In the Matter of
General Mills, Inc. /Diageo plc /Pillsbury Co.
Today, the entire Commission agreed that the proposed acquisition of Pillsbury Co. ("Pillsbury") by General Mills, Inc. ("General Mills") posed substantial competitive harm to consumers. Notwithstanding this conclusion, a majority of the Commission failed to vote to seek a preliminary injunction to protect consumers from this harm. This failure is regrettable, not only because it leaves a significant harm without a remedy, but also because it involves the future of Pillsbury - a brand as American as apple pie - and markets that produce over $1 billion of products that just about every American has bought or tasted.
The fact that General Mills' acquisition of Pillsbury would result in competitive harm in eight baking aisle markets is a conclusion that I believe is self-evident. The merger would drastically increase concentration in the already concentrated markets for cake mixes, ready-to-spread frosting, family flour, cookie mixes, brownie mixes, quick bread mixes, pancake mixes, and potato mixes. By contrast, the voluminous evidence reviewed by staff indicates that the proposed transaction offers few, if any consumer benefits.(1) Indeed, such cases are rare.
To be fair, the parties presented a consent proposal which purported to address the competitive harm posed by the merger.(2) However, the proffered recipe is clearly missing vital ingredients.
At the heart of this matter is the disposition of key Pillsbury trademarks: the instantly-recognizable Pillsbury barrelhead logo and the beloved Pillsbury Doughboy.™ The Doughboy, who made his debut in 1965 and has been "Poppin' Fresh"® ever since, typically ranks at the top of the list of America's most popular food-product characters.(3) Both the Pillsbury barrelhead logo and the Doughboy have remained largely unchanged in their decades-long history, and, across a wide variety of products, have become synonymous for American consumers with the high quality associated with the Pillsbury name.
The parties, however, have proposed "splitting the Doughboy" into pieces, giving General Mills control of the brand and the ability to choose the parts that it wants. The remainder would be purchased by IMC. This suggestion is extremely troubling. In this instance - when the mark to be split will be used by two different companies to advertise to consumers in the same market space - there is a high likelihood that customers will be confused by conflicting messages emanating from the same brand mark. Further, the terms of the proposed license agreement give General Mills full freedom to reposition the brand - even if the repositioning compromises IMC's ability to compete for the same customers.(4) Finally, the dynamics of the split undermine the parties' respective incentives to vigorously promote the brand. For these reasons, "splitting the baby" in this case is not a good idea.
No less important, however, is the issue of how IMC would be situated in the market post-divestiture; specifically, whether the package of assets to be divested, the transition plans, and available financial support would permit IMC to rise to the heights once occupied by Pillsbury. The evidence does not support this conclusion.
As stated earlier, all of the Commissioners believe that General Mills' proposed acquisition of Pillsbury violates the antitrust laws. I did not vote for the parties' settlement proposal because I have serious reservations about an over-regulatory, piecemeal approach to restoring competition in an already concentrated marketplace. Moreover, accepting the proposed settlement would shift the risk inherent in this approach to the consumer, and would send a signal to the market that such shifting is appropriate. It is not.
1. Some might argue that the potential competitive harm, even when it implicates over $1 billion in commerce, should be discounted when weighed against the approximately $10 billion value of the underlying transaction. This strained exercise in relativism does not produce an efficiency in either the letter or the spirit of the Merger Guidelines, nor is it a relevant consideration under Section 7 of the Clayton Act or Section 5 of the FTC Act.
2. Pursuant the proposed settlement, General Mills would divest Pillsbury's Dessert and Specialty Products Division to International Multifoods Corporation ("IMC").
4. For instance, nothing in the proposed license agreement would prevent General Mills from re-positioning Pillsbury as a ready-to-eat brand -- a move that could strengthen the mark overall, but would likely compromise the customer base for IMC's Pillsbury baking mixes. Additionally, because General Mills' Betty Crocker® brand competes directly with Pillsbury, General Mills has the incentive to reposition the Pillsbury brand so that it will not cannibalize its Betty Crocker sales.