STATEMENT OF COMMISSIONER
MARY L. AZCUENAGA
in General Mills, Inc.,
The Commission today issues a consent order based on a complaint alleging that the acquisition by General Mills, Inc., of the branded ready-to-eat cereal business of Ralcorp Holdings, Inc., violates Section 7 of the Clayton Act. The order is narrow, but I would narrow it even further. In particular, I would delete Paragraph II(B) of the proposed order, which requires elimination of a noncompete clause that would have prevented Ralcorp for a period of eighteen months from introducing a new private label cereal identical or similar to the CHEX-brand cereals being sold to General Mills.
Paragraph 14 of the complaint alleges that the noncompete clause described in paragraph 8 would have the anticompetitive effect of "restricting the entry of new private label cereal products into competition with General Mills." That effect, however, is precisely the purpose of this (and every other) noncompete clause.(1) Although the complaint might be read as alleging that noncompete clauses are per se anticompetitive, that interpretation would be inconsistent with the Commission's recent decision in another case to issue an order that imposed an affirmative prohibition on competition for six years between the merged firm and the acquirer of certain assets to be divested under the order. See Ciba Geigy Limited, (Docket No. C-3725, March 24, 1997). The Ciba Geigy decision recognizes the efficiency potential of noncompete clauses, which, among other benefits, can facilitate an orderly transfer of ownership and provide a brief transition period for new owners to establish themselves in the business.
Although the appropriate duration of a noncompete clause may vary depending on the circumstances of the industry and the acquisition, using a noncompete clause for a short period to smooth a transition may be procompetitive. I do not find reason to believe that this short-term noncompete clause is anticompetitive, and I dissent from the order requirement to eliminate it.
1. The noncompete clause described in paragraph 8 of the complaint prohibits Ralcorp from entering the market with a private label, CHEX-type cereal product for eighteen months. As indicated in the Department of Justice and Federal Trade Commission Horizontal Merger Guidelines (April 2, 1992), a merger is unlikely to create or enhance market power if entry is "timely, likely and sufficient," and entry is deemed "timely" if it can be achieved within two years. Under this standard, the noncompete clause is unlikely to create or enhance market power.