Statement of Commissioners Orson Swindle and Thomas B. Leary

PepsiCo, Inc./The Quaker Oats Company

File No. 011-0059

The Commission's split vote today demonstrates, once more, that predictions of future effects are difficult and that reasonable people can differ, even when they apply the same tools of analysis.

Like our colleagues, we are concerned about the persistent domination of the soft drink industry by two players. We differ fundamentally, however, in our assessment of whether Quaker Oats, with its Gatorade product, has the potential to be a significant third competitive force in the marketplace.⁽¹⁾ The task before us was to assess the effects of a specific transaction, and we did not believe that there was sufficient evidence of an adverse competitive effect under the standards set forth in court decisions and in our own merger guidelines.

While merger law may be the first line of defense, it is not the only line. The Commission still has the ability to address actual conduct in the post-merger world by all players in the industry. In light of the structure of the soft drink industry, the difficulty of entry into that business, and the presence of competitive practices that may tend to protect incumbent firms at the expense of newer rivals, we remain concerned about competitive conditions across the entire industry. We urge the Commission to continue to monitor the industry carefully, focusing not only upon the parties to the proposed transaction at issue, but on all industry participants. More specifically, we believe the Commission should assess current and future practices of industry participants including, among other things:

• The extent and effects of any exclusionary practices that may handicap a rival firm's ability to enter into the soft drink business or to obtain highly coveted shelf or "cold vault" space in retail channels;
• Whether soft drink industry participants enter into exclusive contracts with retail outlets, restaurants, businesses, municipalities, or other institutions, and whether those contracts unreasonably foreclose competition; and
• Whether any of these or other soft drink industry practices have the effect of raising prices either at the wholesale or retail levels, reducing product variety and customer choice, or otherwise reducing the availability of such products to consumers.

If the Commission concludes that competition is threatened as a result of any such practices, it should seek appropriate relief against any firms engaged in anti-competitive conduct, including, if necessary, post-acquisition divestitures.

Endnotes:

1. For example, our colleagues cite Judge Gesell's statement in the case involving the proposed acquisition of Dr. Pepper by The Coca-Cola Company. Judge Gesell was dealing with the potential effects in carbonated soft drinks of the combination of two manufacturers of carbonated soft drinks. In our view, Pepsi's acquisition of Gatorade, a non-carbonated drink with niche-market appeal, is quite different.