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H.J. Heinz & Co. seized the offensive last Friday in its antitrust trial in federal court in Washington, D.C., telling a federal judge that it could not challenge baby food giant Gerber unless the court approves its $185 million acquisition of Beech-Nut Nutrition Corp. Heinz Chief Executive Officer William Johnson testified that the deal is critical because it would give the company a national presence and would roughly double, to 30%, its share of the U.S. baby food market. “I didn’t pay $185 million to get 12 share points,” Johnson said. “We paid $185 million to go after the 70% share that Gerber has.” The Federal Trade Commission has sued to block the Heinz-Beech-Nut deal, leading to the first major U.S. antitrust trial in more than two years. Johnson testified that Gerber, a unit of Novartis AG, has become complacent. This has caused per capita sales of baby food to drop, he said. “It is boring,” he said of the baby food sector. “There has been very little innovation.” Heinz has the knowledge from its European baby food operations to introduce innovative products to this market, Johnson said. This includes better quality control and a new type of product that tastes fresher than traditional, jarred baby food, he added. Johnson said Heinz cannot profitably unveil these products in the U.S. because it doesn’t reach enough consumers. That makes it uneconomical to run a national advertising campaign, he said. He noted that Heinz tried to introduce an innovative form of instant baby food. The product flopped and the company suffered a $40 million loss. “I learned that without national distribution you cannot succeed,” he said. Johnson also sought to dispel the FTC’s contention that Heinz and Beech-Nut, a unit of Milnot Holding Corp., compete fiercely to be the second brand on the shelf. The FTC has said this competition results in discounts and promotional campaigns, which means consumers pay less for baby food than if the companies merge. But Johnson said Heinz pretty much ignores Beech-Nut and instead, prices its product at a discount to Gerber regardless of whether Beech-Nut is in the market. “We compete against Gerber,” he said. “There is no point in not going after the market leader.” During cross-examination, FTC lawyer Richard Dagen tried to show Heinz was unlikely to compete fiercely against Gerber. He cited an antitrust case against the company in Canada that was settled and another matter before the Canadian court. Both involved charges that Heinz used its market power to violate antitrust laws. Johnson said he had little knowledge of either matter, noting that his general counsel said these were items that he needn’t worry about. Dagen also introduced reports criticizing the amount of starch in Heinz baby food. He asked Johnson if these reports, which were widely publicized when released in the mid-1990s, were responsible for the company’s troubles in the market. In an effort to show that Heinz does view Beech-Nut as a competitor, the FTC lawyer also cited Heinz documents that said the company was involved in the bidding and promotional war with Beech-Nut. Johnson disagreed. “The big war is going to be the war with Gerber,” he said. “That is the war I care about.” The five-day hearing resumes Thursday, its fourth session, before Judge James Robertson. Copyright (c)2000 TDD, LLC. All rights reserved.

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