[Federal Register Volume 68, Number 127 (Wednesday, July 2, 2003)]
[Notices]
[Pages 39564-39567]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-16700]


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FEDERAL TRADE COMMISSION

[File No. 021 0174]


Nestl[eacute] Holdings, Inc., et al.; Analysis To Aid Public 
Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of Federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint that accompanies the consent agreement and the terms of the 
consent order--embodied in the consent agreement--that would settle 
these allegations.

DATES: Comments must be received on or before July 25, 2003.

ADDRESSES: Comments filed in paper form should be directed to: FTC/
Office of the Secretary, Room 159-H, 600 Pennsylvania Avenue, NW., 
Washington, DC 20580. Comments filed in electronic form should be 
directed to: [email protected], as prescribed in the 
Supplementary Information section.

FOR FURTHER INFORMATION CONTACT: Michael Cowie or Catharine Moscatelli, 
FTC, Bureau of Competition, 600 Pennsylvania Avenue, NW., Washington, 
DC 20580, (202) 326-2214 or 326-2749.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Section 2.34 
of the Commission's Rules of Practice, 16 CFR 2.34, notice is hereby 
given that the above-captioned consent agreement containing a consent 
order to cease and desist, having been filed with and accepted, subject 
to final approval, by the Commission, has been placed on the public 
record for a period of thirty (30) days. The following Analysis to Aid 
Public Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for June 25, 2003), on the World Wide Web, at ``http://www.ftc.gov/os/
2003/06/index.htm.'' A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW., Washington, 
DC 20580, either in person or by calling (202) 326-2222.
    Public comments are invited, and may be filed with the Commission 
in either paper or electronic form. Comments filed in paper form should 
be directed to: FTC/Office of the Secretary, Room 159-H, 600 
Pennsylvania Avenue, NW., Washington, DC 20580. If a comment contains 
nonpublic information, it must be filed in paper form, and the first 
page of the document must be clearly labeled ``confidential.'' Comments 
that do not contain any nonpublic information may instead be filed in 
electronic form (in ASCII format, WordPerfect, or Microsoft Word) as 
part of or as an attachment to email messages directed to the following 
email box: [email protected]. Such comments will be considered 
by the Commission and will be available for inspection and copying at 
its principal office in accordance with Section 4.9(b)(6)(ii) of the 
Commission's Rules of Practice, 16 CFR 4.9(b)(6)(ii)).

Analysis of Proposed Consent Order to Aid Public Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted for 
public comment from Nestl[eacute] Holdings, Inc. (``Nestl[eacute]''), 
Dreyer's Grand Ice Cream Holdings, Inc., and Dreyer's Grand Ice Cream, 
Inc. (``Dreyer's'') (collectively, ``Proposed Respondents''), an 
Agreement Containing Consent Order (``Proposed Consent Agreement'') 
including the Decision and Order (``Proposed Order'') and the Order to 
Maintain Assets. The Proposed

[[Page 39565]]

Respondents have also reviewed a draft complaint. The Commission has 
now issued the complaint and Proposed Order. The Proposed Consent 
Agreement is designed to remedy the likely anticompetitive effects 
arising from the merger of Nestl[eacute] and Dreyer's.

II. The Parties and the Transaction

    Nestl[eacute] S.A., the world's largest food company, is 
headquartered in Switzerland. Nestl[eacute] Holdings, Inc., a wholly 
owned subsidiary of Nestl[eacute] S.A., manufactures, distributes, and 
sells the H[auml]agen-Dazs brand of superpremium ice cream, as well as 
such frozen novelty products as Drumstick, Bon Bons, IceScreamers, Dole 
Fruit Bars, Butterfinger ice cream bars, and the Nestl[eacute] Crunch 
Bar. Sales in 2001 of all Nestl[eacute] ice cream products totaled 
approximately $800 million.
    Dreyer's manufactures, distributes, and sells the Dreamery brand of 
superpremium ice cream, as well as the Godiva brand of superpremium ice 
cream under a long-term license with Godiva Chocolatier, Inc., and the 
Starbucks brand of superpremium ice cream products under a joint 
venture with Starbucks Corporation. Dreyer's also manufactures, 
distributes and sells such other products as the Dreyer's brand of 
premium ice cream in thirteen western states and Texas, the Edy's brand 
of premium ice cream throughout the remaining regions of the United 
States, and the Whole Fruit line of sorbet. Dreyer's total sales in 
2001 were approximately $1.4 billion. As a result of the transaction, 
Respondent Dreyer's Grand Ice Cream Holdings, Inc., will be the parent 
of Respondent Dreyer's Grand Ice Cream, Inc.
    On June 16, 2002, Nestl[eacute] and Dreyer's signed an Agreement 
and Plan of Merger and Contribution whereby Nestl[eacute] and Dreyer's 
would combine their ice cream businesses. The transaction will increase 
Nestl[eacute]'s interest in Dreyer's from 23 percent to approximately 
67 percent. At the time Nestl[eacute] and Dreyer's announced the 
merger, the transaction was valued at approximately $2.8 billion.

III. The Complaint

    The complaint alleges that the relevant line of commerce (i.e., the 
product market) in which to analyze the acquisition is the sale of 
superpremium ice cream to the retail channel. Superpremium ice cream 
contains more butterfat and less air than premium or economy ice 
creams. Therefore, superpremium ice cream is higher in fat than the 
other two segments of ice cream. Ice cream also is differentiated on 
the quality of ingredients, with superpremium containing more expensive 
and higher quality inputs. Finally, superpremium ice cream is priced 
significantly higher than premium or economy ice creams. Superpremium 
ice cream manufacturers set their prices based on various factors, 
including the price of other superpremium ice creams. When Dreyer's 
expanded into superpremium ice cream in 1999, the price of other 
superpremium ice creams declined.
    The complaint alleges that the relevant geographic market in which 
there are competitive problems related to the acquisition is the United 
States. The superpremium ice cream market is highly concentrated when 
measured by the Herfindahl-Hirschman Index (commonly referred to as the 
``HHI'').\1\ The post-acquisition HHI would increase over 1,600 points, 
from 3,501 to 4,897 and the merging parties would have a combined 
market share of over 55%.
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    \1\ The HHI is a measurement of market concentration calculated 
by summing the squares of the individual market shares of all 
participants.
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    The complaint further alleges that entry would not be likely or 
sufficient to prevent anticompetitive effects in the United States. It 
would be very difficult for an entrant with a new or unknown brand to 
successfully take a sufficient amount of sales from superpremium ice 
cream incumbents to remain profitable. Furthermore, a superpremium ice 
cream entrant would face great difficulty developing a nationwide 
Direct Store Delivery (``DSD'') distribution network comparable to 
either of the merging parties.
    The complaint also alleges that Nestl[eacute]'s acquisition of 
Dreyer's, if consummated, may substantially lessen competition in the 
relevant line of commerce in the relevant market in violation of 
section 7 of the Clayton Act, as amended, 15 U.S.C. 45, by eliminating 
direct competition between Nestl[eacute] and Dreyer's; by eliminating 
Dreyer's as an important competitive constraint in the relevant market; 
by increasing the likelihood that the combined Nestl[eacute]/Dreyer's 
will unilaterally exercise market power; and by increasing the 
likelihood of, or facilitation of, collusion or coordinated interaction 
in the United States.

IV. The Terms of the Agreement Containing Consent Order

    The Proposed Consent Agreement will remedy the Commission's 
competitive concerns about the proposed acquisition. Proposed Consent 
Agreement Paragraph II.A. requires that Proposed Respondents divest: 
(1) All assets, businesses, and goodwill related to the manufacture, 
marketing, or sale of the Dreamery, Godiva and Whole Fruit brands, and 
(2) all assets related to Nestl[eacute]'s distribution of frozen 
dessert products. These assets, collectively referred to as the 
``assets to be divested,'' will be divested to CoolBrands 
International, Inc. (``CoolBrands'') no later than ten (10) days after 
Nestl[eacute] acquires Dreyer's. Proposed Respondents are not obligated 
to divest those Nestl[eacute] distribution assets that CoolBrands 
elects not to acquire. Proposed Respondents may license back from 
CoolBrands the rights to use the ``Whole Fruit'' name for fruit bars 
for a period not to exceed one (1) year.
    The Proposed Consent Agreement requires Proposed Respondents to 
divest Nestl[eacute]'s distribution assets to CoolBrands because 
virtually all superpremium ice cream currently is sold through DSD. 
This means that the distributor physically places the product on 
retailers' shelves, and the retailer does not purchase the product 
until after it is actually delivered to the store.
    Paragraph II.B. provides that if the Commission determines that 
CoolBrands is not an acceptable purchaser of the assets to be divested, 
or if the divestiture is not accomplished in an acceptable manner, 
Proposed Respondents shall immediately rescind the sale of the assets 
to be divested to CoolBrands and divest those assets at no minimum 
price to another purchaser that receives the prior approval of the 
Commission within 120 days of the date the Order becomes final.
    Paragraph II.C. of the Proposed Consent Agreement requires that, 
prior to divesting, Proposed Respondents obtain the consent of Godiva 
Chocolatier, Inc. (``Godiva Chocolatier''), to the assignment of the 
license agreement between Godiva Chocolatier and Dreyer's for the 
manufacture, distribution and sale of Godiva ice cream to the acquirer.
    Paragraph II.D. of the Proposed Consent Agreement requires Proposed 
Respondents to maintain the viability and marketability of the assets 
to be divested. The proposed respondents are also required to maintain 
the assets pursuant to the Order to Maintain Assets. Paragraph II.E. 
requires that for a period not to exceed one (1) year from the date 
that CoolBrands obtains the assets to be divested, Proposed Respondents 
will supply CoolBrands with the types and quantities of Dreamery, 
Godiva, and Whole Fruit products that CoolBrands requests at a price no 
greater than Proposed Respondents' production costs.

[[Page 39566]]

Paragraph II.F. further provides that at the request of CoolBrands, 
Proposed Respondents will distribute Dreamery, Godiva, and Whole Fruit 
for CoolBrands for a period not to exceed one (1) year in any areas of 
the U.S. where Dreyer's previously distributed these products. 
Paragraph II.G. requires Proposed Respondents to provide technical 
assistance to CoolBrands, as needed, for a period not to exceed one (1) 
year. Paragraph II.H. requires Proposed Respondents to provide 
administrative services to CoolBrands, as needed, for a period not to 
exceed one (1) year.
    Paragraph II.I. requires that, for a period not to exceed five (5) 
years, Proposed Respondents will supply sufficient volumes of 
additional ice cream products (e.g., premium ice creams or novelty 
products) to CoolBrands to enable CoolBrands to profitably distribute 
Dreamery, Godiva, and Whole Fruit superpremium products. This provision 
was included in the Proposed Consent Agreement because Nestl[eacute]'s 
DSD system handles more products than the Dreamery, Godiva, and Whole 
Fruit superpremium products that CoolBrands is acquiring, and the 
provision will enable CoolBrands to operate profitably for a limited 
term while CoolBrands attempts to attract independent distribution 
business from unaffiliated third parties.
    Paragraph II.J. requires that Proposed Respondents modify the joint 
venture agreement between Dreyer's and Starbucks to allow Starbucks to 
manufacture, distribute, and sell the Starbucks brand of ice cream and 
other ice cream products themselves or in collaboration with other 
third-parties. Under the existing joint venture agreement between 
Dreyer's and Starbucks, Dreyer's is the sole manufacturer, distributor 
and salesman for the Starbucks brand of superpremium ice cream.
    Paragraph III limits the ways in which Proposed Respondents may 
utilize an information it acquires with respect to CoolBrands.
    Paragraph IV of the Proposed Consent Agreement allows the 
Commission to appoint an Interim Monitor to monitor compliance with the 
terms of this Proposed Order. The Proposed Consent Agreement provides 
the Monitor Trustee with the power and authority to monitor the 
Proposed Respondents' compliance with the terms of the Proposed Consent 
Agreement, and full and complete access to personnel, books, records, 
documents, and facilities of the Proposed Respondents to fulfill that 
responsibility. In addition, the Interim Monitor may request any other 
relevant information that relates to the Proposed Respondents' 
obligations under the Proposed Consent Agreement. The Proposed Consent 
Agreement precludes Proposed Respondents from taking any action to 
interfere with or impede the Interim Monitor's ability to perform his 
or her responsibilities or to monitor compliance with the Proposed 
Consent Agreement.
    The Interim Monitor may hire such consultants, accountants, 
attorneys, and other assistants as are reasonably necessary to carry 
out the Interim Monitor's duties and responsibilities. The Proposed 
Consent Agreement requires the Proposed Respondents to bear the cost 
and expense of hiring these assistants.
    Paragraph V.A. of the Proposed Consent Agreement authorizes the 
Commission to appoint a divestiture trustee in the event Nestl[eacute] 
fails to divest the assets as required by the Proposed Consent 
Agreement.
    Paragraph VI. of the Proposed Consent Agreement provides that 
Proposed Respondents allow, Mars, Incorporated (``Mars''), to terminate 
its agreements and joint ventures with Dreyer's. Mars' agreements with 
Dreyer's involved Dreyer's manufacturing and distributing ice cream 
products for Mars. Mars planned to have Dreyer's manufacture and 
distribute a new superpremium ice cream for Mars. Mars will now be free 
to enter this market on their own or as part of a new joint venture, or 
other arrangement, with a third party.
    Paragraph VII. of the Proposed Consent Agreement requires Proposed 
Respondents to permit Unilever's Ben & Jerry's subsidiary to terminate 
its distribution agreement with Dreyer's by December 31, 2003. The 
existing distribution agreement between Dreyer's & Ben & Jerry's 
required Ben & Jerry's to give Dreyer's approximately nine (9) months 
notice prior to terminating distribution. This provision will reduce 
the notice period that Ben & Jerry's must provide.
    Paragraph VIII. through XII. detail certain general provisions. 
Paragraph VIII. prohibits Proposed Respondents from acquiring, without 
providing the Commission with prior notice, any ownership or other 
interest in Dreamery, Godiva, or Starbucks superpremium ice cream 
brands or in any of the Nestl[eacute] distribution assets that 
CoolBrands is acquiring, or other DSD distribution assets. These are 
the assets that Proposed Respondents are divesting. The provisions 
regarding prior notice are consistent with the terms used in prior 
orders. The Proposed Consent Agreement does not restrict the Proposed 
Respondents from developing any new superpremium brands.
    Paragraph IX. requires the Proposed Respondents to file compliance 
reports with the Commission, the first of which is due within thirty 
(30) days of the date on which the Proposed Consent Agreement becomes 
final, and every sixty (60) days thereafter until the divestitures are 
completed. Paragraph X. provides for notification to the Commission in 
the event of any changes in the corporate Proposed Respondents. 
Paragraph XI. requires Proposed Respondents to grant access to any 
authorized Commission representative for the purpose of determining or 
securing compliance with the Proposed Consent Agreement. Paragraph XII. 
terminates the Proposed Consent Agreement after ten (10) years from the 
date the Proposed Order becomes final.

V. Opportunity for Public Comment

    The Proposed Consent Agreement has been placed on the public record 
for thirty (30) days for receipt of comments by interested persons. 
Comments received during this period will become part of the public 
record. After thirty (30) days, the Commission will again review the 
Proposed Consent Agreement and the comments received and will decide 
whether it should withdraw from the agreement or make the Proposed 
Consent Agreement final.
    By accepting the Proposed Consent Agreement 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, 
including the proposed sale of assets to CoolBrands, in order to aid 
the Commission in its determination of whether to make the Proposed 
Consent Agreement final. This analysis is not intended to constitute an 
official interpretation of the Proposed Consent Agreement nor is it 
intended to modify the terms of the Proposed Consent Agreement in any 
way.

    By direction of the Commission.
Donald S. Clark,
Secretary.

Concurring Statement of Commissioner Sheila F. Anthony Nestl[eacute] 
S.A./Dreyer's Grand Ice Cream Holdings, Inc./Dreyer's Grand Ice Cream, 
Inc.

    The Federal Trade Commission has voted to accept a proposed consent 
agreement designed to remedy the likely anticompetitive effects arising 
from the merger of Nestl[eacute] and Dreyer's. While I concur in the 
Commission's decision, I

[[Page 39567]]

write separately to highlight several lingering concerns.
    As explained in greater detail in the Analysis to Aid Public 
Comment, to remedy overlaps in the ``superpremium'' ice cream 
businesses of Nestl[eacute] and Dreyer's, the parties will be required 
to divest a package of assets--including Dreyer's Dreamery ice cream 
and Whole Fruit sorbet brands, Dreyer's license to the Godiva brand,\1\ 
and Nestl[eacute]'s frozen dessert Direct Store Delivery (DSD) 
distribution network--to CoolBrands International, Inc. However, 
Nestl[eacute]'s DSD system currently handles more product volume than 
that represented by the products CoolBrands will acquire. Therefore, 
the proposed consent agreement also requires the merged competitors, 
for a period of five years, to supply CoolBrands with sufficient 
volumes of additional ice cream products to enable it profitably to 
operate the distribution system.
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    \1\ The parties will not be required to divest Dreyer's license 
to the Starbucks brand. The combined Nestl[eacute]/Dreyer's will 
retain the existing Starbucks ice cream business. However, the 
current joint venture between Dreyer's and Starbucks will be 
modified to make it a non-exclusive joint venture, thereby allowing 
Starbucks (if it so chooses) to conduct ice cream business apart 
from the joint venture.
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    CoolBrands is a qualified buyer whose management team has 
significant experience in the ice cream business. With respect to the 
acquisition of the three product brands, CoolBrands has existing 
manufacturing capacity and expertise, which should facilitate a smooth 
transition on the manufacturing side. With respect to the acquisition 
of Nestl[eacute]'s DSD distribution assets, CoolBrands already has some 
DSD assets and business of its own, and appears to understand how to 
operate a DSD network. This is particularly important, because DSD is 
the method currently used to sell virtually all superpremium ice cream 
in the United States. In sum, CoolBrands seems well-positioned to make 
the most of the product and distribution assets it will acquire.
    However, the ``mix-and-match'' nature of the divestiture package is 
far from ideal, especially when compared with the assets to be retained 
by the combined Nestl[eacute]/Dreyer's. Post-merger, Nestl[eacute]/
Dreyer's will own Nestl[eacute]'s dominant H[auml]agen-Dazs 
superpremium ice cream brand as well as Dreyer's superior DSD 
distribution system. CoolBrands, on the other hand, will end up with 
one company's less-popular brands and the other company's weaker DSD 
distribution system.
    As Commission staff recently has acknowledged, and as I have 
maintained throughout my tenure as Commissioner, the divestiture of a 
complete, autonomous, ongoing business unit minimizes the risks of 
anticompetitive harm because ``such a remedy requires the Commission 
and the Bureau to make the fewest assumptions and to draw the fewest 
conclusions about the market and its participants and about the 
viability and competitiveness of the proposed package of assets.'' \2\ 
In this case, it is a foregone conclusion that the ``mix-and-match'' 
product and distribution assets to be acquired by CoolBrands are not a 
perfect fit for each other. The proposed consent agreement explicitly 
recognizes that, absent a short-term commitment of product volume from 
competitor Nestl[eacute]/Dreyer's, CoolBrands would have insufficient 
volume to operate the Nestl[eacute] DSD distribution system profitably. 
The resulting volume commitments are a more regulatory form of relief 
than I ordinarily like to see, in large part because they effectively 
will require the Commission to supervise the superpremium ice cream 
marketplace for the next five years.
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    \2\ Bureau of Competition, Federal Trade Commission, Statement 
of the Federal Trade Commission's Bureau of Competition on 
Negotiating Merger Remedies (Apr. 2, 2003), available at http://www.ftc.gov/bc/bestpractices/bestpractices030401.htm.
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    Moreover, there is no guarantee that the CoolBrands DSD 
distribution system will, in fact, be profitable once the volume 
commitments terminate. In the meantime, all of the risk of failure is 
borne by CoolBrands and, ultimately, consumers--not by the parties. 
Five years from now, Nestl[eacute]/Dreyer's almost certainly will 
retain its leading H[auml]agen-Dazs brand, an excellent DSD 
distribution system, and plenty of volume to drive through that system. 
In contrast, if CoolBrands finds itself unable to attract additional 
DSD product volume from third parties, the company may suffer from 
decreased profitability. Depending upon the strategic choices 
CoolBrands might be forced to make, consumers could be faced with 
fewer, higher-priced superpremium offerings on supermarket shelves.
    Every settlement has elements of uncertainty and risk. Our job is 
to determine whether the risk is small enough to be acceptable. I have 
voted to accept the proposed settlement based upon staff's extensive 
investigation of the ice cream industry, as well as CoolBrands' track 
record. CoolBrands appears capable of attracting enough independent 
distribution business to fill its excess DSD capacity over time. In 
addition, CoolBrands always has the option of scaling down its DSD 
system to more closely match available volume and maintain 
profitability. Therefore, based upon the evidence available to me at 
this time, I am reasonably comfortable that things will work out as 
intended, and that the competitive status quo can be attained.

[FR Doc. 03-16700 Filed 7-1-03; 8:45 am]
BILLING CODE 6750-01-P