Citing concerns that the transaction as proposed would lead to substantially less competition in the markets for the sale and distribution of rum in the United States, the Federal Trade Commission today authorized its staff to seek a preliminary injunction to block Diageo plc (Diageo) and Pernod Ricard S.A.'s (Pernod) joint acquisition of Vivendi Universal S.A.'s (Vivendi) Seagram Wine and Spirits business (Seagram). Through this action, the Commission is seeking to maintain the status quo within the industry during the pendency of an administrative proceeding challenging the legality of the proposed $8.15 billion merger, which was announced by the companies on December 19, 2000. Seagram and Diageo are currently the number two and three sellers of rum in the United States, following industry leader Bacardi U.S.A. (Bacardi).
"The proposed merger would consolidate the second- and third- largest U.S. rum producers, leaving only two large sellers of rum in the United States. This will create a dangerous likelihood of reduced competition and higher prices for consumers of rum," said FTC Bureau of Competition Director Joe Simons.
Parties to the Transaction
Vivendi is a French corporation that has its principal United States business offices in New York, New York. Its Seagram Wine and Spirits business is the second-largest seller of rum in the United States, marketing its products under brand names including Captain Morgan Original Spiced Rum and Captain Morgan's Parrot Bay. Captain Morgan Original Spiced Rum is a gold rum flavored with vanilla and spices, and Parrot Bay is a light rum flavored with coconut. Post-acquisition, Bacardi and Diageo/Seagram would account for most rum sales in the United States. The next largest competitor would have a market share in the United States of about two percent.
Diageo, a United Kingdom corporation headquartered in London, England, has its principal U.S. place of business in Stamford, Connecticut. It is the third-largest seller of rum in the United States, following Bacardi and Seagram, and markets its products under brands including Malibu, the country's leading coconut-flavored rum.
Pernod, a French corporation with its principal place of business in Paris and U.S. business offices in New York, New York, does not currently market or sell any rum products in the United States.
The Commission's Complaint
According to the complaint the Commission intends to file, the transaction as proposed would violate Section 7 of the Clayton Act, as amended, by illegally reducing competition in the markets for rum sold in the United States, as well as in individual states. The rum market would effectively become a duopoly controlled by Bacardi and Diageo/Seagram, the Commission contends.
The FTC further contends that in the post-merger environment, these two major firms would be able to engage in coordinated interaction that would injure competition and, ultimately, cause injury to consumers. In addition, the complaint is expected to allege that the merger would result in the loss of Seagram and Diageo as significant competitors, eliminating actual competition between the companies, and leading to the loss of even greater competition in the future. Finally, entry at a sufficient level is very difficult in this market. It has been 18 years since a company that did not already have a major rum brand introduced a new national brand on a large scale.
The Commission also believes that there are no merger-specific efficiencies that would outweigh the allegedly anticompetitive aspects of the transaction as proposed.
Today's action authorizes Commission staff to seek a federal district court order to prevent the proposed acquisition by Diageo of the Seagram Wine and Spirits business. The FTC has authorized the staff filing of a motion for preliminary injunction on the grounds that the transaction as structured would violate federal antitrust laws. If the court grants the FTC's motion, the Commission will have 20 days within which to determine whether to issue an administrative complaint. The FTC vote authorizing staff to file the suit was 5-0.
Copies of the Commission's complaint will be available upon filing from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 202-326-2502. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC File No. 011-0057)