Skip to main content

The Federal Trade Commission said today it has taken action to avert higher prices for Chex brand cereals by negotiating a settlement that would permit the immediate introduction of a private label version of these cereals to compete with the branded products, following General Mills, Inc.’s acquisition of Ralcorp Holdings, Inc.’s branded cold cereal business. The FTC had alleged that the acquisition would boost General Mills’ share of the U.S. ready-to-eat cereals market to 31 percent and that, absent FTC action, it would have restricted the entry of new private label cereal products -- that is, products identical or substantially similar to the branded cereals but which bear the grocery store or other retailer or wholesaler name on the label -- to compete with the General Mills brands. The result of the acquisition, absent the order, would have been higher prices for Chex brand cereals, the FTC alleged.

General Mills, based in Minneapolis, Minnesota, is the nation’s second largest producer of ready-to-eat cereals, with $2.75 billion in fiscal 1996 sales of products including Cheerios, Total and Wheaties. Ralcorp, based in St. Louis, Missouri, and producer of the Chex line of cold cereals, is the fifth largest producer of branded cereals and the largest producer of private label cold cereals. It sold more than $585 million worth of these products in fiscal 1995.

In the transaction at issue, General Mills is to acquire the branded ready-to-eat cereal and snack mix businesses of Ralcorp in a deal worth $570 million. (Ralcorp was created by Ralston Purina Company in 1994, and licenses Ralston Purina technology in producing its branded and private label cereals.) Ralcorp will retain its private label cold cereal business, which is to be held by a new entity, New Ralcorp Holdings, Inc. As the deal originally was worked out between the companies, it would have given New Ralcorp the right to manufacture and sell a private label version of the Chex cereals, but not until 18 months after consummation of the deal. Further, the original deal barred New Ralcorp from transferring this right to a third party without permission from General Mills.

By restricting the entry of new private label cereal products, the deal would substantially reduce competition in the market for ready-to-eat cereals in the United States, in violation of federal antitrust laws, the FTC alleged.

Under the proposed consent agreement the FTC has negotiated to resolve these charges, General Mills can go ahead with the acquisition, but it is required to permit New Ralcorp to transfer to any successor party, without any authorization or approval from General Mills, the right to manufacture and sell cereals identical to the Chex brand products. The order also bars General Mills from delaying production of the private label Chex rivals. In addition, the settlement contains various reporting provisions designed to assist the FTC in monitoring the firm’s compliance with the order.

"New Ralcorp will be the largest producer of private label cereals, a fast growing and consumer friendly segment of the market," said FTC Chairman Robert Pitofsky. "Conditions attached to clearing the merger are designed to eliminate fully and immediately any barriers to New Ralcorp competing aggressively in promoting private label products."

The Commission vote to announce the proposed consent agreement for public comment was 3-2, with Commissioners Mary L. Azcuenaga and Roscoe B. Starek, III, dissenting.

In a statement in which she concurred in part and dissented in part, Azcuenaga opposed requiring elimination of the 18-month noncompete clause in the original agreement between General Mills and Ralcorp. Azcuenaga observed: "Although the complaint might be read as alleging that noncompete clauses are per se anticompetitive, that interpretation would be inconsistent with the Commission’s decision a few days ago to accept for public comment an order [in the Ciba Geigy Limited matter] that . . . imposed an affirmative prohibition on competition for six years between the merged firm and the acquirer of certain animal health assets to be divested under the order."

In his dissenting statement, Starek said he questions whether the evidence shows that the acquisition will allow General Mills unilaterally to raise prices for its branded cold cereals. He cited a recent court decision which found that consumers have many alternatives from which to choose when one cereal maker raises prices. Starek also said he finds it "completely unnecessary -- and [that it] in fact creates inefficiency -- to bar enforcement of the parties’ non-compete agreement." Such agreements can be pro-competitive "by allowing an acquiring entity a brief period to re-deploy the acquired assets in a manner that increases competition in the marketplace," he said.

A summary of the consent will be published in the Federal Register shortly, after which the Commission will determine whether to make the order final and binding on the respondents. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and 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, an analysis of the agreement to assist the public in commenting, and the Commissioners’ full statements are available on the FTC’s web site at and also from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W. Washington, D.C. 20580; 202-326- 2222; TTY for the hearing impaired 1-866-653-4261. Consent agreements subject to public comments also are available by calling 202-326-2637. To find out the latest FTC news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. 961 0101)

Contact Information

Media Contact:
Bonnie Jansen
Office of Public Affairs
202-326-2161 or 326-2180
Staff Contact:
Bureau of Competition
William J. Baer, 202-326-2932
George S. Cary, 202-326-3741
Phillip L. Broyles, 202-326-2805