General Mills gets OK to buy Chex brands Antitrust regulators back deal after noncompete agreement is dropped

December 27, 1996|By BLOOMBERG BUSINESS NEWS

WASHINGTON -- General Mills Inc.'s purchase of Chex cereal brands from Ralcorp Holdings Inc. got clearance yesterday from U.S. antitrust authorities, who moved to promote price competition for Chex, the key ingredient in a popular snack.

General Mills, America's second-largest cereal maker, agreed to drop noncompete restrictions on the sale of private-label versions of Chex as a condition of Federal Trade Commission antitrust approval for its $570 million purchase of Chex and other products from Ralcorp.

Without an agreement to protect generic competition, the FTC said, General Mills' acquisition agreement could have damaged that competition and resulted in increased prices for Ralcorp's flagship Chex. The waffle-shaped cereal, mixed with pretzels, nuts and spices, is a staple of American entertaining.

St. Louis-based Ralcorp's shares jumped on news of the FTC agreement, rising $1.125 to $20 on trading of 598,000 shares -- more than four times Ralcorp's average daily trading volume for the previous six months. General Mills shares lost 12.5 cents to $65.50.

After the agreement was announced, Ralcorp said shareholders would meet Jan. 31 to vote on approval of the sale.

"We are confident that our shareholders will approve the merger, which will allow us to realize, tax-free, $570 million in shareholder value," said Joe R. Micheletto, Ralcorp's chief executive. "The General Mills transaction will also allow us to greatly improve Ralcorp's balance sheet, through significant reduction in our debt."

Minneapolis-based General Mills had no immediate comment on the settlement.

In the cereal transaction, the FTC objected to noncompete clauses in Ralcorp's original sales agreement with General Mills, which restricted Ralcorp's right to make generic versions of Chex, the company's top brand, with about 2.1 percent of the U.S. cereal market.

General Mills agreed to drop a provision that barred Ralcorp from selling a private-label product competing with Chex for the first 18 months after the sale was completed. General Mills also eliminated a restriction that required Ralcorp to get approval from General Mills before transferring to a third party the rights to private-label versions of Chex cereals, the FTC said.

Those conditions, FTC Chairman Robert Pitofsky said, "are designed to eliminate fully and immediately any barriers" to Ralcorp's "competing aggressively in promoting private label products."

Ralcorp's Farrell said the company had not yet made a final decision about producing generic versions of Chex, but called it a "strong likelihood."

The FTC voted 3-2 to approve the settlement.

Ralcorp announced the sale of its brand-name cereal and snack businesses in August. Along with Chex, General Mills is acquiring exclusive rights to the Cookie Crisp and Almond Delight cereal brands, pre-packaged versions of Chex Mix snacks, and a manufacturing plant in Cincinnati.

General Mills, which makes Cheerios, Wheaties and other popular brands, will boost its position as America's No. 2 manufacturer of brand-name cereal, behind Kellogg Co.

Ralcorp, which was spun off from Ralston-Purina Group in 1994, will continue to produce private-label cereals, which are identical or similar versions of brand-name products, sold under a store's own name. Ralcorp is the country's leading private-label cereal producer.

Antitrust approval for the sale of its brand-name cereal business removes the first of two antitrust hurdles facing Ralcorp's recent moves to concentrate its business on private-label cereals, crackers, cookies, and Beech-Nut brand baby food.

The Justice Department, the federal government's other antitrust agency, is reviewing Ralcorp's plan to sell three Colorado ski resorts -- Breckenridge, Keystone and Arapahoe Basin -- to Vail Resorts Inc., which plans to go public after the transaction is completed.

Ralcorp spokesman Patrick Farrell said the Justice Department is "scrutinizing" the $310 million resort sale "very closely."

General Mills agreed to provide Ralcorp shareholders with General Mills stock worth between $330 million and $390 million, based on the average price of General Mills common stock during the 10 days before the transaction is completed. General Mills will assume between $210 million and $240 million in Ralcorp's debt.

Ralcorp shareholders also will get shares in a new spin-off. That new company, which will continue to be known as Ralcorp, will market private-label cereal, cookies, crackers and Beech-Nut baby food.

Pub Date: 12/27/96

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