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Nestle-Dreyer's Deal on Thin Ice

FTC opposes proposed merger, citing less choice, higher prices. Firms still hopeful about transaction.

March 05, 2003|Melinda Fulmer | Times Staff Writer

Nestle's proposed $2.8-billion acquisition of Dreyer's Grand Ice Cream Inc. hit a roadblock Tuesday as U.S. antitrust officials said they opposed the deal on grounds that it would lead to less competition and higher prices for gourmet ice cream.

The Federal Trade Commission's announcement, which came after the markets closed, sent Oakland-based Dreyer's shares tumbling nearly 30% in after-hours trading.

"This merger, as structured, would likely raise prices and reduce choice for consumers," said Joe Simons, director of the FTC's bureau of competition, after a 5-0 vote by the agency to authorize a preliminary injunction that would temporarily block the deal.

The FTC's action followed by a few hours an announcement by Nestle that it would sell Dreyer's Dreamery and Whole Fruit brands to Eskimo pie maker CoolBrands International Inc. in an effort to satisfy regulators, who had previously raised concerns that the companies' combined 60% share of the super-premium ice cream market would harm consumers.

As of Tuesday evening, no litigation had been filed by the agency. But the unanimous vote authorizing the injunction gives it leverage to negotiate additional concessions from Nestle.

"We are still talking to them about their proposal," Simons said. "It may still result in higher prices. That's something we have yet to determine."

There are only three primary makers of super-premium ice cream, including Unilever of the Netherlands, which owns the Ben & Jerry's brand. Together with Nestle's Haagen-Dazs brand and Dreyer's deluxe brands, the three companies account for 98% of sales in that segment of the market.

Yet that figure does not include the effect of the Nestle deal with Toronto-based CoolBrands. Simons acknowledged that the FTC had not yet calculated how the sale to CoolBrands would affect market share of super-premium ice cream in the United States.

Terms of the CoolBrands transaction were not disclosed.

Dreyer's said late Tuesday that it and Nestle had not abandoned the acquisition and that they were continuing discussions with the FTC about the potential divestiture of assets.

"Dreyer's and Nestle remain firmly committed to their transaction and confident that they will be able to consummate it," the two companies said in a joint statement.

Vevey, Switzerland-based Nestle, which has its U.S. headquarters in Glendale, is trying to challenge Unilever for leadership in the $25-billion global ice cream market.

Acquiring Dreyer's, the biggest U.S. ice cream maker with $1.4 billion in annual sales, would give Nestle an 18% share of the overall ice cream market in the U.S. behind Unilever's 19%.

Nestle already owns nearly a quarter of Dreyer's, andif their deal goes through, its stake would increase to two-thirds.

Dreyer's shares, which closed at $74.58, up $1.63, in regular Nasdaq Stock Market trading, traded as low as $54.40 in after-hours trading.

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