U.S. antitrust regulators gave their blessing Wednesday to Nestle's $2.8-billion purchase of Oakland-based Dreyer's Grand Ice Cream Inc., on the condition that the companies sell some of their gourmet ice cream brands and help a rival firm compete against what would become the second-largest ice cream maker.
The Federal Trade Commission voted unanimously to approve the merger after Dreyer's agreed to shed its Dreamery, Whole Fruit and Godiva products to Eskimo pie maker CoolBrands International of Canada. The government also said Nestle must sell CoolBrands its distribution network, which delivers ice cream to stores.
Beyond the divestitures, the FTC is requiring the combined company to continue manufacturing the three brands and sell them to CoolBrands at cost for up to a year, as well as pay CoolBrands to distribute some of its ice cream until the Canadian company can add enough new business to profitably support Nestle's large delivery network.
"We wanted to ensure that there was another independent competitor with not only brands, but distribution," Commissioner Michael G. Cowie said.
But the unusual conditions concerned Commissioner Sheila Anthony, who said the arrangement was "more regulatory relief than I ordinarily like to see," because it burdens the FTC with oversight of the $600-million super-premium ice cream market for several years.
The approval came four months after the FTC threatened to sue to block the takeover on concerns that it would create a monopoly in the gourmet ice cream market, which includes Nestle's Haagen-Dazs and Dreyer's Godiva, as well as Unilever's Ben & Jerry's brands. Until Nestle and Dreyer's complete the FTC-ordered divestitures, they have a combined 60% share of the market.
"We are pleased that the FTC has cleared the transaction that combines Nestle and Dreyer's," said Nestle USA spokeswoman Laurie MacDonald. The deal is expected to close today.
The deal is crucial to Swiss food giant Nestle, which wants to become one of the world's largest ice cream companies, alongside Unilever, said Tom Burnett, an analyst with Merger Insight. "Unilever and Nestle can now go head to head" for the top spot.
CoolBrands said it would pay about $10 million in cash for the Dreamery and Whole Fruit brands, the rights to the license for the Godiva ice cream brand, along with "related inventories."
Dreyer's also is required to make nonexclusive its existing licensing deals with candy giant Mars Inc. and Starbucks Corp. so those companies could ally with other ice cream makers.
The deal gives Nestle a two-thirds stake in Dreyer's in exchange for its ice cream business. Dreyer's shares rose 15 cents to $78.20 on Nasdaq.
Reuters was used in compiling this report.