Federal Trade Commission Clears Acquisition of Nabisco By Philip Morris

Agreement Requires Divestitures of Five Food Products

For Release

The Federal Trade Commission today announced a proposed consent agreement with Philip Morris Companies, Inc. ("Philip Morris") and Nabisco Holdings Corp. ("Nabisco") that would allow the two companies to combine their food businesses while remedying the potential anticompetitive effects of the transaction. The acquisition will create the world's largest food company, with over $100 billion in food sales. In order to address competitive concerns, the parties have agreed to divest all of Nabisco's dry-mix gelatin, dry-mix pudding, no-bake dessert, and baking powder assets to The Jel Sert Company, and Nabisco's intense mints assets to Hershey Foods Corporation.

"This agreement addresses the five markets where this merger would have significantly reduced competition," said Richard G. Parker, Director of the FTC's Bureau of Competition. "By requiring divestitures in these markets, the Commission will ensure consumers continue to enjoy these products at palatable prices."

According to the Commission's complaint, the proposed merger would violate Section 5 of the FTC Act and Section 7 of the Clayton Act by reducing competition in five already highly- concentrated food product markets.

Dry-Mix Desserts

Philip Morris has an 86 percent share of the $212 million dry-mix gelatin dessert market, through its Kraft Foods Inc. subsidiary, which produces and sells Jell-O brand dry-mix gelatin desserts. Nabisco sells the Royal brand of dry-mix gelatin desserts, which has a 6 percent market share. Philip Morris and Nabisco are the only two significant sellers of branded dry-mix gelatin desserts in the United States; their products total $198 million in annual wholesale sales.

Philip Morris has a 82 percent share of the $202 million dry-mix pudding market, also through Kraft's sales of Jell-O brand pudding. Nabisco sells, but does not produce, the Royal and My-T-Fine brands of pudding, which have a 10 percent combined market share. Their products total $185 million in annual wholesale sales. The only other market participants are the private label brands.

Philip Morris has a 90 percent share of the $56 million dry-mix dessert market - cheesecake, peanut butter, and cookie flavored mixes that require no baking. This product is produced and sold by Philip Morris under Kraft's Jell-O brand. Nabisco sells the Royal brand of no-bake desserts; Royal has a 6 percent market share. Their products total $54 million in annual wholesale sales. The only other market participants are the private label brands.

Baking Powder

Philip Morris, through its Kraft subsidiary, produces and sells Calumet brand baking powder, while Nabisco produces and sells the Davis and Fleischmann's brands of baking powder. Kraft has a 27 percent share of the $29 million market, Nabisco has a 17 percent share, and the only other significant producer, Hulman, has a 54 percent share. Private label shares total less than 2 percent.

Intense Mints

Sales of intense mints, which differ from traditional mints because of their powerful flavor and distinctive packaging, pricing, and marketing, total about $250 million and have grown at a rate of more than 40 percent a year. Philip Morris, through its Kraft subsidiary, sells the popular Altoids brand of mints, a brand whose sales have increased sixfold since 1994. In response to the popularity of Altoids, Nabisco, through its Life Savers Division, launched the Cool Blasts and Ice Breakers brands of intense mints. Altoids holds a 62 percent market share, while Nabisco's Ice Breakers and Cool Blasts brands hold a 12 percent share. Pfizer holds a 15 percent share through sales of Certs Powerful Mints; all other competitors combined take an 11 percent share of the market.

The Commission believed the proposed acquisition would eliminate substantial competition between Philip Morris and Nabisco, and would increase concentration in each relevant market, resulting in higher prices.

According to the Commission, all five markets are highly concentrated, and the proposed acquisition would substantially increase that concentration. Additionally, new entry into each relevant market would not be timely, likely, or sufficient to prevent the anticompetitive effects.

The complaint also states that the proposed acquisition would eliminate competition between Philip Morris and Nabisco, and would enhance, increase, and facilitate the continued exercise by Philip Morris of its market power by creating or increasing the likelihood that it would exercise unilateral market power or engage in coordinated interaction with its remaining competitors.

The proposed consent order, which is subject to public comment, would remedy the potential anticompetitive effects of the merger by requiring Philip Morris and Nabisco to divest the Nabisco dry-mix desserts and baking powder businesses to the Jel Sert Company and the intense mints business, together with related Ice Breakers gum and Breath Savers mint business, to Hershey Foods Corporation.

Philip Morris and Nabisco will be required to complete the required divestitures within ten business days from the date they consummate their proposed acquisition. If the divestitures are not completed within the time allowed, procedures for appointment of a trustee to sell the assets have been agreed to and will be triggered. Both companies also agreed to an Order to Maintain Assets, requiring them to preserve and maintain the competitive viability of all the assets required to be divested. This will ensure that the competitiveness of the assets will be maintained between the time the merger is consummated and the assets are actually divested.

The Commission vote to accept the proposed consent agreement and Order to Maintain Assets was 5-0. An announcement regarding the proposed consent agreement will be published in the Federal Register shortly, and will be subject to public comment for 30 days, until January 8, 2001, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

Copies of the complaint, proposed consent agreement and an analysis of the proposed consent order to aid public comment, are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

Media Contact:

Eric London

Office of Public Affairs

202-326-2180

Staff Contact:

Joseph Brownman

Bureau of Competition

202-326- 2605

(FTC File No. 001-0215)

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