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The Federal Trade Commission urged the U.S. Court of Appeals for the District of Columbia Nov. 29 to block the merger of H.J. Heinz Co. and Beech-Nut Nutrition Corp., arguing that the efficiency defense does not apply to mergers involving the second- and third-largest players in a market. The agency said the trial judge misapplied the law when he ruled last month that Heinz may acquire Beech-Nut for $185 million. It said the judge did not scrutinize Heinz’s claim that the deal would save between $9 million to $12 million annually and he failed to address whether those savings would be passed on to consumers. “Under the circumstances of this case — the attempted creation of a duopoly with high entry barriers — such uncritical acceptance of efficiency claims is unwarranted,” the FTC said in a court filing. Heinz agreed Feb. 28 to acquire Beech-Nut in an all-cash deal. The FTC sued, but U.S. District Court Judge James Robertston ruled Oct. 18 that the efficiencies of the deal outweighed any anticompetitive harms. This was the first time a judge had upheld use of the so-called efficiency defense, which holds that customers stand to gain more from the economic efficiencies of a merger than they will give up due to a loss of competition. The FTC appealed, and the federal appeals court agreed Nov. 8 to block the merger until it could review the lower court order. In its 60-page brief, the FTC said the alleged efficiencies from this deal were “speculative” and “so modest that they would easily be swamped by an anticompetitive price increase.” For instance, a 1 cent per jar price hike would negate the projected savings from the deal, the agency argued. It also said the judge erred in concluding that the merger was the only way for Heinz and Beech-Nut to successfully challenge Gerber, the industry leader and a unit of Novartis AG. It said this conclusion turns the antitrust law “on its head” by permitting mergers specifically because the companies compete in highly concentrated markets. “A concentrated market does not become more competitive by permitting significant competitors to consolidate,” the agency said. “Indeed, such an approach is inconsistent with the law and sound antitrust policy.” The agency also charged that the judge incorrectly ignored evidence that Heinz and Beech-Nut compete fiercely at the wholesale level. The judge also should not have required the FTC to prove that the loss of competition at the wholesale level would hurt consumers, the agency said. Heinz and Beech-Nut are expected to file their brief Dec. 29. Arguments are set for Feb. 12, 2001. Copyright (c)2000 TDD, LLC. All rights reserved.

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