The D.C. Circuit ruled 4/27/01 that the federal district court improperly failed to grant an FTC motion for a preliminary injunction against the Heinz/Beech-Nut merger in the baby-food industry. It ruled that the equities favor the status quo until the case can be fully tried, and that the FTC showed a substantial likelihood of success on the merits, given the concentration in the market and the high barriers to entry. It rejected rebuttal arguments about a lack of competition between the companies, the extent to which the merger would enhance efficiencies, the need for innovation, and the existence of structural barriers to collusion.The NAM filed an amicus brief in this case on 12/29/00, supporting the merger of Heinz and Beech-Nut. The companies are the second and the third largest manufacturers in the jarred baby food industry respectively, behind industry leader Gerber.
The district court denied the Federal Trade Commission’s ("FTC") request for a preliminary injunction of the merger, even though it found that the resulting high market concentration could amount to a prima facie case under Section 7 of the Clayton Act, which prohibits mergers that substantially lessen competition. The concern was rebutted by the potential for merger-related efficiency gains that could allow the newly combined entity to more effectively compete with Gerber, leading to more intense competition, not less. Thus, the merger was more like a shift from one to two companies competing in the industry, rather than from three to two.
The FTC appealed to the U.S. Court of Appeals for the District of Columbia Circuit, arguing that high market concentration, combined with steep barriers to entry and lack of a failing firm, is dispositive for purposes of a preliminary injunction, regardless of other factors. Heinz and Beech-Nut countered that the totality of the circumstances should be evaluated, including market realities such as efficiency gains. The NAM supported the latter position, as merger-related efficiencies can have a positive economic impact by enabling manufacturers to improve existing product offerings and introduce innovative and higher-quality products at competitive prices.