Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Bakery Firm Seeks Delay of Divestiture Due to Changed Circumstances, (Feb 12, 2013)

By Jeffrey May, J.D.

The Department of Justice has objected to an effort by Grupo Bimbo S.A.B. de C.V. to temporarily halt a divestiture required by a consent decree that the bakery firm entered into with the Department of Justice Antitrust Division. Grupo Bimbo contends that the divestiture, which is scheduled to close February 23, 2013, should be stayed for at least 60 days due to changed circumstances. The Justice Department has asked the court to deny the request in a February 8 filing.

The Department of Justice announced in October 2011 that it had reached a settlement with Grupo Bimbo, BBU Inc., and the Sara Lee Corporation that required them to divest brands of sliced fresh bread and associated assets, in order to proceed with Grupo Bimbo and BBU’s acquisition of Sara Lee’s North American Fresh Bakery business. The settlement resolved allegations that the acquisition, as originally proposed, would substantially lessen competition in the sale of bagged, sliced fresh bread sold in retail stores in various metropolitan areas: Los Angeles, Sacramento, San Diego, and San Francisco in California; Kansas City, Kansas; Omaha, Nebraska; Oklahoma City, Oklahoma; and the Harrisburg/Scranton area in Pennsylvania.

The U.S. consent decree (2012-1 Trade Cases ¶77,812) settling the matter was approved in February 2012. It was subsequently modified in October 2012 (2012-2 Trade Cases ¶78,080) to authorize the United States to approve a divestiture of certain California assets that included non-operational assets. The original consent decree had required the defendants to maintain the California assets as operational and warrant to an acquirer that they were operational. The modification to permit the sale of a closed facility was intended to make it more likely that an acquirer with the intent and capability (including the necessary managerial, operational, technical, and financial capability) of competing effectively in the sale of fresh bread would execute a definitive divestiture agreement for the California assets with the divestiture trustee. This modification also would allow the divestiture trustee to present, and the United States to consider, a divestiture of the California assets to an acquirer who offered to purchase some assets in non-operational condition.

In January, Grupo Bimbo moved to delay the divestiture of Sara Lee California assets to Flowers Foods, Inc., as required by the modified consent decree, due to the prospect of Flowers’ acquisition of Hostess Brands, Inc.’s bread assets. The acquisition of Hostess’s (shut down) bread assets by Flowers, a major player in the bread industry, is currently being investigated by the Antitrust Division. Grupo Bimbo suggests that Flowers' agreement to purchase the Hostess bread business materially changes the circumstances upon which the government deemed Flowers an appropriate buyer. There is concern that Flowers’ acquisition of Hostess would reduce Flowers’ incentive to participate in nationwide Sara Lee promotions, to the detriment of Bimbo’s Sara Lee brand.

The Justice Department argues in its filing that the divestiture should proceed promptly and that Grupo Bimbo has not met the standards for modifying a consent judgment. The changed circumstances the company relies on might not occur and were at least as foreseeable as circumstances that have led courts to deny delaying other divestitures or decree obligations, the government contends.

Even if Grupo Bimbo had shown changed circumstances, the government suggests that delaying the divestiture would not be in the public interest. “Delaying or preventing the divestiture of the California Assets to Flowers would leave the instant violation unremedied, which would be contrary to the public interest, and Bimbo has made no showing that changed circumstances make a remedy for Bimbo’s acquisition of Sara Lee unnecessary,” according to the Justice Department.

Flowers and the divestiture trustee have both filed briefs with the court asking that Grupo Bimbo’s motion be denied.

Companies: BBU Inc.; Flowers Foods, Inc.; Grupo Bimbo S.A.B. de C.V.; Sara Lee Corporation

News: Antitrust AntitrustDivisionNews