ANALYSIS TO AID PUBLIC COMMENT ON THE PROVISIONALLY ACCEPTED CONSENT ORDER
The Federal Trade Commission ("Commission") has accepted for public comment from Philip Morris Companies, Inc. ("Philip Morris") and Nabisco Holdings Corp. ("Nabisco") an Agreement Containing Consent Orders ("Proposed Consent Order"). Philip Morris and Nabisco ("Proposed Respondents") have also reviewed a Draft Complaint that the Commission contemplates issuing. The Commission and the Proposed Respondents have also agreed to an Order to Maintain Assets that requires the Proposed Respondents to maintain the competitive viability of certain assets pending divestiture. The Proposed Consent Order will remedy the likely anticompetitive effects in five relevant product markets arising from the proposed acquisition by Philip Morris of Nabisco.
Proposed Respondent Philip Morris is a Virginia corporation with its headquarters and principal place of business at 120 Park Avenue, New York, New York 10017-5592. In 1999, Philip Morris had total worldwide sales of approximately $79 billion, and total United States sales of approximately $48 billion. Philip Morris, through its Kraft Foods Inc. subsidiary, is the nation's largest food and beverage company. Proposed Respondent Nabisco is a Delaware corporation with its headquarters and principal place of business located at 7 Campus Drive, Parsippany, New Jersey 07054-0311. In 1999, Nabisco had total worldwide sales of approximately $8.3 billion, and total United States sales of approximately $5.9 billion. Nabisco is the nation's seventh largest food and beverage company. On June 25, 2000, Philip Morris and Nabisco entered into an agreement for Philip Morris to acquire Nabisco. The value of the transaction is approximately $19.4 billion.
According to the Draft Complaint that the Commission intends to issue, Philip Morris, through its Kraft Foods subsidiary, and Nabisco compete in the United States to sell and distribute (a) dry-mix gelatin, (b) dry-mix pudding, (c) no-bake desserts, (d) baking powder, and (e) intense mints. The Commission is concerned that the proposed acquisition would eliminate substantial competition between Philip Morris and Nabisco, and increase concentration substantially, in each relevant market, and result in higher prices. The Commission stated it has reason to believe that the proposed acquisition would have anticompetitive effects and violate Section 7 of the Clayton Act and Section 5 of the Federal Trade Commission Act.
Total United States sales of all dry-mix gelatin dessert products are about $212 million. In this market, Philip Morris, through its Jell-O brand, is the largest competitor with about an 86% share, and Nabisco, through its Royal brand, has about a 6% share. After the acquisition, Philip Morris will control approximately 92% of all dry-mix gelatin sales. The proposed acquisition will increase the Herfindahl-Hirschman Index ("HHI"), the customary measure of industry concentration, in the dry-mix gelatin market by more than 1000 points, and result in a market concentration of over 8400 points.
Total United States sales of all dry-mix pudding dessert products are about $202 million. In this market, Philip Morris, through its Jell-O brand, is the largest competitor with about an 82% share, and Nabisco, through its Royal and My-T-Fine brands, has about a 9% share. After the acquisition, Philip Morris will control approximately 91% of all dry-mix pudding sales. The proposed acquisition will increase the HHI by more than 1400 points and result in a market concentration of over 8300 points.
Total United States sales of all no-bake dessert products are about $56 million. In this market, Philip Morris, through its Jell-O brand, is the largest competitor with about a 90% share, and Nabisco, through its Royal brand, has about a 6% share. After the acquisition, Philip Morris will control approximately 96% of all no-bake dessert sales. The proposed acquisition will increase the HHI by more than 1000 points, and result in a market concentration of over 9200 points.
Total United States sales of all baking powder products are about $29 million. In this market, Philip Morris, through its Calumet brand, has about a 27% share, and Nabisco, with its Davis and Fleischmann's brands, has about a 17% share. After the acquisition, Philip Morris will control approximately 44% of all United States baking powder sales. The proposed acquisition will increase the HHI by more than 900 points and result in market concentration of more than 4800 points.
Total United States sales of all intense mints products are about $250 million. In this market, Philip Morris, through its Altoids brand, has about a 60% share, and Nabisco, with its Ice Breakers and Cool Blast brands, has about a 15% share. After the acquisition, Philip Morris will control approximately 75% of all United States intense mints sales. The proposed acquisition would increase the HHI by approximately 1800 points and result in market concentration of more than 5800 points.
The Proposed Consent Order, if finally issued by the Commission, would settle all of the charges alleged in the Commission's Draft Complaint. Under the terms of the Proposed Consent Order, Philip Morris and Nabisco will be required 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 businesses, to Hershey Foods Corporation. Philip Morris and Nabisco will be required to complete the required divestitures within ten (10) business days from the date they consummate their proposed acquisition. In the event Philip Morris and Nabisco do not complete the required divestitures in the time allowed, procedures for the appointment of a trustee to sell the assets have been agreed to and will be triggered. The Proposed Consent Order empowers the trustee to sell such additional ancillary assets as may be necessary to assure the marketability, viability, and competitiveness of the businesses that are required to be divested. Accompanying the Proposed Consent Order is an Order to Maintain Assets. This order requires Philip Morris and Nabisco to preserve and maintain the competitive viability of all of the assets required to be divested in order to insure that the competitive value of these assets will be maintained after the merger but before the assets are actually divested.
This Proposed Consent Order has been placed on the public record for thirty (30) days for receipt of comments from interested persons. Comments received during this period will become part of the public record. After the thirty (30) days, the Commission will again review the Proposed Consent Order and the comments received, and will decide whether it should withdraw from the agreement or make final the Consent Order in the agreement. By accepting the Proposed Consent Order subject to final approval, the Commission anticipates that the competitive problems alleged in the Draft Complaint will be resolved. The purpose of this analysis is to invite and facilitate public comment concerning the Proposed Consent Order. It is not intended to constitute an official interpretation of the Proposed Consent Order, nor is it intended to modify the terms of the orders in any way. |