Update: January 13, 2020. TreeHouse Foods and Post Holdings agreed to terminate their agreement that would have seen the private label food company sell its ready-to-eat cereal business to Post. TreeHouse said it will continue to try to sell the business.
- The Federal Trade Commission is challenging Post Holdings' $110 million acquisition of TreeHouse Foods' private label ready-to-eat cereal business because of antitrust concerns.
- In a statement, the FTC said Post and TreeHouse are two of only three significant manufacturers and distributors of private label ready-to-eat cereal in the U.S. The acquisition, the FTC said, would give Post more than a 60% share of a food segment that is "already highly concentrated ... and eliminate the vigorous competition between them." As a result, a purchase by Post "would remove the competitive pressure that has driven higher quality and lower priced cereals for American families."
- “We are disappointed and perplexed by the FTC’s decision to attempt to block a combination that produces more effective competition in the $9 billion ready-to-eat cereal category," Rob Vitale, Post’s president and CEO, said in a press release. "We will work with TreeHouse to develop an appropriate course of action.”
Post and TreeHouse first announced the sale of the private label maker's ready-to-eat cereal business in May, but it has been beset with concerns from the FTC since then. The agency said in July it was taking a closer look at the deal, a move that ultimately delayed a sale that was expected to happen before the end of September.
Then came word in December from the FTC that it would try the case in its own court system, and was prepared to go to federal court to prevent the companies from completing the deal if necessary. It a statement from the FTC, the regulatory agency expressed concern that a deal between Post and TreeHouse would eliminate necessary competition and by concentrating much of the private label ready-to-eat cereal business into the hands of just two manufacturers.
“Households nationwide benefit from the robust competition between Post and TreeHouse, and a merger between these companies would likely lead to higher prices and reduced quality of the store-brand cereals that consumers enjoy today,” Ian Conner, deputy director of the FTC’s bureau of competition, said in a statement.
The regulatory agency had set the administrative trial on the deal for May 2020.
As consumers turn to more private label products, retailers have been carrying more of them on their shelves. Even though consumers are eating less cold cereal, it remains a lucrative market with annual sales of nearly $8.5 billion, down 6% from five years ago, according to IRI data cited by The Wall Street Journal.
The FTC has previously objected to deals in the food space because of concerns they violated antitrust law by limiting competition. Last year, the FTC opposed J.M. Smucker's purchase of the Wesson oil brand from Conagra Brands. At the time, the FTC said the purchase would give Smucker, which already owned Crisco, 70% or more of the total market for branded canola and vegetable oils at U.S. grocery stores and other retailers. Conagra later sold Wesson to Richardson International, a Canadian agribusiness company, for an undisclosed amount.
For TreeHouse, this marks a setback by the private label giant as it works to refocus its portfolio under CEO Steve Oakland. In August, TreeHouse completed the sale of its snacks division to private investment firm Atlas Holdings for $90 million.
"We are in the process of reviewing our next steps," Oakland said in the release.
While Post is best known for its brand name cereals in U.S. supermarkets, the St. Louis-based company has been gradually adding to its private brands business during the last two decades. It has grown to include pasta, cereal, granola and peanut butter.
As private label demand continues to grow, cereal remains one of the beneficiaries even as overall demand wanes for the product. But for the FTC, too much private label cereal in the hands of fewer players appears to be an outcome they are aggressively prepared to fight.