Concurring Statement of Commissioner Sheila F. Anthony
Nestlé S.A.
/ Dreyer's Grand Ice Cream Holdings, Inc. / Dreyer's Grand Ice Cream, Inc.
File No. 021-0174
The Federal Trade Commission has voted to accept a
proposed consent agreement designed to remedy the likely anticompetitive
effects arising from the merger of Nestlé and Dreyer's. While I
concur in the Commission's decision, I write separately to highlight several
lingering concerns.
As explained in greater detail in the Analysis to
Aid Public Comment, to remedy overlaps in the "superpremium" ice cream businesses of Nestlé and
Dreyer's, the parties will be required to divest a package of assets - including
Dreyer's Dreamery ice cream and Whole Fruit sorbet brands, Dreyer's
license to the Godiva brand,(1) and Nestlé's frozen dessert Direct Store Delivery (DSD) distribution
network - to CoolBrands International, Inc. However, Nestlé's DSD system
currently handles more product volume than that represented by the products CoolBrands
will acquire. Therefore, the
proposed consent agreement also requires the merged competitors, for a period
of five years, to supply CoolBrands with sufficient volumes of additional ice
cream products to enable it profitably to operate
the distribution system.
CoolBrands is a qualified buyer whose management team
has significant experience in the ice cream business. With respect to the
acquisition of the three product brands, CoolBrands has existing
manufacturing capacity and expertise, which should facilitate a smooth transition
on the manufacturing side. With respect to the acquisition of Nestlé's
DSD distribution assets, CoolBrands already has some DSD assets and business
of its own, and appears to understand how to operate a DSD network. This
is particularly important, because DSD is the method currently used to sell virtually
all superpremium ice cream in the United States. In sum, CoolBrands seems
well-positioned to make the most of the
product and distribution assets it will acquire.
However, the "mix-and-match" nature of the divestiture package is far from ideal, especially
when compared with the assets to be retained by the combined Nestlé/Dreyer's. Post-merger,
Nestlé/Dreyer's will own Nestlé's dominant Häagen-Dazs superpremium
ice cream brand as well as Dreyer's superior DSD distribution system. CoolBrands,
on the other hand, will end up with one
company's less-popular brands and the other company's weaker DSD distribution
system.
As Commission staff recently has acknowledged, and
as I have maintained throughout my tenure as Commissioner, the divestiture
of a complete, autonomous, ongoing business unit minimizes the
risks of anticompetitive harm because "such a remedy requires the Commission
and the Bureau to make the fewest assumptions and to draw the fewest conclusions
about the market and its participants
and about the viability and competitiveness of the proposed package of assets."(2) In
this case, it is a
foregone conclusion that the "mix-and-match" product and distribution assets
to be acquired by
CoolBrands are not a perfect fit for each other. The proposed consent
agreement explicitly recognizes that, absent a short-term commitment of product
volume from competitor Nestlé/Dreyer's, CoolBrands
would have insufficient volume to operate the Nestlé DSD distribution
system profitably. The resulting volume commitments are a more regulatory form
of relief than I ordinarily like to see, in large part
because they effectively will require the Commission to supervise the superpremium
ice cream
marketplace for the next five years.
Moreover, there is no guarantee that the CoolBrands
DSD distribution system will, in fact, be profitable once the volume commitments
terminate. In the meantime, all of the risk of failure is borne by
CoolBrands and, ultimately, consumers - not by the parties. Five years from
now, Nestlé/Dreyer's
almost certainly will retain its leading Häagen-Dazs brand, an excellent
DSD distribution system, and plenty of volume to drive through that system. In
contrast, if CoolBrands finds itself unable to attract
additional DSD product volume from third parties, the company may suffer from
decreased profitability. Depending upon the strategic choices CoolBrands might
be forced to make, consumers
could be faced with fewer, higher-priced superpremium offerings on supermarket
shelves.
Every settlement has elements of uncertainty and risk. Our job is to determine whether the risk
is small enough to be acceptable. I have voted to accept the proposed settlement based upon staff's
extensive investigation of the ice cream industry, as well as CoolBrands' track record. CoolBrands
appears capable of attracting enough independent distribution business to fill its excess DSD capacity
over time. In addition, CoolBrands always has the option of scaling down its DSD system to more
closely match available volume and maintain profitability. Therefore, based upon the evidence available
to me at this time, I am reasonably comfortable that things will work out as intended, and that the
competitive status quo can be attained.
Endnotes:
1. The parties will not be required
to divest Dreyer's license to the Starbucks brand. The
combined Nestlé/Dreyer's will retain the existing Starbucks ice cream
business. However, the current joint venture between Dreyer's and Starbucks will
be modified to make it a non-exclusive joint venture,
thereby allowing Starbucks (if it so chooses) to conduct ice cream business apart
from the joint venture.
2. Bureau of Competition, Federal Trade Commission, Statement of the Federal Trade
Commission's Bureau of Competition on Negotiating Merger Remedies (Apr. 2, 2003), available
at http://www.ftc.gov/bc/bestpractices/bestpractices030401.htm .
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