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With the conclusion of final arguments last Thursday in the Federal Trade Commission’s first anti-trust trial in more than two years, U.S. District Court Judge James Robertson must now decide if he should approve or reject the merger of the nation’s second- and third-largest makers of baby food. H.J. Heinz Co. of Pittsburgh has offered to acquire Missouri-based Milnot Holding Corp.’s Beech-Nut Nutrition Corp. subsidiary for $185 million. But the FTC contends that the loss of a competitor in the $800 million to $1 billion baby food industry would be a “direct hit” to competition and would cause harm to consumers. The companies argued that the efficiencies gained by allowing the merger will lower their costs to give consumers a price break and boost their own profits. “What would happen if Beech-Nut is not around?” asked FTC attorney Richard Dagen in his closing arguments. “Consumers will be worse off. “The competition between Heinz and Beech-Nut affects Heinz pricing, and it spurs Heinz on to compete more aggressively against Beech-Nut and Gerber,” he said. Gerber, a unit of Switzerland’s Novartis AG, is the industry leader with about a 70% market share, compared with about 14% each for Heinz and Beech-Nut. A new player has not entered the market for 60 years. Dagen contended that without Beech-Nut, Heinz would be able to cut back on coupons and promotions, which would limit the number and amount of discounts for consumers. Quoting extensively from Heinz’s internal documents, Dagen said the company competes fiercely with Beech-Nut to be the second brand on the shelf beside Gerber. Also, if the merger goes through, there will be collusion between Heinz and Gerber, he said. Heinz will most likely peg its baby food prices a few cents below Gerber and keep them there. In his questioning of the FTC, Judge Robertson seemed intrigued at what the combination would mean for competition in the baby food industry. He asked the FTC why two stronger players competing for 100 percent of the market is not a better deal than two weaker players competing for 30 percent of the market. “You can speculate that the merger might shake things up, but that’s not the job of the court,” Dagen told the judge. Heinz’ attorney, Edward P. Henneberry, of the Washington office of Howrey Simon Arnold & White, said that limited view is the essential weakness of the FTC’s case. The FTC has solely relied on a structural case that the merger is a detriment to consumers because it reduces the number of players in the baby-food industry from three to two, Henneberry said. “The structure of the industry is why the deal should be allowed,” he said. “Now, there is one dominant player with two also-rans. You never find three brands on the shelf.” Hennebery said the FTC’s case does not withstand legal scrutiny, and the federal regulator did not present any affirmative evidence that the merger would be bad for consumers. Mark L. Kovner, of the Washington office of Kirkland & Ellis, which represents Beech-Nut, said there will be no ensuing harm from an immediate closing of the transaction between Heinz and Beech-Nut. “Is it better to give Heinz the wherewithal to begin a relentless attack against Gerber or is it better to allow Beech-Nut to limp along, which will help no one but Gerber?” he asked the judge. Copyright (c)2000 TDD, LLC. All rights reserved.

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