DOJ Settles With Grupo Bimbo on Sara Lee Acquisition

On October 21, 2011, the DOJ Antitrust Division (“DOJ”) filed a civil lawsuit in U.S. District Court in Washington, D.C. to prevent Grupo Bimbo S.A.B. de C.V. and BBU Inc. (collectively, “BBU”) from acquiring Sara Lee Corporation's (“Sara Lee”) North American Fresh Bakery business. The DOJ simultaneously filed a Proposed Final Judgment, reflecting a settlement with BBU and Sara Lee upon which they agreed to divestitures of certain sliced bread brands and associated assets in select areas where the two companies compete head-to-head in order to proceed with the acquisition. Such divestitures would resolve competitive concerns alleged in the suit.
According to the DOJ, BBU and Sara Lee compete aggressively in the sale of sliced bread, which they sell under a variety of well-known brands. The DOJ alleged in the complaint that the acquisition would eliminate head-to-head competition, and increase concentration among sellers of sliced bread, inevitably leading to increased prices for consumers. The DOJ reasons that in the event of raised prices, a significant portion of lost sales from either BBU or Sara Lee would be diverted to the other. Therefore, an acquisition of Sara Lee would create an incentive for BBU to raise prices among the combined BBU and Sara Lee brands. The DOJ believes that by separating ownership of several closely competing brands, the divestitures will prevent or significantly reduce the incentive to raise prices. Moreover, the DOJ contends an absence of countervailing factors such as new entrants or responses from existing competitors that would offset the increase in market concentration, due to significant barriers to entry. The DOJ claims that the amount of time and the high cost of building a brand in the sliced bread market is enough to prevent new entrants from competing with a newly merged company.

BBU and Sara Lee are, respectively, the first and third largest bakers and sellers of sliced fresh bread in the United States. They are among the four largest sellers in the 8 relevant geographic markets named in the Department's complaint. In 2009, BBU, which owns Bimbo, Arnold, Brownberry, Oroweat, Mrs. Baird's, Stroehmann, Freihofer, and Weber's brands, totaled around $3.9 billion in sales. Aside from the Sarah Lee Brand Family, Sarah Lee also owns EarthGrains, Milton's, Mother's, Grandma Sycamore's, Rainbo, San Luis Sourdough, Old Home, and Holsom, and totaled $2.1 billion in sales in 2010. In its complaint, the DOJ estimates that in the event of a successful acquisition, BBU would have a dominant share at the following percentages in the following 8 geographic regions: 63% in San Diego, 59% in Sacramento, 58% in Los Angeles, 56% in San Francisco, 52% in Omaha, 53% in Oklahoma City, 52% in Kansas City, and 56% in Harrisburg/Scranton.

Under the Proposed Final Judgment, the Defendants must divest their licenses to use certain brands and associated assets to acquirers that are capable of competing in the manufacture and sale of sliced bread in each geographic market. In the California geographic markets, the Defendants must divest the “Sara Lee Family” brands and EarthGrains; in Harrisburg/Scranton, the Defendants must divest Holsum and Milano brands; in Kansas City they must divest Earthgrains and Mrs. Baird's; in Omaha they must divest EarthGrains and Healthy Choice; and in Oklahoma City they must divest the EarthGrains brand.

The sale of Sara Lee's North American fresh bakery business to BBU was concluded on November 7, 2011 for $709 million.

Melody Cheung
(202) 589-1834
mcheung@dbmlawgroup.com