FTC Will Seek to Block Heinz, Beech-Nut Merger
The Federal Trade Commission said Friday that it authorized its staff to go to court to block H.J. Heinz Co.’s purchase of closely held Milnot Holding Corp., maker of Beech-Nut baby food, saying the deal would stifle competition.
Pittsburgh-based Heinz, best known for its namesake ketchup, said in a statement that the deal, which was first announced in February, is in the “best interests of American consumers and will result in lower prices, improved product offerings and more innovative competition in the baby food category.”
The FTC said the combination of Heinz and Beech-Nut, the nation’s second- and third-largest producers of prepared baby food, would create a duopoly in the already concentrated baby foods market.
“The transaction would violate the antitrust laws by allowing two firms, Gerber and Heinz/Beech-Nut, to control 98% of the U.S. baby food market,” said Richard G. Parker, director of the FTC’s Bureau of Competition, in a statement.
The FTC’s move comes during a wave of consolidation in the food industry, including consumer products giant Unilever’s $20.3-billion deal for Bestfoods and Philip Morris Cos.’ $14.9- billion deal for Nabisco Holdings Corp. Heinz President and Chief Executive William Johnson has said the company expects to be an active participant in the trend.
Salomon Smith Barney food analyst Jaine Mehring said she was surprised by the FTC’s action and that the strong language in Heinz’s statement showed the company was ready to put up a long fight.
“I cannot believe the government would try to stop Heinz from putting together two companies to provide better competition in the category, Mehring said in a telephone interview. “I think it’s shocking.”
Mehring said she did not think the FTC’s move signaled that it may try to block some of the other pending deals.
Together, Heinz and Milnot--in which Chicago-based Madison Dearborn Capital Partners owns 80%--would represent about 28% of the U.S. prepared baby food market, compared with 70% for Novartis’ Gerber, the FTC said.
Heinz, which also makes Ore-Ida frozen potatoes, Star-Kist tuna and hundreds of other food products, said the merger with St. Louis-based Milnot would provide a strong competitor to Gerber that would serve consumers better than two smaller rivals.
“The combination of Heinz and Beech-Nut is in the best interests of American consumers because it is pro-competitive and will result in more innovation to reinvigorate the baby food category,” Milnot Chief Executive Scott Meader said.
Heinz’s annual baby food sales in the United States are about $100 million, with global baby food sales of more than $1 billion.
A representative at Heinz declined to comment on whether the company was negotiating with the FTC for approval, but the company said in a statement it planned to defend the deal in court.
Heinz shares rose 31 cents to close at $45.50 on the New York Stock Exchange, a few minutes after the news that the FTC was moving to block the deal. The shares have traded between $30.81 and $50.06 in the last year.
