Feds Say, "Not So Fast" to Heinz/Beechnut Deal

Late in February, H.J. Heinz Co. announced plans to purchase baby food maker, Beech-Nut Nutrition Corp., a subsidiary of St. Louis-based Milnot Holdings. (See earlier article).

However, last Friday the Federal Trade Commission voted 3-2 to mount a legal challenge to block the acquisition, saying the deal would undercut competition in the baby food market and give Heinz and industry giant Gerber the chance for "coordinated anticompetitive interaction."

The FTC said it plans to argue that the U.S. baby food market is already highly concentrated and would become even more concentrated if the buyout is completed.

Together, the two companies would represent approximately 24% of the U.S. prepared baby food category, compared to Gerber, which has nearly 73%. Currently, Heinz and Beech-Nut are regional players with minimal overlap in distribution on grocery shelves.

Heinz said in a statement that it intends to vigorously defend the acquisition in the courts as the best way to inject competition into this category. Gerber has long held an unchallenged monopoly position (with a market share exceeding 70%) because its competition has been divided between two regional players, Heinz and Beech-Nut, each with distribution in less than half of the U.S. A strong number-two competitor is clearly better for consumers than two smaller companies facing a monopoly.

Heinz noted that a combination of Heinz and Beech-Nut will bring nationally available value-priced baby foods and more choices for parents. Heinz's strategy is to grow its top line by expanding baby food usage and by offering lower prices.

Heinz's director of Corporate Nutrition David Yeung said: ``American babies have for too long been denied the new ideas, great nutrition and exceptional taste in formulated baby foods enjoyed by Europeans. Heinz is a leading baby food company in Europe and, with the efficiencies and increased reach of a Heinz/Beech-Nut combination, will leverage its global expertise in child nutrition and R&D for the benefit of American babies. European infant food products include new microwaveable meals, new packaging that offers greater freshness and taste and a rigorous quality monitoring system, known as Environmental Oasis.''

Scott Meader, President and CEO of Milnot Holding Corporation, said: ``The combination of Heinz and Beech-Nut is in the best interests of American consumers because it is pro-competitive and will result in more innovation to reinvigorate the baby food category.''

Heinz's annual baby food sales in the U.S. are approximately $100 million, with global baby food sales exceeding $1 billion. Heinz is number one in infant foods in Canada, the U.K., Italy, Australia, New Zealand, Venezuela, China and other markets.

In addition to its Beech-Nut baby food products, Milnot also markets Milnot brand canned milks and Chilli Man brand chili. Milnot is owned by Chicago investment firm Madison Dearborn Partners.

Edited by Pam Ahlberg