Antitrust Law Daily Wrap Up, ACQUSITIONS & MERGERS NEWS: Tyson Foods must divest hog business to acquire Hillshire Brands, (Aug 27, 2014)

By Greg Hammond, J.D.

Tyson Foods Inc. will be required to divest Heinold Hog Markets in order to proceed with its $8.5 billion acquisition of The Hillshire Brands Company, according to a proposed settlement filed today in the federal district court in Washington, D.C. The U.S. Department of Justice Antitrust Division, along with the Attorney Generals from Illinois, Iowa, and Missouri, filed the proposed settlement, along with a complaint to block the proposed acquisition.

According to the Antitrust Division, both Tyson and Hillshire purchase sows directly from farmers in the United States, accounting for an approximate 35 percent of all sow purchases in the market. Consequently, “Tyson’s acquisition of Hillshire would eliminate actual and potential competition between Heinold Hog markets and Hillshire, leaving farmers with fewer outlets for their sows and lower prices,” the complaint asserted.

Specifically, the complaint alleges that Tyson’s acquisition of Hillshire is likely to lessen competition and restrain trade in violation of Section 7 of the Clayton Act, because: (1) actual and potential competition between the two companies in the purchase of sows from farmers in the United States would be eliminated; (2) competition in the purchase of sows from farmers in the United States would be substantially lessened; and (3) prices paid to farmers in the United States for sows would likely decrease. The proposed settlement, requiring Tyson’s divestment of Heinold Hog Markets—which brought in total revenues of approximately $270 million in 2013, will resolve the competitive concerns alleged in the Justice Department’s complaint, according to the Antitrust Division.

The Department of Justice’s announced lawsuit and proposed settlement come after U.S. Senator Chuck Grassley (R-Iowa) sent a letter to Assistant Attorney General William J. Baer, urging that the Antitrust Division thoroughly examine the proposed acquisition, particularly with regard to its effect on competition in the pork industry, its potential influence on consumer choice and the price of pork, and its impact on small pork producers. “Independent, small producers have been to my office to express their own concern,” stated Grassley. “In particular, they fear that Tyson could engage in the practice of ‘tie-in’ sales of sows with market hogs, which would put independent producers at a tremendous disadvantage as they look for markets for their sows.”

“Farmers are entitled to competitive markets for their products,” stated Assistant Attorney General William J. Baer. “Today’s proposed settlement will help ensure that hog breeders in the United States will continue to receive the benefits of vigorous competition when selling sows. Without the divestiture, the proposed acquisition would have eliminated a significant customer for farmers’ sows and likely would have resulted in less competition in this important agricultural market.”

Once the proposed settlement and competitive impact statement are published in the Federal Register, the Antitrust Division will issue a 60-day comment period concerning the required divestiture and the Hillshire acquisition. Written comments may be submitted to William H. Stallings, Chief, Transportation, Energy, and Agriculture Section, Antitrust Division, U.S. Department of Justice, 450 5th Street, N.W., Suite 8000, Washington, D.C. 20530.

Companies: Tyson Foods Inc.; Tyson Hog Markets Inc.; Hillshire Brands Co.

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