Thursday, June 26, 2003

Antitrust News: FTC Ends Nestle Battle

Yesterday the Federal Trade Commission cleared the Nestle-Dreyer's ice cream merger after Nestle agreed to some concessions:
According to the FTC, U.S. consumers spend at retail about $600 million annually for superpremium ice cream. Nestlé and Dreyer's, along with Unilever, the marketer of Ben & Jerry's brand ice cream, account for about 98 percent of superpremium ice cream sales. In June 2002, Nestlé and Dreyer's agreed to combine their ice cream businesses. The purchase of Dreyer's would give Nestlé, alone, about 60 percent of the market. At the time, the deal was valued at about $2.8 billion.

In March 2003, the FTC authorized the staff to seek a preliminary injunction to block the merger of Nestlé and Dreyer's, pending trial. The agency asserted the merger would violate the antitrust laws by eliminating competition and raising prices for superpremium ice cream. Nestlé markets superpremium ice cream under the Häagen-Dazs brand. Dreyer's superpremium ice cream brands include Dreamery, Godiva, under a license with Godiva Chocolatier, Inc., and Starbucks, under a joint venture with Starbucks Corporation.

The proposed order also requires that Dreyer's make its license to manufacture, distribute, and sell Starbucks superpremium ice cream nonexclusive; and allow Mars, Inc., and Ben & Jerry's to terminate their relationships with Dreyer's. To ensure that CoolBrands can operate profitably and provide viable competition, the settlement requires that, for a period not to exceed one year, Nestlé and Dreyer's supply Dreamery, Godiva, and Whole Fruit products to CoolBrands at their production costs. It also requires that they distribute those brands for CoolBrands in any area of the U.S. where Dreyer's previously distributed the products. It requires that they provide technical assistance and administrative services to CoolBrands, as needed, for one year. The settlement requires that Nestlé and Dreyer's provide additional premium ice cream or novelty products to CoolBrands for up to five years to enable CoolBrands to operate profitably while it develops additional distribution arrangements.
As horrible as this settlement sounds, Nestle actually fared pretty well in antitrust terms. When the FTC voted in March to seek a court order blocking the Nestle-Dreyer's deal, FTC staff likely expected the companies to call off their merger, which is what usually happens in such circumstances. Thus, in an odd way this was a victory for Nestle, since the staff--spurred on by FTC Chairman Tim Muris, who has an agenda against Nestle--probably predicted a total victory. Nestle fought back just enough to get most of what they wanted while avoiding an expensive court fight that would have only delayed their merger plans.

Still, this settlement is garbage. The Starbucks concession is frankly bizarre, as it has nothing to do with what the FTC was supposedly upset about, supermarket distribution. And there's still that nagging point that "superpremium ice cream" isn't actually a distinct market. But I'll save my griping over that for the comment letter.

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