Challenge Urged to Pillsbury Deal
U.S. antitrust enforcers, concerned about the Pillsbury Doughboy’s future, are urging a court challenge to block cereal maker General Mills Inc.’s $10.5-billion purchase of Pillsbury from Diageo, people familiar with the case said.
Federal Trade Commission lawyers are worried that a plan to share the Doughboy brand is anticompetitive, the people said.
General Mills proposed selling the Pillsbury line of baking mixes that compete with the cereal maker’s Betty Crocker brand to International Multifoods Corp. Betty Crocker and Pillsbury are the two leading baking mixes, and the proposed divestiture was intended to ease FTC concerns the combination of General Mills and Pillsbury would reduce competition.
FTC lawyers have rejected the plan to share the Doughboy brand, the people said. The staff believes that letting the giggling blue-eyed character be the mascot for two companies would undermine its value, the people said.
The FTC lawyers “clearly concluded that a significant asset in these products is the brands,” said Herbert Hovenkamp, an antitrust expert at the University of Iowa law school.
The FTC commissioners may meet as early as this week to consider the staff recommendation for a court challenge, the people said.
Company officials have been meeting with commissioners, trying to persuade them to reject the staff recommendation and accept the divestiture plan, people said.
Splitting the Doughboy brand between two companies would create what is known as “free riding,” Hovenkamp said. “To the extent your own advertising benefits a rival, you will have less incentive to promote your own brand,” he said. “The only way you can advertise Pillsbury is in a way that creates benefits for the competitor.”
General Mills and International Multifoods officials didn’t return phone calls seeking comment. General Mills said in a Securities and Exchange Commission filing last week that the FTC was still reviewing the transaction, first proposed in July 2000.
The chubby Doughboy has been a symbol of Pillsbury products since 1965. General Mills, the No. 2 U.S. cereal maker, wants to keep the brand to market frozen waffles, refrigerated cookie dough and other treats while licensing it to International Multifoods for dry cake, muffin and cookie mixes.
The Doughboy, who sports a white kerchief and a chef’s hat, is a fixture in U.S. advertising.
London-based Diageo is trying to sell Pillsbury to focus on its alcoholic beverages, including Guinness Stout, Johnnie Walker Red scotch whiskey and Smirnoff vodka. Under terms of the acquisition, the world’s largest liquor maker would get a 33% stake in General Mills. Combining General Mills and Pillsbury would create the No. 3 U.S. food company.
General Mills, based in Minneapolis, has announced several delays in completing the acquisition. After the FTC’s objections to the Doughboy divestiture became public in July, the company said it didn’t expect to receive approval before this month.
