Concurring Statement of Commissioner Orson Swindle
in Nestle S.A./Ralston Purina Co., Docket No. C-4028
The Commission has issued a final order to resolve complaint allegations that Nestle S.A.'s ("Nestle") acquisition of Ralston Purina Co. ("Ralston") may substantially lessen competition in the market for the sale of dry cat food in the United States. To remedy these competitive concerns, Ralston has agreed to divest its Meow Mix and Alley Cat brands to J.W. Childs Equity Partners II, L.P. ("J.W. Childs"), an investment firm that owns the Hartz line of pet care products. Because the divestiture to J.W. Childs is likely to replace the competition in the market for dry cat food that otherwise would have been lost due to the Nestle/Ralston merger,
I have voted to issue the final order.
One provision in the final order is unusual and may raise concerns. Paragraph VI requires J.W. Childs, for a period of five years, to obtain Commission approval before selling all or substantially all of the assets acquired in the divestiture. The Analysis to Aid Public Comment explained that the Commission does not routinely impose such prior approval requirements but that it is appropriate to do so "where the proposed acquirer's current plans indicate that there is a high probability that the assets will be resold, possibly within two-five years." The purpose of the prior approval requirement is to make certain that whoever buys the resold assets from J.W. Childs would be a sufficient competitor to remedy the lessening of competition from the Nestle/Ralston transaction alleged in the complaint. See Paragraph VI.F. of the Order.
I agree that J.W. Childs warranted a hard look as a prospective buyer because it might resell the divested assets in the near future. It is possible that this close scrutiny would go for naught if J.W. Childs were promptly to resell the assets to a less qualified buyer. On the other hand, this risk is always present -- even had the assets remained in Ralston's hands. I think that our approval of J.W. Childs as the buyer means that we have determined that, in spite of any possible resale plans, the company will develop and employ the assets as vigorously as Ralston would have done. Once we have made this determination, I question the need for imposing a prior approval requirement on J.W. Childs that we would not have imposed on a buyer that was less likely to resell the assets.
I also think that the prior approval requirement may require the Commission to make a difficult determination. For example, assume that J.W. Childs seeks prior approval to resell
the assets four years after the Nestle/Ralston merger was consummated. The Commission presumably will have to determine whether the prospective buyer of the resold assets will compete as effectively as Ralston would have competed in the absence of the Nestle/Ralston merger. Given the passage of four years since the merger and the dynamic nature of markets, it may be difficult for the Commission to make this determination with a high degree of confidence.