Statement of Commissioner Sheila F. Anthony
Nestle S.A. / Ralston Purina Co.
The Commission has now issued a final order in this case to resolve complaint allegations that the acquisition would lessen competition in the U.S. dry cat food market. To avert this harm to consumers of dry cat food, the parties agreed to divest Ralston's Meow Mix and Alley Cat brands to J.W. Childs, a private equity investment firm. While I concurred in the Commission's decision to accept this settlement, I write separately to express my concerns about some aspects of the divestiture.
The assets to be divested consist of two proven cat food brands and little else. Standing alone, these brands do not constitute a complete, ongoing business. Rather, J.W. Childs will have to create a new competitor largely from whole cloth. In order to turn the divested assets into a viable business entity, J.W. Childs will need to develop, among other things, its own research and development program, manufacturing facilities, distribution system, and sales and marketing operations. Such a prospect is daunting even when the purchaser is a participant in the same or a closely related business - which is why divestitures of stand-alone businesses present the most successful formula for restoring competition.(1)
The risk to consumers is further heightened where, as here, the proposed purchaser is a financial buyer. When compared to dedicated industry participants, investment firms may have quite different incentives and goals in operating a business. For example, a financial buyer's business plan often involves selling the acquired business within a relatively short period of time.
In the end, I am convinced that this is a rather unique situation and that consumers will be adequately protected by the relief set forth in the Commission's order. Manufacturing and distribution in this industry segment is routinely and economically contracted out through "co-packing" arrangements. Moreover, this particular financial buyer, J.W. Childs, is financially strong, has a proven track record of good management and growth of acquired firms, and has some experience in the pet industry with its Hartz Mountain line of pet care products. These factors led me to conclude that J.W. Childs is very likely to restore lost competition and preserve choices for dry cat food consumers.
I wish to make it clear, however, that I remain skeptical of divestiture plans that require a purchaser to take brands alone, then build a competitive company from scratch. In addition, I will closely examine divestiture proposals where the buyer is a financial company. In most cases, I would prefer to see divested assets go to a company with a stronger likelihood of operating the business for the long term.
1. See, e.g., Federal Trade Commission Bureau of Competition Staff, A Study of the Commission's Divestiture Process (1999).