[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