011 0083

ANALYSIS OF PROPOSED

CONSENT ORDER TO AID PUBLIC COMMENT

I. Introduction

The Federal Trade Commission (“Commission”) has issued a complaint (“Complaint”) alleging

that the proposed merger of Nestle Holdings, Inc. (“Nestle”), and Ralston Purina Company (“Ralston”)

(collectively “Proposed Respondents”) would violate Section 7 of the Clayton Act, as amended, 15

U.S.C. § 18, and Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 45, and

has entered into an agreement containing consent orders (“Agreement Containing Consent Orders”)

pursuant to which Respondents agree to be bound by a proposed consent order that requires

divestiture of certain assets (“Proposed Consent Order”) and an order that requires Proposed

Respondents to maintain certain assets pending divestiture (“Asset Maintenance Order”). The

Proposed Order remedies the likely anticompetitive effects arising from Proposed Respondents’

proposed merger, as alleged in the Complaint. The Asset Maintenance Order preserves competition

pending divestiture.

II. Description of the Parties and the Transaction

Nestle Holdings, Inc., is a corporation organized, existing, and doing business under and by

virtue of the laws of the State of Delaware. This subsidiary of Nestle S.A. is the U.S. corporation that

will be purchasing all of the outstanding Ralston shares. Nestle SA, the largest food corporation in the

world, manufactures, distributes, and sells dairy products, soluble coffee, roast and ground coffee,

mineral water, beverages, breakfast cereals, coffee creamers, infant foods and dietetic products,

culinary products (seasonings, canned foods, pasta, sauces, etc.), frozen foods, ice cream, refrigerated

products (e.g., yogurt, desserts, pasta, sauces), chocolate, food services, ophthalmological products,

cosmetics, and pet foods. Nestle sells its pet food products in the U.S. through its Friskies division,

including Alpo, Come ‘N Get It, Mighty Dog, Friskies, Fancy Feast, Jim Dandy, and Chef’s Blend. 

Nestle had worldwide sales of approximately 81.4 billion Swiss francs and United States sales of

approximately $7.8 billion for all products in 2000.

Ralston is a corporation organized, existing, and doing business under and by virtue of the laws

of the State of Missouri. Ralston is the world’s leading producer of dry dog and dry and soft-moist cat

foods. The brands that Ralston manufacturers, distributes, and sells include Dog Chow, Puppy Chow,

Cat Chow, Kitten Chow, Purina Special Care, Meow Mix, Purina O.N.E., Purina Pro Plan, Fit &

Trim, Clinical Nutrition Management, Alley Cat, Deli-Cat, Thrive, Tender Vittles, Happy Cat, Chuck

Wagon Stampede, and Main Stay. Ralston had worldwide sales of approximately $3 billion and

United States sales of approximately $2.36 billion for all products for fiscal year 2000.

Pursuant to a merger agreement dated January 15, 2001, Nestle agreed to purchase all of

Ralston’s outstanding shares of common stock in a transaction valued at $ 10.3 billion. Nestle intends

to call the merged entity Nestle Purina Pet Care.
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III. The Complaint

The complaint alleges that the market in which to analyze the competitive effects of the

proposed transaction is the sale of dry cat food in the United States. Wet and dry cat foods constitute

separate product markets. Wet cat food differs from dry cat food in production, ingredients,

appearance, packaging, aroma, price, and convenience. Ralston’s share of the dry cat food market

across all channels of distribution is approximately 34%. Nestle has a market share of approximately

11% of the dry cat food market across all channels of distribution. The dry cat food market in the

United States is moderately concentrated. The merger of Nestle and Ralston would substantially

increase concentration in this market, raising the HHI level to more than 2400, an increase of more than

750 points. Entry would not be timely, likely, or sufficient to prevent anti-competitive effects in the

relevant market.

The Complaint alleges that the merger of Nestle and Ralston would substantially lessen

competition in the dry cat food market in violation of Section 7 of the Clayton Act, as amended, 15

U.S.C. § 18, and Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 45, in the

following ways, among others: (a) by eliminating direct competition in the sale of dry cat food between

Nestle and Ralston; and (b) by increasing the likelihood that the combination of Nestle and Ralston will

unilaterally exercise market power; each of which increases the likelihood that prices will be higher with

the acquisition than they would be absent the acquisition.

The Proposed Consent Order requires Proposed Respondents to divest the Meow Mix and

Alley Cat brands of dry cat food to an up-front buyer, J.W. Childs Equity Partners II, L.P. (“Childs”),

no later than 20 days after the Commission accepts the Proposed Consent Agreement for public

comment or January 31, 2002, whichever is later, to remedy the Commission’s concerns. Childs is a

Boston- based investment firm founded in 1995. Structured as a limited partnership, Childs has total

committed capital of $982 million. The Commission is satisfied that Childs’ acquisition of the divested

assets will restore the competition lost as a result of the proposed merger of Nestle and Ralston. Childs

has a past history of successfully developing the business of consumer products companies. The

designated CEO of the businesses that will produce and sell the brands to be divested has expertise in

manufacturing dry pet foods. Childs also owns the Hartz Mountain Corporation (“Hartz”), a leading

manufacturer and distributor of pet supplies in the United States. Hartz sells its pet supplies and treats

in the same retail outlets as the brands to be divested. 

IV. Terms of the Proposed Order

The Proposed Order resolves the Commission’s antitrust concerns with the merger as

discussed below. 
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A. Divestiture Provisions

Paragraph II.A. of the Proposed Order requires Proposed Respondents to divest to Childs all

of Proposed Respondents’ rights, titles, and interests in and to all assets relating to the Meow Mix and

Alley Cat brands. The Meow Mix brand includes the original Meow Mix product and Meow Mix

Seafood Middles. Specifically, Proposed Respondents must divest all interests in the research,

development, manufacture, distribution, marketing, and sales of the Meow Mix and Alley Cat brands of

dry cat food products anywhere in the United States and Canada. Proposed Respondents also must

divest any and all trademarks, service marks, trademark and service mark registrations, and pending

trademark and service mark registrations that relate exclusively to the Meow Mix or Alley Cat brand of

dry cat food products outside of the United States and Canada. Proposed Respondents must further

divest all inventories and supplies held by, or under their control; all intellectual property owned by or

licensed to Proposed Respondents; copies of all customer lists and supplier lists; all rights of Proposed

Respondents under any contract; all governmental approvals, consents, licenses, permits, waivers, or

other authorizations held by Proposed Respondents, to the extent transferable; all rights of Proposed

Respondents under any warranty and guarantee, express or implied; and copies of all relevant portions

of books, records, and files held by, or under the control of, Proposed Respondents.

Paragraph II.C. further provides that if the Commission determines that Childs is not an

acceptable purchaser of the assets to be divested, Proposed Respondents shall immediately terminate

or rescind the sale of the assets to be divested to Childs and divest these assets at no minimum price to

another purchaser that receives the prior approval of the Commission no later than 180 days from the

date that this Proposed Order becomes final.

Paragraph II.D. of the Proposed Order requires that Proposed Respondents grant a patent

license to Childs for the coating applied to Meow Mix products. The license covers current Meow

Mix products as well as any pet product Childs chooses to manufacture in the future. Paragraph II.F.

of the Proposed Order requires Proposed Respondents to provide Childs with a supply of Meow Mix

and Alley Cat products for a period of up to two years from the date of the divestiture. Paragraph

II.G. requires Proposed Respondents to provide technical assistance to Childs, as needed, for a period

of up to two years from the date of divestiture, which includes expert advice, assistance, and training

relating to the manufacture of the Meow Mix and Alley Cat brands. 

Paragraph VI of the Proposed Order requires Childs, for a period of 5 years, to obtain the

Commission’s approval before selling all or substantially all of the United States assets acquired in the

divestiture. The Commission does not routinely require acquirers of divested assets to obtain approval

before subsequent sales. In cases, however, where the proposed acquirer’s
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current plans indicate that there is a high probability that the assets will be resold, possibly within twofive years, it is appropriate for the Commission to include such a provision. C.f., e.g., the

Commission’s final order in Albertson’s, Inc., Docket No. C-3986.

B. Monitor Trustee Provisions

Paragraph IV of the Proposed Order appoints a Monitor Trustee to monitor compliance with

the terms of the Order. The Proposed Consent Order provides the Monitor Trustee with the power

and authority to monitor the Proposed Respondents’ compliance with the terms of the Proposed

Consent Order, and full and complete access to personnel, books, records, documents, and facilities of

the Proposed Respondents to fulfill that responsibility. In addition, the Monitor Trustee may request

any other relevant information that relates to the Proposed Respondents’ obligations under the

Proposed Consent Order. The Proposed Consent Order precludes Proposed Respondents from

taking any action to interfere with or impede the Monitor Trustee’s ability to perform his or her

responsibilities or to monitor compliance with the Proposed Consent Order. 

The Monitor Trustee may hire such consultants, accountants, attorneys, and other assistants as

are reasonably necessary to carry out the Monitor Trustee’s duties and responsibilities. The Proposed

Consent Order requires the Proposed Respondents to bear the cost and expense of hiring these

assistants.

C. Other Terms

Paragraphs V and VII - X of the Proposed Consent Order detail certain general provisions. 

Paragraph V authorizes the Commission appoint a divestiture trustee in the event Nestle fails to divest

the assets as required by the Proposed Consent Order. Paragraph VII requires Respondents to

provide a copy of the Proposed Consent Order to each of their officers, employees, and agents with

managerial responsibilities for any obligation under the Proposed Order. Paragraph VIII requires

Proposed Respondents to provide the Commission with periodic reports of compliance with the

Proposed Consent Order. Paragraph IX provides for notification to the Commission in the event of

any changes in the corporate Proposed Respondents. Paragraph X requires Proposed Respondents to

grant access to any authorized Commission representative for the purpose of determining or securing

compliance with the Proposed Consent Order. Paragraph XI terminates the Proposed Consent Order

after ten years from the date the Proposed Consent Order becomes final.

V. Opportunity for Public Comment

The Proposed Consent Order has been placed on the public record for thirty (30) days for

receipt of comments by interested persons. The Commission has also issued its Complaint in this

matter as well as the Asset Maintenance Order. Comments received during this thirty day comment

period will become part of the public record. After thirty days, the Commission will
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again review the Proposed Consent Order and the comments received and will decide whether it

should withdraw from the Proposed Consent Order or make final the agreement’s Proposed Consent

Order.

By accepting the Proposed Consent Order subject to final approval, the Commission

anticipates that the competitive problems alleged in the complaint will be resolved. The purpose of this

analysis is to invite public comment on the Proposed Consent Agreement, to aid the Commission in its

determination of whether it should make final the Proposed Order contained in the agreement. This

analysis is not intended to constitute an official interpretation of the Proposed Order, nor is it intended

to modify the terms of the Proposed Order in any way.