0010137

UNITED STATES OF AMERICA
BEFORE THE FEDERAL TRADE COMMISSION

In the Matter of

H.J. HEINZ COMPANY, a corporation; MILNOT HOLDING CORPORATION, a corporation; and MADISON DEARBORN CAPITAL PARTNERS, L.P., a limited partnership.

Docket No. 9295

COMPLAINT

The Federal Trade Commission ("FTC" or "Commission"), having reason to believe that respondents H.J. Heinz Company ("Heinz"), Milnot Holding Corporation, and Madison Dearborn Capital Partners, L.P. ("Madison"), all subject to the jurisdiction of the Commission, have entered into an agreement whereby Heinz will acquire all of the voting securities of Milnot Holding Corporation in violation of Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C.  45, and that such acquisition, if consummated, would violate Section 7 of the Clayton Act, as amended, 15 U.S.C.  18; and that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint, stating its charges as follows:

THE PARTIES

1. Respondent Heinz is a for-profit corporation organized, existing and doing business under the laws of the State of Pennsylvania, with its office and principal place of business located at 600 Grant Street, Pittsburgh, Pennsylvania 15219. Heinz is one of the largest food products manufacturers in the United States with total revenues exceeding $9 billion. Heinz is the third largest seller of jarred baby food in the United States. Heinz's worldwide jarred baby food sales exceed $1 billion annually.
 
2. Respondent Milnot Holding Corporation is a for-profit corporation organized, existing and doing business under the laws of the State of Delaware, with its office and principal place of business located at 100 South Fourth Street, St. Louis, Missouri 63102. Beech-Nut Nutrition Corp. ("Beech-Nut") is a wholly owned subsidiary of Milnot Holding Corporation and is currently the second largest seller of jarred baby food in the United States.
 
3. Madison is a private equity investment firm with its office and principal place of business located at Three First National Plaza, Suite 1330, Chicago, Illinois 60602. It is the ultimate parent entity of Milnot Holding Corporation.

JURISDICTION

4. Respondents Heinz, Madison, and Milnot Holding Corporation are, and at all times relevant herein have been, engaged in commerce, as "commerce" is defined in Section 1 of the Clayton Act, as amended, 15 U.S.C.  12, and are corporations whose business is in or affects commerce as "commerce" is defined in Section 4 of the FTC Act, as amended, 15 U.S.C.  44.

THE PROPOSED ACQUISITION

5. On or about February 28, 2000, Heinz, Madison and Beech-Nut entered into an agreement whereby Heinz would acquire 100% of the voting securities of Milnot Holding Corporation for approximately $185 million, and would become the owner of all of Milnot Holding Corporation's assets.

THE RELEVANT MARKETS

6. One relevant line of commerce (i.e., the product market) in which the competitive effects of the proposed acquisition may be assessed is the manufacture and sale of jarred baby food.
 
7. The relevant sections of the country (i.e., the geographic markets) in which to assess the competitive effects of the proposed acquisition are the United States and smaller geographic markets therein.

MARKET STRUCTURE

8. For over 60 years there have been only three competitors in the United States jarred baby food market -- Gerber Corporation, Beech-Nut and Heinz -- and this merger would leave only two firms controlling essentially the entire market. This market is already highly concentrated and will become substantially more so if the proposed acquisition is consummated. A Herfindahl-Hirschman Index ("HHI") of 1800 characterizes a highly concentrated market. In the national market, the proposed acquisition would increase the HHI about 400 points to approximately 5700, a substantial increase in an already highly concentrated market. The HHIs and the increases in the HHIs are greater in many relevant smaller geographic markets.

ENTRY CONDITIONS

9. Entry into the relevant markets is difficult and would not be timely, likely, or sufficient to prevent the anticompetitive effects from the proposed acquisition.

ACTUAL AND POTENTIAL COMPETITION

10. Heinz and Beech-Nut are actual and direct competitors in the relevant lines of commerce and sections of the country. Heinz and Beech-Nut are also potential competitors in markets in which both are not currently present.

COMPETITIVE EFFECTS

11. The effect of the proposed acquisition, if consummated, may be to substantially lessen competition in the manufacture and sale of jarred baby food in the relevant sections of the country in violation of Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 45, in the following ways:
 
a. by substantially increasing concentration, and further heightening barriers to entry, thereby increasing the likelihood of, or facilitating, successful anticompetitive coordinated interaction, and actual or tacit collusion among the two remaining firms;
 
b. by increasing the likelihood that Heinz will unilaterally exercise market power;
 
c. by eliminating substantial competition and potential competition between Heinz and Beech-Nut; and
 
d. by eliminating Beech-Nut as a substantial, independent, innovative, and competitive force in the market.

VIOLATIONS CHARGED

12. The acquisition described in Paragraph 5 constitutes a violation of Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 45, and if consummated would violate Section 7 of the Clayton Act, as amended, 15 U.S.C.  18 and Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C.  45.

NOTICE

Proceedings on the charges asserted against you in this complaint will be held before an Administrative Law Judge (ALJ) of the Federal Trade Commission, under Part 3 of the Commission's Rules of Practice, 16 C.F.R. Part 3. A copy of Part 3 of the Rules is enclosed with this complaint.

You may file an answer to this complaint. Any such answer must be filed within 20 days after service of the complaint on you. If you contest the complaint's allegations of fact, your answer must concisely state the facts constituting each ground of defense, and must specifically admit, deny, explain, or disclaim knowledge of each fact alleged in the complaint. You will be deemed to have admitted any allegations of the complaint that you do not so answer.

If you elect not to contest the allegations of fact set forth in the complaint, your answer shall state that you admit all of the material allegations to be true. Such an answer will constitute a waiver of hearings as to the facts alleged in the complaint and, together with the complaint, will provide a record basis on which the ALJ will file an initial decision containing appropriate findings and conclusions and an appropriate order disposing of the proceeding. Such an answer may, however, reserve the right to submit proposed findings and conclusions and the right to appeal the initial decision to the Commission under Section 3.52 of the Commission's Rules of Practice.

If you do not answer within the specified time, you waive your right to appear and contest the allegations of the complaint. The ALJ is then authorized, without further notice to you, to find that the facts are as alleged in the complaint and to enter an initial decision and a cease and desist order.

The ALJ will schedule an initial prehearing scheduling conference to be held not later than 7 days after the last answer is filed by any party named as a respondent in the complaint. Unless otherwise directed by the ALJ, the scheduling conference and further proceedings will take place at the Federal Trade Commission, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. Rule 3.21(a) requires a meeting of the parties' counsel as early as practicable before the prehearing scheduling conference, and Rule 3.31(b) obligates counsel for each party, within 5 days of receiving a respondent's answer, to make certain initial disclosures without awaiting a formal discovery request.

A hearing on the complaint will begin on February 26, 2001 at 10:00 A.M. in Room 532, or such other date as determined by the ALJ. At the hearing, you will have the right to contest the allegations of the complaint and to show cause why a cease and desist order should not be entered against you.

NOTICE OF CONTEMPLATED RELIEF

Should the Commission conclude from the record developed in any adjudicative proceedings in this matter that the proposed acquisition challenged in this proceeding would if consummated violate Section 7 of the Clayton Act, as amended, or Section 5 of the Federal Trade Commission Act, as amended, the Commission may order such relief against respondents as is supported by the record and is necessary and appropriate, including, but not limited to:

1. Recission of the acquisition agreement between respondents.
 
2. Divestiture of an ongoing, operating business, including all assets, tangible and intangible, including but not limited to, all intellectual property, knowhow, trademarks, trade names, research and development, customer contracts, and including all improvements to existing products and new products developed by Beech-Nut.
 
3. Such other or additional relief as is necessary to ensure the creation of one or more viable, competitive, independent entities to compete against Heinz in the manufacture and sale of baby food.
 
4. A requirement, for a ten (10) year period, that Heinz, Milnot Holding Corporation, and Madison provide the Commission with notice in advance of acquiring the assets or securities of, or any other combination with, any person engaged in the manufacture or sale of baby food in the United States.

WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade Commission, on this twenty-second day of November, 2000, issues its complaint against said Respondents.

By the Commission, Commissioner Anthony and Commissioner Swindle dissenting.

Donald S. Clark
Secretary