McCormick Required to Sell its Season-All Seasoned Salt Business to Morton, Inc.
The Federal Trade Commission today issued a complaint charging that McCormick & Company, Incorporated's proposed $605 million acquisition of the Lawry's and Adolph's brands of seasoned salt products from Unilever N.V. would be anticompetitive and likely would result in higher prices for U.S. consumers. Under a Commission consent order designed to address the FTC's competitive concerns associated with the acquisition, McCormick has agreed to sell its Season-All seasoned salt business to Morton International, Inc. within 10 days of the date the deal is completed.
"The U.S. market for seasoned salt products is highly concentrated and the proposed acquisition would significantly increase market concentration by eliminating the substantial competition between McCormick and Lawry's," said Jeffrey Schmidt, Director of the FTC's Bureau of Competition. "With Morton taking ownership of the Season-All brand, the Commission is ensuring that vibrant competition in the seasoned salt market will continue."
The Proposed Transaction
McCormick manufactures, markets, and sells spices, seasonings, and flavors to grocery retailers and the food industry. Headquartered in Maryland, it had sales in 2006 of approximately $2.7 billion. Under a purchase agreement dated November 13, 2007, McCormick would acquire the Lawry's and Adolph's brands of marinades, spice, and seasoning products from Unilever N.V., a corporation based in the Netherlands, for $605 million in cash. In 2006, the combined Lawry's and Adolph's brands had sales of approximately $153 million.
The Commission's Complaint
According to the Commission's complaint, the relevant product market in which to assess likely competitive effects is the manufacture and sale of branded seasoned salt products in the United States. Branded seasoned salt includes products that are composed of several different kinds of spices, including seasoned salt, garlic salt, and reduced-sodium varieties. According to the FTC, the U.S. market for branded seasoned salt is highly concentrated, with McCormick's Season-All and Lawry's products comprising most of the $100 million in annual sales. McCormick and Lawry's have strong brand followings, and evidence indicates that if faced with a five to ten percent increase in the prices of branded seasoned salt, consumers would not switch to other spice blends or seasoned salt products.
The transaction as proposed would be anticompetitive and in violation of Section 5 of the FTC Act and Section 7 of the Clayton Act, as amended. The U.S. market for branded seasoned salt is highly concentrated and is dominated by two lines, Lawry's Seasoned Salt products and McCormick's Season-All products. The FTC contends that the proposed acquisition would significantly increase market concentration by eliminating the substantial competition that exists between Lawry's and McCormick's seasoned salt products. As a result of the acquisition as proposed, McCormick would control nearly 80 percent of the U.S. market for branded seasoned salts.
Consumers currently benefit from competition between the two firms through reduced prices, discounts, promotional trade spending, and product innovation. Absent the relief provided by the FTC's consent order, McCormick could unilaterally raise prices on either Lawry's seasoned salt or Season-All, to the detriment of consumers. McCormick also would have a reduced incentive to develop new products. Due to high sunk costs, entry into the seasoned salts market would be difficult and unlikely to remedy the Commission's competitive concerns for at least two years.
Terms of the Consent Order
The Commission's proposed consent order is designed to remedy the alleged anticompetitive effects of the proposed acquisition. It would preserve competition in the U.S. market for seasoned salt products by requiring McCormick to divest its Season-All business to Morton, an up-front buyer approved by the FTC. In total, the Season-All business consists of Season-All seasoned salt, Garlic Season-All seasoned salt, Pepper Season-All seasoned salt, Spicy Season-All seasoned salt, 25% Less Sodium Season-All seasoned salt, and Season-All coating mix. The proposed consent order contemplates divestiture to Morton, which already manufactures and sells a wide variety of salt products to the food service industry and is well positioned to acquire the Season-All assets and replace the competition lost through McCormick's acquisition of Lawry's.
The consent order would require McCormick to divest the Season-All assets within 10 days of completing its acquisition of Lawry's, but would allow the Commission to approve another acquirer if it determines during the public comment period that Morton is not an acceptable buyer. In addition, the order would allow the FTC to appoint a trustee to divest any assets to be divested if necessary to satisfy its terms. The order also will ensure that McCormick maintains the viability of the Season-All assets pending their sale and transfer to Morton to ensure the newly divested business is able to effectively compete following the acquisition. Finally, the proposed Consent Agreement prohibits McCormick for 10 years from acquiring any other seasoned salt product, or any interest in any other spice blends business without providing the Commission with prior notice. It does not, however, restrict McCormick from otherwise expanding its line of spices.
The Commission vote to accept the complaint and consent order for public comment was 4-0. The FTC will publish an announcement regarding the agreement in the Federal Register shortly. The complaint, consent order, and an analysis to aid public comment can be found on the Commission's Web site at http://www.ftc.gov/os/caselist/0810045/index.shtm.
The agreement will be subject to public comment for 30 days, beginning today and continuing through August 28, 2008, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, Room H-135, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC is requesting that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.
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 documents related to this matter are available from the FTC's Web site at http://www.ftc.gov and the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC's Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to email@example.com, or write to the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read "Competition Counts" at http://www.ftc.gov/competitioncounts.
(FTC File No. 081-0045)
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