Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS NEWS: Canada Competition Bureau will not challenge Heinz-Kraft merger, (Jun 17, 2015)

By Linda O’Brien, J.D., LL.M.

The Canada Competition Bureau has issued a “no action” letter to H.J. Heinz Company and Kraft Foods Group, stating that the agency will not challenge the proposed merger that would form the third largest food and beverage company in North America. The June 10 “no action” letter was made public today.

The companies announced on June 9 that the waiting period under the Hart-Scott-Rodino (HSR) Act had expired. With the merger clearing both the U.S. and Canadian antitrust enforcement agencies, the proposed transaction remains subject to approval of Kraft shareholders, who will meet to vote on the merger on July 1.

Heinz and Kraft are two leading food and beverage companies that operate in both the retail and foodservice channels in Canada. Heinz and Kraft’s retail channel consists of sales to supermarkets, pharmacies, convenience stores, mass merchandisers, and club stores. Heinz and Kraft’s foodservice channel consists of sales to restaurants, food distributors, and other institutions such as schools and hospitals.

Heinz's principal products include ketchup, condiments and sauces, frozen food, soups, bean and pasta meals, infant nutrition, and other food products. Kraft's primary business segments include cheese, meats, peanut butter, beverages, coffee, packaged dinners, refrigerated meals, snack nuts, and dressings.

In March 2015, Heinz Company and Kraft Foods jointly announced that they had entered into a definitive merger agreement to create The Kraft Heinz Company, forming the third largest food and beverage company in North America.

On June 10, the Bureau issued a No Action Letter to Heinz and Kraft, indicating that the agency has reviewed a specific proposed transaction and concluded that it will not, at this time, challenge that proposed transaction before the Competition Tribunal under the mergers provisions of the Competition Act.

According to the Bureau’s statement, the competitive overlap between Heinz and Kraft in Canada is limited to the production and supply of condiments, sauces, and dressings. For each of these overlapping product categories, the Bureau determined that: (1) the parties are not each other's closest competitors, as they produce differentiated products; (2) there would be sufficient effective remaining competition; and/or (3) barriers to entry or expansion are low.

As a result of a higher degree of concentration for barbecue sauce and pourable salad dressing, the Bureau conducted econometric analysis with respect to these two products. In the retail area, the parties' respective barbecue sauces are marketed to different tiers of consumers, each with a distinct flavor profile, price point and end use. Furthermore, the Bureau found that barriers to entry in respect of the production and supply of barbecue sauce are low and that there have been several recent entrants. For foodservice customers, barriers to switching suppliers are low and there are many alternative suppliers they could switch to in the event of a decrease in the level of service or a material price increase by the merged entity.

Given the differentiation between the parties' brands, effective remaining competition, and low barriers to entry, the Bureau concluded that the transaction is unlikely to result in a substantial lessening or prevention of competition with respect to the retail or foodservice sale of condiments, sauces, and dressings in Canada.

Companies: H.J. Heinz Company; Kraft Foods Group

News: AcquisitionsMergers Antitrust