U.S. Will Oppose Merger by Heinz With Bumble Bee
The federal government said Thursday that it wants to stop H.J. Heinz, owner of Star-Kist, from buying Bumble Bee Seafoods, contending that the merger would mean higher prices for canned tuna.
The U.S. Justice Department said it will file a lawsuit to halt the proposed $225-million acquisition of San Diego-based Bumble Bee because the merger was a “significant threat” to competition.
“Our prediction is that this merger would result in increased prices to consumers” for a food that is a “staple product” in most American homes, Assistant Atty. Gen. Charles F. Rule said Thursday.
Star-Kist, Bumble Bee and Chicken of the Sea “have maintained a roughly 70% share of the market for the past 10 years,” Rule said. “The big three’s share has remained remarkably consistent.”
Heinz is expected to announce today whether it will continue to pursue Bumble Bee, which is owned by company executives and financial partner First Boston Corp. That group acquired Bumble Bee for $73 million in 1985.
The announcement was a victory for the American Tunaboat Assn., a San Diego-based group that represents about 350 owners and operators of large tuna boats. The group had demanded that the Justice Department stop the acquisition.
“I think the U.S. consumer is the winner because of this” decision, American Tunaboat Assn. president August Felando said.
Star-Kist is the nation’s leading canned tuna brand, with 36.5% of the market, followed by Ralston Purina’s Chicken of the Sea brand with 20% and Bumble Bee with 15%, according to Advertising Age magazine.
A Heinz spokesman on Thursday defended the acquisition as part of a strategy designed to transform Long Beach-based Star-Kist into a lower-cost producer that can survive increased competition from lower-cost foreign producers.
“The whole basis of our argument was that tuna is actually a worldwide commodity,” said Heinz assistant treasurer John Mazur. “Import competition has been providing significant competitive pressures and we had hoped to achieve some significant cost efficiencies.”
A Bumble Bee spokesman declined to comment Thursday on the Justice Department’s decision to file suit.
Mazur maintained that brand franchises are “relatively weak,” and that it is price differences that make a large difference to shoppers.
Canned tuna is “always on special so you can’t have margins that allow you to advertise heavily in the media,” Mazur said. Shoppers do have favorite brands, but to most consumers, “a can of tuna is a can of tuna,” Mazur concluded.
The Justice Department decision occurred at a time when domestic tuna brands are slowly losing their market shares to foreign brands, according to Mazur. Foreign companies now account for 27% of the branded tuna sold in this country, he said, up from a 6% share in 1977. Foreign competitors have succeeded in the United States because they enjoy lower processing costs, according to industry experts. Thailand, for example, which accounts for 70% of the foreign branded tuna sold in this country, “has an hourly wage of between 35 cents and 40 cents an hour,” Mazur said.
U.S. canners--the big three included--have closed U.S. processing plants and relocated in Puerto Rico and American Samoa, where labor costs are lower. Bumble Bee and Star-Kist, for example, operate processing and canning plants that are next to each other in Puerto Rico, Mazur said.
An independent facility in San Pedro is the only remaining processing plant in the continental United States. Mazur predicted that if the Bumble Bee deal falls apart, “you’ll continue to see a movement toward (plants) being (located) wherever the lowest cost is.”
THE TUNA MARKET Chicken of the Sea (Ralston) 20% Bumble Bee 15% Star-Kist (H. J. Heinz) 36% Others 29% The U. S. plans to try to stop Heinz from adding to its market dominance by buying Bumble Bee.
