[Federal Register Volume 60, Number 215 (Tuesday, November 7, 1995)]
[Notices]
[Pages 56167-56169]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-27481]



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[[Page 56168]]


DEPARTMENT OF JUSTICE
Antitrust Division


United States v. Interstate Bakeries Corp. and Continental Baking 
Company

    Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 
16 (c)-(h), the United States publishes below the comment received on 
the proposed final Judgment in United States v. Interstate Bakeries 
Corp. and Continental Baking Company, Civil Action No. 95C 4194, filed 
in the United States District Court for the Northern District of 
Illinois, Eastern Division, together with the United States' response 
to that comment.
    Copies of the comment and response to comment are available for 
inspection and copying in Room 207 of the U.S. Department of Justice, 
Antitrust Division, 325 7th Street, NW., Washington, DC 20530 
(telephone: (202) 514-2481), and at the office of the Clerk of the 
United States District Court for the Northern District of Illinois 
Eastern Division, 219 S. Dearborn, 20th Floor, Chicago, Illinois, 
60604. Copies of these materials may be obtained upon request and 
payment of a copying fee.
Constance K. Robinson,
Director of Operations.

September 29, 1995.
Anthony V. Nanni, Chief, Litigation I Section, Antitrust Division,
United States Department of Justice
1401 H Street, NW., Suite 4000,
Washington, DC 20530.

    Dear Mr. Nanni and associates: Thank you for the opportunity to 
comment on the Proposed Final Judgment and Competitive Impact 
Statement in U.S. v. Interstate Bakeries Corp. and Continental 
Baking Company. From 1978 until 1992 I was an employee of 
Continental Baking Company (``Continental'') and became intimately 
familiar with its bakeries, distribution, and marketing. I continue 
to follow the company and the wholesale baking industry in general, 
and produce an independent newsletter for employees and investors of 
Continental and now Interstate Baking Corp. (``Interstate''). I will 
draw upon this experience in my comments.

I. Competitive Impact of the Merger of Interstate and Continental

    The Antitrust division has well documented the near monopoly 
Interstate now holds in the Chicago, Milwaukee, central Illinois, 
Los Angeles, and San Diego markets for branded While Pan Bread. The 
merger has also given Interstate a virtual monopoly in the Oxnard 
and Mohave, California, southern Idaho, western Colorado, and Casper 
and Rock Springs, Wyoming markets; left it with only one substantial 
competitor in the San Luis Opisbo, Carbondale, Illinois, and central 
Missouri markets; and only two substantial competitors in the 
eastern Virginia, Raleigh, North Carolina, Kansas City, Bakersfield, 
Cincinnati, southeast Kansas, southwest Missouri, and western 
Montana markets. A quick bit of mathematics shows that a merger 
which restricts a market to only, two, or even three substantial 
competitors produces a HHI which easily exceeds the Antitrust 
Division's standards for challenge of said merger.

II. Remedy

    The Antitrust division in its wisdom has included in the 
stipulation a requirement that sufficient assets of the merged 
company be divested to allow the new competitor(s) to ``remain a 
viable competitor in the White Pan Break market''. Creating viable 
competitor(s) in this market will require the divestment of the 
following assets:
    1. To realize the economies of scale needed in advertising and 
promotion the obvious choice for divestment is the only single 
cohesive brand available over the several markets targeted for 
divestment, Wonder. To allow cost effective purchase of advertising 
the areas of divestment must be expanded to more closely conform 
with established newspaper circulation and broadcast reception 
areas. This will require expansion of the area of divestment to 
include the central California, Colorado, southern Idaho, southern 
Illinois, Iowa, eastern Kansas, Missouri, western Montana, eastern 
North Carolina, southwest Ohio, eastern Virginia, Utah, and Wyoming 
market areas.
    2. As the new competitor(s) created by the divestment will need 
to maintain continuity in the production of the divested bakeries, 
and in fact much of Continentals production and distribution system 
is custom built for it's Wonder and other brands and ill suited for 
other products, it is essential that the divestment include 
Continental bakeries only. This will require the divestment of the 
Davenport, Denver, Indianapolis, Kansas City, Ogden, Pomona, 
Richmond, St. Louis, Salt Lake City, Spokane, Tulsa, and Waterloo 
bakeries.
    3. The new competitor(s) will need an in house laboratory and 
experimental bakery to allow confidential quality control and new 
product development. This will require the divestment of the St. 
Louis General Office facility in which these operations are located.
    4. To allow the new competitor(s) to bring new products from the 
experimental bakery to full scale production will require the 
divestment of the Kansas City bakery which contains the 
Continental's Market Development Unit.
    5. The new competitor(s) will require a central office with an 
experienced staff and ready access to the experimental bakery and 
lab. This will require the divestment of The St. Louis General 
Office facility.
    6. To keep the new competitor(s) up to date in bakery 
engineering and design will require the divestment of the East 
Brunswick bakery with it's Engineering, Research, and Development 
unit.
    7. The new competitor(s) will need bakeries located as close as 
possible to their markets to control transportation costs which can 
easily devour the low profit margins common in the wholesale White 
Pan Bread industry. This will require the divestment of the Denver, 
Indianapolis, Kansas City, Ogden, Pomona, Richmond, St. Louis, Salt 
Lake City, and Tulsa bakeries.
    8. As divestment of only the Wonder brand of bread products 
would provide the new competitor(s) with only 20 to 30 percent of 
their current sales volume with virtually no reduction in overhead 
costs it is essential to the viability of these competitor(s) that 
they be given the full line of Continental products including the 
Hostess line. Continental bakeries tend to be highly specialized 
dedicated facilities optimized to produce a small number of 
products, importing the rest from other Continental bakeries which 
they in turn supply with their specialties. In fact, there is 
probably no Continental bakery which is capable of producing even 
the full line of Wonder label products. To provide the new 
competitor(s) with the full range of Continental products they will 
need to be viable in the marketplace will require the divestment of 
every Continental bakery and related assets except possibly the 
Anchorage bakery.

III. Conclusion

    The merger of Interstate and Continental has resulted in a 
reduction in competition in many areas of this country which 
violates our antitrust laws and grossly offends the public interest. 
Unfortunately no surgically precise divestment of assets in these 
geographical areas is possible--so interdependent are Continental 
bakeries that they developed one of our county's largest private 
fleets of transport trucks largely to exchange products between 
them. While Hodgkins and Pomona specialize in high speed production 
of white bread by the truckload, Waterloo and San Pedro slowly 
produce smaller batches of variety breads, and Indianapolis is 
Continental's sole source of Mini Muffins and Brownie Bites. On 
Continentals loading docks, in its transports, and within its depots 
and thrift stores these products of myriad bakeries are brought 
together to produce a profitable mix. Given the thin profit margins 
of the wholesale baking industry, attempting to divide Continental 
with even surgical precision would be fatal. The Antitrust Division 
and the court have no alternative but to insist on a total 
divestment of Continental Baking Company.

    Respectively Submitted,
Diana Slyter.
October 23, 1995.
Ms. Diana Slyter,
728 East 16th Street, Minneapolis, MN 55404.

Re: U.S. v. Interstate Bakeries Corp. and Continental Baking Co.; 
Civil Action No.: 95C 4194 (N.D. Illinois July 20, 1995.

    Dear Ms. Slyter: This letter responds to your letter dated 
September 29, 1995 commenting on the proposed Final Judgment in the 
above-referenced civil antitrust case, which challenges the 
acquisition of the assets of Continental Baking Company 
(``Continental'') by Interstate Bakeries Corporation 
(``Interstate''). The Complaint alleges that the acquisition, as 
originally structured, violated Section 7 of the Clayton Act, as 
amended, 15 U.S.C. 18, because its effects may be substantially to 
lessen competition in the sale of white pan bread in five markets 
(Chicago, Milwaukee, central 

[[Page 56169]]
Illinois (Springfield, Peoria, Champaign/Urbana), San Diego, and Los 
Angeles). Under the proposed Final Judgment, the defendants are 
required to divest such brand names and possibly other assets as are 
necessary to create a new competitor in the sale of white pan bread 
in each of the five markets.
    In your letter, you expressed concern that the proposed Final 
Judgment does not address competitive concerns in a number of 
additional geographic areas (Oxnard and Mohave, California; southern 
Idaho; western Colorado; Casper and Rock Springs, Wyoming; San Luis 
Obispo, California; Carondale, Illinois; central Missouri; eastern 
Virginia; Raleigh, North Carolina; Kansas City; Bakersfield, 
California; Cincinnati; southeast Kansas; southwest Missouri; and 
western Montana).
    The analytical process used by the Antitrust Division in 
determining in which markets to challenge this acquisition required 
us to assess a number of factors such as market concentration, 
potential adverse competitive effects, entry, and efficiency gains. 
These factors must be evaluated in an economically meaningful 
product and geographic market. This analysis is aimed at allowing 
the Division to answer the ultimate inquiry: whether the acquisition 
is likely to create or enhance market power or facilitate the 
exercise of market power in each such market. After a thorough 
investigation which included the geographic areas mentioned in your 
letter, the Antitrust Division concluded that the product and 
geographic markets in which Interstate's acquisition of Continental 
might most significantly create or enhance market power or 
facilitate the exercise of market power are the sale of white pan 
bread in the Chicago, Milwaukee, central Illinois, Los Angeles and 
San Diego markets.
    Your letter also outlines a number of assets that you believe 
should be divested as part of the proposed Final Judgment in order 
to create a viable competitor in the sale of white pan bread. You 
conclude, essentially, that all of Continental's assets should be 
divested (i.e., that the acquisition should be prevented in its 
entirety).
    Paragraph IV.A. of the proposed Final Judgment states that the 
defendants must divest themselves of the certain brand names as well 
as any Bread Assets (as defined by the proposed Final Judgment) as 
are reasonably necessary in order for the acquirer of each divested 
brand ``to remain a viable competitor in the White Pan Bread Market 
in each of the Relevant Territories.'' Furthermore, paragraph IV.D. 
of the proposed Final Judgment provides that any divestiture must be 
accomplished in such a way to satisfy the United States that the 
brands ``can and will be used by the purchaser or purchasers as part 
of viable, ongoing businesses engaged in the selling of White Pan 
Bread at wholesale to retail grocery stores and other customers.'' 
Thus, the defendants would be obligated to divest as many or as few 
of the defined Bread Assets as were necessary to any potential 
purchaser to insure the buyer would be a viable competitor in the 
sale of white pan bread.
    The United States, in evaluating any potential divestiture 
packages, would take into consideration many of the issues raised in 
your letter to insure the viability of any purchaser. This 
determination will be made on a case-by-case basis, depending on 
many factors including the existing assets and financial condition 
of any potential purchaser and the stated asset needs of that 
purchaser. Moreover, we have to assume that any potential purchaser 
will consider these facts, and others, before purchasing any assets.
    We appreciate you bringing your concerns to our attention and 
hope that this information will help to alleviate them. While we 
understand your position, we believe that the proposed Final 
Judgment would adequately alleviate the competitive concerns created 
by Interstate's acquisition of Continental. Pursuant to the 
Antitrust Procedures and Penalties Act, a copy of your letter and 
this response will be published in the Federal Register and filed 
with the Court.
    Thank you for your interest in the enforcement of the antitrust 
laws.

      Sincerely yours,
Anthony V. Nanni,
Chief, Litigation I Section.
[FR Doc. 95-27481 Filed 11-6-95; 8:45 am]
BILLING CODE 4410-01-M