Conagra cancels Wesson oil sale after FTC challengeConagra cancels Wesson oil sale after FTC challenge
Smucker would have controlled at least 70% of branded canola and vegetable oil market after sale.
March 9, 2018
Conagra Brands Inc. announced this week that it terminated the sale of its Wesson oil business to The J.M. Smucker Co. after the U.S. Federal Trade Commission (FTC) said it would challenge the pending $285 million transaction.
"While we are disappointed by and disagree with the commission's decision, we have determined that it is in the best interest of our shareholders, customers and employees to terminate the agreement to sell the Wesson oil business to The J.M. Smucker Co. rather than pursue litigation,” Conagra stated, adding that it intends to continue its evaluation of the role of the Wesson oil business within its portfolio.
FTC explained in its complaint that it was challenging the acquisition because the result would likely reduce competition and possibly create a monopoly in violation of the Clayton Act. Smucker currently owns the Crisco brand, and by acquiring the Wesson brand, it would control at least 70% of the market for branded canola and vegetable oils sold to grocery stores and other retailers.
Ohio-based Smucker and Chicago, Ill.-based Conagra both manufacture and sell a wide range of food products, including canola and vegetable oils, other types of oils and shortening. Under the proposed acquisition, Smucker would obtain all intellectual property rights to the Wesson brand, as well as inventory and manufacturing equipment.
FTC alleged that the acquisition would likely increase Smucker’s negotiating leverage against retailers, especially traditional grocers, by eliminating the vigorous head-to-head competition that exists between the Crisco and Wesson brands today. The retailers and, ultimately, consumers would likely face higher prices for branded canola and vegetable cooking oil, the complaint stated.
“Cooks across the U.S. benefit from the competition between the staple brands Wesson and Crisco. We are taking this action to preserve the benefits of that competition,” said Ian Conner, deputy director of the Bureau of Competition. “After attempted price increases by each brand over the last two years were limited by intense competition from the other, this transaction eliminates that restraint and would allow Smucker to raise prices on both brands.”
According to the complaint, internal documents from both parties as well as other evidence, Crisco and Wesson compete intensely for sales to retailers. Smucker’s own internal documents acknowledge that eliminating price competition between Crisco and Wesson is a central part of its rationale for the acquisition. The transaction would give Smucker the ability to raise prices to retailers, ultimately leading to higher prices for U.S. consumers, FTC noted.
Canola and vegetable oils are not only among the least expensive cooking oils but also are highly versatile, with uses in baking, frying and sautéing as well as in marinades and vinaigrettes. Grocery stores and other retailers across the U.S. offer canola and vegetable oils in a wide variety of sizes. Most retailers also have their own store brand canola and vegetable oils, which typically are sold at 10-20% below the price of their branded counterparts, according to the complaint.
Other cooking oils are not competitive alternatives for canola and vegetable oils, according to FTC. Corn and peanut oils are substantially more expensive, and many consumers perceive that they are of lower quality, while olive oil and various specialty oils tend to be less versatile for many cooking applications and often are more expensive.
New entry into the market or expansion by existing firms would not be timely, likely or sufficient to offset the anticompetitive effects of the proposed acquisition, according to the complaint. Although there are other branded canola and vegetable oils available in the U.S., such as Mazola and LouAna, they each control only a small share of the market, so building sufficient brand equity to expand would require substantial investment and would take at least several years.
FTC also authorized its staff to seek a temporary restraining order and a preliminary injunction in federal court to prevent the parties from consummating the merger and to maintain the status quo pending the administrative proceeding.
FTC voted 2-0 to issue the administrative complaint.
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