FTC to Challenge Nestle, Dreyer's Merger

The Federal Trade Commission has authorized its staff to seek a preliminary injunction to block the merger of Nestlé Holdings, Inc. and Dreyer's Grand Ice Cream, Inc., pending trial. In June 2002, Nestlé and Dreyer's agreed to combine their ice cream businesses in a deal valued at about $2.8 billion.

The agency will allege that the merger will eliminate competition and raise prices for superpremium ice cream. Nestlé markets superpremium ice cream under the Häagen Dazs brand. Dreyer's superpremium brands include Dreamery, Godiva and Starbucks ice cream. Nestlé and Dreyer's along with Unilever, the marketer of Ben & Jerry's brand ice cream, account for about 98 percent of superpremium ice cream sales. The purchase of Dreyer's would give Nestlé, alone, about 60 percent of the market.

"This merger, as structured, would likely raise prices and reduce choice for consumers," said Joe Simons, Director of the FTC's Bureau of Competition. "The market for superpremium ice cream is already highly concentrated, and this deal will reduce the number of significant competitors from three to two."

The FTC will allege that in the market for superpremium ice cream, Dreyer's presence has directly and persistently impacted pricing, marketing and product introductions, causing Nestlé to increase promotions and lower prices. The FTC will allege that the elimination of Dreyer's would likely lead to anticompetitive effects in the market for superpremium ice cream, including less product variety and higher prices, and that entry into the market would not be likely or sufficient to outweigh the anticompetitive harm.

The FTC will seek a preliminary injunction to block the merger pending an administrative trial on the grounds that the transaction, as structured, would violate federal antitrust laws. The FTC vote to authorize staff to file the suit was 5-0.

Nestlé Holdings is a subsidiary of Nestlé S.A., the world's largest food company. It is based in Norwalk, Connecticut. Its brands include Drumstick, Bon Bons, IceScreamer, Dole Fruit Bars, Butterfinger ice cream bars, and the Nestlé Crunch Bar. In addition to its frozen novelty business, Nestlé owns the rights to manufacture and distribute Häagen-Dazs ice cream and frozen novelty products in the United States and Canada. Sales in 2001 of all Nestlé ice cream products totaled approximately $800 million.

Dreyer's Grand Ice Cream, Inc., based in Oakland, California, sells products under the Dreyer's brand in thirteen western states and Texas and under the Edy's brand name throughout the remaining regions of the United States. Dreyer's also manufactures and sells the Dreamery line of ice cream and the Whole Fruit line of sorbet, as well as Starbucks brand ice cream products under a joint venture with Starbucks Corporation, Godiva Brand ice cream under a long-term license with Godiva Chocolatier, Inc., and Dreyer's Presents... under a joint venture with Mars Incorporated. Dreyer's total sales in 2001 were approximately $1.4 billion.