D.O.J. elaborates on divestiture rationale

by Josh Sosland
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WASHINGTON — Divestitures required in eight markets as part of a Department of Justice agreement with Bimbo S.A.B. de C.V. and Sara Lee Corp. will result in only a modest increase in market concentration for sliced bread in most of those geographies, according to a filing by the D.O.J.

In a “Competitive Impact Statement” filed in connection with the case, the Justice Department elaborated on how the acquisition would have affected market concentration without legal action and how the marketplace will look with the required divestitures.

The document was submitted Oct. 21 by Michelle Seltzer and David Gringer, attorneys in the Litigation I Section of the Antitrust Division of the Department of Justice.

Under the consent decree submitted the same day, Bimbo will be required to divest certain brands in four markets in California as well as brands in the Harrisburg/Scranton region of Pennsylvania and the Kansas City, Oklahoma City and Omaha metropolitan areas.

The divestitures will allow Bimbo to move forward with it acquisition of the North American Fresh Bakery business of Sara Lee for $709 million, a figure revised downward from $959 million.

With the divestitures, the market concentration increases will be no more than 4 percentage points in five of the eight markets, the D.O.J. said.

“In each geographic area, the divestiture, by separating the ownership of several closely competing brands, prevents the acquisition from creating any significant incentive for the merged firm to raise the price of sliced bread,” the D.O.J. said.

The filing offered the following overview of action in each market affected by the consent decree:

Los Angeles:
Bimbo Bakeries USA brands currently account for 41% of the sliced bread market and Sara Lee holds an 18% market share, or a total of 59%.
“The divestiture in Los Angeles of EarthGrains and the Sara Lee family brands, which together account for 17% of the slice bread market, will reduce the merged firm’s post-acquisition market share to 41%,” the filing said.

San Diego:
Bimbo’s and Sara Lee’s share of the sliced bread market are 46% and 17%, respectively, totaling 63%.
“The divestiture in San Diego of EarthGrains and the Sara Lee family of brands, which together account for 15% of the sliced bread market, will reduce the merged firm’s post-acquisition market share to 48%,” the filing said.

San Francisco:
Market shares for B.B.U. and Sara Lee are 44% and 12%, respectively, or 56% in total.
“The divestitures in San Francisco of EarthGrains and the Sara Lee family of brands, which together account for 8% of the sliced bread market, will reduce the merged firm’s post-acquisition market share to 47%,” the filing said.

Sacramento, Calif.:
B.B.U. and Sara Lee brands represent 34% and 25% of the sliced bread market, respectively, for a total of 59%.
“The divestiture in Sacramento of EarthGrains and the Sara Lee family of brands, which together account for 15% of the sliced-bread market, will reduce the merged firm’s post-acquisition market share to 44%,” the filing said.

Kansas City:
Shares for B.B.U. and Sara Lee brands are 17% and 35%, respectively, or 52% in total.
“The divestitures in Kansas City of EarthGrains and Mrs Baird’s, which together account for 9% of the sliced bread market, will reduce the merged firm’s post-acquisition market share to 43%,” the filing said.

Omaha:
B.B.U. and Sara Lee brands hold market shares of 14% and 38%, respectively, or 52% in total.
“The divestiture in Omaha of EarthGrains and Healthy Choice, which together account for 5% of the slice bread market, will reduce the merged firm’s post-acquisition market share to 47%,” the filing said.

Oklahoma City:
Current shares for B.B.U. and Sara Lee are 7% and 46%, respectively, or 53% in total.
“The divestitures in Oklahoma City of EarthGrains, which accounts for 6% of the sliced bread market, will reduce the merged firm’s post-acquisition market share to 47%,” the filing said.

Harrisburg/Scranton, Pa.:
B.B.U. and Sara Lee currently hold market shares of 44% and 12%, respectively, or 56% in total.

“The divestiture in Harrisburg/Scranton of Holsum and Milano, which together account for 8% of the sliced-bread market, will reduce the merged firm’s post-acquisition market share to 49%,” the filing said.
Markets included in the decree in which market concentration will increase by more than 4 percentage points are Sacramento, (10 points), Omaha (9) and Kansas City (9).

“These incremental share gains in these three geographic markets do not pose substantial competitive concerns because they will result from the combination of brands that are largely in different segments of the sliced bread market, i.e. combining traditional brands and wide pan breads,” the filing said. “Combining ownership of brands that consumers consider to be relatively distant substitutes for each other is less likely to raise competitive concerns than combining closer substitutes.”

As an example of a market in which the increased prospective concentration is less worrisome from an antitrust perspective, the filing said in Kansas City B.B.U. and Sara Lee compete in both traditional and wide-pan segments of the bread market.

“The required divestiture of B.B.U.’s traditional Mrs Baird’s brand and Sara Lee’s wide-pan EarthGrains brand targets competition in each of these segments,” the D.O.J. said. “The small increase in market share of sliced bread that B.B.U. likely will retain after the divestitures in Kansas City largely comes from combining B.B.U.’s wide-pan bread brands with Sara Lee’s traditional bread brands, which is unlikely to create a significant competitive concern.”

The filing includes extensive details about the pending divestiture process, timetable and contingencies.

The sale of brand-related plants and plant-related assets are required in the consent decree. Exceptions are possible, though, the D.O.J. said, “in the event that (1) the acquirer does not want those assets, and (2) the United States determines in its sole discretion that a divestitures of some or all of such assets is not reasonably necessary to enable the acquirer to replace the competition that otherwise would have been lost.”

The filing stipulates a single acquirer of all the brands and related assets in California but allows for different buyers in the various non-California markets.

Under terms of the Antitrust Procedures and Penalties Act, comments about the proposed settlement may be submitted to the D.O.J. for 60 days.

The Competitive Impact Statement may be found at http://www.justice.gov/atr/cases/f276500/276543.pdf.

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