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Keeping the door open to a settlement in Nestl� SA’s acquisition of Dreyer’s Grand Ice Cream Inc., Federal Trade Commission Chairman Timothy J. Muris said Tuesday that the agency is studying whether the companies’ proposed divestiture would work. “We are in negotiations right now over whether there is a viable remedy,” Muris said after an appearance at The Conference Board’s annual antitrust forum. Muris declined to discuss specifically what Nestl� and Dreyer’s have offered and said there is no timetable to complete the negotiations. In a comment that lawyers at the conference took as a positive sign for the deal, Muris said the FTC has previously approved divestiture packages in mergers like Nestl�-Dreyer’s that would reduce the number of competitors in the market to two from three. Some had feared that no remedy would be possible in the Nestl�-Dreyer’s deal because antitrust regulators are loath to approve a deal that would result in only two competitors in the market. The food companies addressed this issue March 10 with a divestiture package that included the sale of Dreyer’s Dreamery brand, the license to produce Godiva ice cream and some Nestl� distribution assets to CoolBrands International Inc., which makes frozen novelties such as Eskimo Pie and Chipwich ice cream sandwiches. The companies argued that CoolBrands would be a strong enough vendor of superpremium ice cream to replace competition lost from the merger. But the offer came too late for the FTC, which on March 11 authorized agency staff to challenge the deal. The commission has put the filing of that challenge on hold while it reviews the divestiture package. Sources have said that Nestl� increased its offer to include the license to Starbucks ice cream and Nestl�’s distribution system in 13 of 16 major markets. A source said Tuesday that the FTC, which has met with CoolBrands executives, has concluded that the company is an acceptable buyer for the assets, but the staff remains unsure whether the package of brands being offered by Nestl� is sufficient. They also are unsure whether the distribution assets Nestl� is offering are enough to make CoolBrands a viable rival. The source said there was no indication that the staff would not eventually conclude that both the brands and distribution assets were sufficient. If the FTC does conclude that the brand offerings are insufficient, then the deal could be in serious trouble. The only alternative for Nestl� would be to offer up H�agen Dazs, something it is not expected to do. On the distribution front, Nestl� also is not expected to part with any of Dreyer’s extensive network, though it could offer to divest all of Nestl�’s distribution assets. Nestl� and Dreyer’s agreed in June 2002 to merge in a complex deal now valued at $2.8 billion. Speaking more generally, Muris said the FTC has tried for the past 30 years to ensure that merger remedies work. That is why the agency seeks to approve buyers in advance and often appoints monitors to oversee divestitures. “They are an important tool,” he said. One lawyer asked Muris about whether he supports “clean-sweeps,” in which merging parties divest either all of the target’s or the acquirer’s overlapping assets. In the Nestl�-Dreyer’s deal, that would mean the Swiss food giant would have to give up all of its distribution assets along with the three superpremium ice cream brands. In his more formal remarks, Muris escalated his campaign against hospital mergers, saying the agency plans shortly to challenge two completed hospital combinations. “We are looking at several consummated hospital mergers,” he said. “I would be very surprised if we did not challenge one or two of them.” Muris, who has previously disclosed that the FTC is investigating hospital deals, said the agency would not bring a challenge before an administrative law judge unless it could obtain a meaningful remedy. This could include structural relief, he said. “If the eggs were not scrambled, it would be easy to put it back together,” Muris said. Appearing on the same panel as Muris, Acting Assistant Attorney General R. Hewitt Pate said the Department of Justice’s antitrust division is looking at past merger consent decrees to rate the level of compliance with terms that restrict a company’s conduct. “It does not make sense to have orders of 10 years or more unless you are going to enforce them,” Pate said. The comment came as part of a larger discussion of whether the terms of consent decrees have become too short. Former FTC Chairman Robert Pitofsky, who was also on panel, said the past practice of having perpetual orders makes no sense because markets change over time. Yet he also questioned whether a five-year term in an antitrust case such as the one involving Microsoft Corp. is too short. “I’m not entirely comfortable with orders that are that short,” Pitofsky said.

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