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FTC nixes baby food deal
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July 7, 2000: 4:53 p.m. ET
Heinz's proposed acquisition of Beech-Nut is anticompetitive, government says
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NEW YORK (CNNfn) - The Federal Trade Commission said Friday it would seek an injunction to block H.J. Heinz Co.'s proposed $185 million acquisition of Milnot Holding Co., owner of Beech-Nut Nutrition Corp. due to antitrust concerns.
The FTC said the combined companies would reduce competition in the baby food market by reducing the number of competitors from three to two, creating a duopoly. Heinz is the second-largest producer of prepared baby food, and Beech-Nut is the third largest. Gerber Foods is the largest of the three companies.
 Heinz announced its proposed acquisition of Milnot on Feb. 28.
Pittsburgh-based Heinz, known for its ketchup, Nine Lives cat food, Starkist tuna and other popular food brands, has more than $9 billion in annual sales, including $100 million in annual U.S. baby food sales.
St. Louis-based Milnot sells about $150 million in Beech-Nut baby food a year.
"The transaction would violate the antitrust laws by allowing two firms, Gerber and Heinz/Beech-Nut, to control 98 percent of the U.S. baby food market," said Richard Parker, director of the FTC's Bureau of Competition.
In a separate statement Friday, Heinz said it intends to "vigorously defend the acquisition in the courts as the best way to inject competition into this category."
"We think Gerber has long had a monopoly on the market," said Debbie Foster, a Heinz spokeswoman. " ... Gerber has a very large market share, about 70 percent, and they're facing two regional brands like Beech-Nut and Heinz that could provide a nationally available, lower-priced product to the market."
 Milnot President Scott Meader also reacted to the news.
"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 industry," Meader said.
Although Gerber, a unit of Novartis Pharmaceuticals (NVS: Research, Estimates) controls about 70 percent of the U.S. baby food market and would still far outpace a combined Heinz and Beech-Nut which would control about 30 percent of the market, the proposed merger creates more opportunities for collusion, said Mitchell Katz, an FTC spokesman.
"The main thing that we're looking at is that these are the three dominant players within the U.S. baby food market, and the proposed merger would effectively reduce that number from three to two. There's an increased chance for collusion is really what it comes down to," Mitchell said.
 In seeking the injunction, the FTC will argue that entry barriers in the U.S. baby food market are high and that there hasn't been any significant entry in the market for more than 60 years. In addition, the commission said the U.s. baby food market is already highly concentrated, and that it will become substantially more concentrated if the transaction is consummated.
If the court grants the FTC's motion, it will have 20 days to determine whether to issue an administrative complaint.
Shares of Heinz (HNZ: Research, Estimates) closed up 5/16 at 45-1/2 Friday. 
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