On March 5, 2018, the United States Federal Trade Commission (“FTC”) filed an administrative complaint alleging that J.M. Smucker Co.’s (“Smucker”) proposed $285 million acquisition of Conagra Brands, Inc.’s (“Conagra”) Wesson cooking oil brand may substantially lessen competition and reduce competition for canola and vegetable oils in the United States.
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. Smucker and Conagra both manufacture and sell a wide range of food products, including canola and vegetable oil, other types of oils, and shortening. The FTC also claims that other branded canola and vegetable oils available in the United States, such as Mazola and LouAna, each control only a small share of the market, and do not hold the same brand equity. Furthermore, building sufficient brand equity to expand would require substantial investment and take at least several years.
Under the proposed acquisition, Smucker would obtain all intellectual property rights to the Wesson brand, as well as inventory and manufacturing equipment.
The complaint alleges that the acquisition is likely to 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.
According to the complaint, internal documents from both parties, as well as other evidence, indicate that Crisco and Wesson compete intensely for sales to retailers.
- In , Smucker’s Region Sales Manager for described a
Wesson advertisement for gallons of canola, vegetable, and corn oil as “downright irresponsible trade spending by our friends at Con Agra.” Smucker’s Director of , responded, “that’s clearly irresponsible trade spending,” and stated, “if you feel some of the recent Wesson tactics are going to materially impact your fiscal year projections, we’ll want to talk about it
sooner than later. Again, we’re hopeful that our tactical spending and innovation will help offset any of Wesson’s targeted tactics.”
- In August 2016, Conagra’s recaps from a meeting about the Wesson brand included: “Crisco is running deeper price points at major retailers (i.e. ); Crisco’s pricing strategy is irrational; Crisco did not follow [Wesson’s list] price increase; [and] Tom is asking to grow share having lost volume [by] pulling out trade [funding].”
Smucker’s own internal documents acknowledge that eliminating price competition between Crisco and Wesson is a central part of its rationale for the acquisition.
- In a document submitted with Smucker’s Hart-Scott-Rodino
filing, Smucker stated that a “strategic rationale” for the Acquisition is that it “[t]akes [a]competitor [Wesson] out of the marketplace and allows us to more effectively manage
- In Smucker’s view, this price competition is
a “race to the bottom” that “unnecessarily tak[es] dollars out of the category.”
- Smucker admits that it will increase prices: “Once we close the deal, our plan would be to execute a price increase on Wesson consistent with our latest Crisco pricing action.”
The FTC alleges that the transaction would give Smucker the ability to raise prices to retailers, ultimately leading to higher prices for U.S. consumers for branded canola and vegetable cooking oil.
The 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. The FTC vote to issue the administrative complaint was 2-0. The administrative trial is scheduled to begin on August 7, 2018.
This complaint demonstrates that the FTC will use merging parties’ own words against them when challenging their deal. Historically, “hot docs” provide an easy way to capture the interest of a judge by saying this case is simple and all you have to do is examine the merging parties’ own words. The FTC routinely cites “hot docs” in its complaints because they catch the interest of the media and, particularly, the judge. The FTC will focus on supposed “hot docs” to support its case because the buyer appears to be touting the intended anticompetitive consequences of the acquisition. At the end of the day, however, a “smoking gun” document regarding anticompetitive intent will be rejected by a judge unless the FTC provides the foundations of an antitrust case through market analysis and empirical evidence.
Nevertheless, this case demonstrates why corporate executives must be mindful about what they write as careless and inappropriate language in company documents can have an extremely negative effect on a merger review. Ambiguity or exaggeration in memoranda, marketing presentations, or board presentations may convey the erroneous impression that the company is more dominant or powerful than it is or that the acquisition will injure competition. All such documents should be written clearly and carefully in order to avoid misinterpretation. Documents that contain careless and inappropriate language may make a perfectly legal merger appear anticompetitive. Facetious or ironic comments may seem funny and be understood by other insiders at the time of the comments, but invariably can be misinterpreted after the fact by a government agency or a court. A good rule of thumb is to write every document so that neither you nor the company would be embarrassed if it appeared on the front page of the Wall Street Journal.