade Commission voted 3-2 to file a preliminary injunction blocking Heinz's proposed $185 million acquisition of Milnot, St. Louis. The agency expressed concern that the combination could violate federal antitrust laws by reducing the number U.S. baby-food marketers from three to two.

Heinz, of Pittsburgh, and Beech-Nut are No. 2 and No. 3 in the prepared baby-food market. The FTC puts their combined U.S. market share at 28%. Industry leader Gerber, a unit of Switzerland's Novartis AG, has a 70% share. The action "seeks to ensure families are protected from a loss of competition that may lead to significant price increases for baby food," said Richard Parker, head of the FTC's competition bureau.

The FTC said it would contend in its court filing, expected by midmonth, that the merger would create a duopoly because no new significant competitors have entered the U.S. baby-food market in more than 60 years. The increased concentration could lead to pricing collusion between the two remaining firms, the agency said.

Officials at Heinz and Milnot said they planned to "vigorously defend" the proposed acquisition in federal court, arguing that Gerber already enjoys a virtual monopoly. Heinz said it needs the added scale of Beech-Nut to compete with Gerber.

"There is no incentive for Gerber to innovate with such weak competition," Heinz spokesman Ted Smyth said.

Mr. Smyth said Heinz's share of the baby-food market is 11% and Beech-Nut's is 13%, and that neither company has the capacity to distribute products nationwide. He added that there was little overlap in their distribution. "We feel the pro-competitive aspect of the acquisition is very clear," he said.

Sal Stazzone, a spokesman for closely held Milnot, said the combination would lead to lower prices and more innovation in the baby-food industry. "That's been our contention all along," he said. "Now we'll take it to the courts."

The proposed Heinz-Milnot transaction was announced Feb. 28. Milnot is owned by Chicago investment firm Madison Dearborn Partners Inc. Milnot paid $68 million last year to acquire Beech-Nut from Ralcorp Holdings Inc.