The closing of Cargill and Continental Grain's $4.53 billion planned purchase of poultry giant Sanderson Farms seemed promising when the deal was first announced last summer. Once Sanderson was combined with Continental Grain subsidiary Wayne Farms to create a new privately held company, it would become the third-largest U.S. poultry processor and employ over 25,000 people, Wayne Farms CEO Clint Rivers told Food Dive this past November.
“This is an opportunity that doesn’t come along very often,” he said at the time.
But while the companies initially expected the transaction to close in December 2021 or early 2022, the timeline is now uncertain, as they continue to await regulatory approval from the Federal Trade Commission. In December, Sanderson Farms revealed in a Securities and Exchange filing that the Department of Justice, which enforces federal antitrust laws, had made a second request for information in its review of the deal.
And in February, a group of lawmakers including Sens. Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.) sent a letter to the DOJ raising “significant antitrust concerns” about the planned merger and its potential to increase the major poultry companies’ monopoly power and ultimately consumer prices on chicken. They urged the DOJ to do a thorough review of the deal.
The scrutiny comes as President Biden has called out market concentration among all large meat producers, including the "Big Four" poultry processors — Tyson, JBS, Perdue and Sanderson Farms — which combined control 54% of the poultry market.
As of early March, the deal was thought to be unlikely to pass without changes to the terms of the purchase agreement, according to a report by CNBC.
In a response to Food Dive, Cargill and Continental Grain said they are continuing to work with the DOJ in its review, and believe the passage of the transaction “will ensure there is a strong and competitive American food supply.” Sanderson Farms did not respond to a request for comment.
But as approval of the merger stalls, experts point to dynamics of the deal that could complicate its passage, and the potential for continued regulatory scrutiny on future M&A deals in the meat industry.
The inability so far to close the deal suggests that there could be significant legal hurdles for meat and poultry giants aiming to merge going forward given the Biden administration’s tough stance on market concentration in the industry. At the same time, the record profits companies are seeing amid the rapid increase in food prices could intensify opposition to further consolidation.
Because the merger would bring the market share of the top four chicken providers from 54% to 60% if it closes, “That seems like a consolidated industry,” according to Michael Carrier, a professor of antitrust law at Rutgers Law School.
John Lopatka, professor of antitrust law at Penn State Law, said that the DOJ views mergers of this caliber by their type. A “horizontal merger” involves one company acquiring a competitor, while a “vertical merger” means the combination of two companies that aren't direct competitors but that both operate in the same supply chain.
According to Lopatka, in merger and acquisition cases such as Sanderson and Wayne, regulators will try to define which markets they serve, and whether there is overlap between the companies’ functions.
In this case, the deal amounts to a vertical merger because Cargill produces chicken feed while Sanderson and Wayne raise poultry for consumption. This could hinder the merger approval, Lopatka said, if regulators see it as problematic for a chicken feed provider to then have market share over competitors in the poultry market.
“Most of those arguments center on the idea that in a case like this, the supplier will disadvantage downstream rivals,” Lopatka said, referring to competitors of the potential new company.
Regulators at the DOJ could be concerned that Cargill controls half of the chicken feed market, and that it could charge rivals higher prices on these inputs, according to Carrier. He said that Jonathan Kanter, assistant attorney general for the DOJ's Antitrust Division, has an incentive to pursue this type of scrutiny of the supply chain.
“Historically, the agencies have not focused on this, but in the last couple years there has been a greater focus,” Carrier said. “Kanter has said that vertical mergers should be on the table.”
In the event that regulators decide that the merger is anticompetitive and the DOJ sued the companies to stop the merger, it would be up to Cargill, Continental Grain and Sanderson Farms to prove that despite the apparent reduction in competition, there would be efficiencies like cost-savings for consumers, Lopatka said.
While discussing the proposed merger last fall, executives pointed to the potential synergies between the two businesses, including their sharing of best practices to save money and increase production. This would ultimately benefit family farmers that supply Sanderson and Wayne, they argued.
But the broiler chicken industry’s history of anticompetitive behavior complicates the optics of the deal, according to Carrier. Charges of price fixing among the biggest producers have roiled the industry for years, leading to significant settlements and even some criminal charges. Meanwhile, the DOJ is moving forward with its prosecution of the “Big Four” producers in a price-fixing case for an unprecedented third time.
Congress is also concerned about the appearance of a lack of competition in the larger meat space. At a Congressional hearing last week, lawmakers grilled the CEOs of four of the largest meatpackers about why they are amassing record profits during a time of high food prices.
It remains to be seen whether the merger will be approved by regulators even if the agreement terms are changed, given the Biden administration's specific anti-consolidation stance on the meat industry, according to Lopatka. A conventional merger analysis under the Obama or Trump administrations would have been more likely to proceed, he said, but this has changed under the Biden administration.
“I think both government agencies are now ideologically driven. Whenever there’s a new administration, there could be a change of emphasis,” Lopatka said. “The antitrust enforcers that have been appointed are unabashedly driven by political ideology.”
Some are supportive of Biden's stricter antitrust stance. The administration's vigorous approach to taking on corporate concentration by a few companies provides a pathway to a more innovative, affordable and democratic market, according to Niko Lusiani, director of corporate power at the Roosevelt Institute, a progressive think tank.
"This is the role the Federal government should be playing: not cow-towing to the corporate powers-that-be, but standing up on behalf of the public as a counterweight to concentrated private power," Lusiani said.
The scrutiny that the Sanderson and Wayne merger is receiving also could cast a wider shadow over other industry deals, experts say. As antitrust enforcement has intensified, the Biden DOJ is acting out of a desire to extend enforcement into different sectors, such as food.
“In the past, there's been a focus on just a few areas, for example the pharmaceutical industry, and in the last five years Big Tech,” Carrier said. “I think that the Biden administration will look to make a statement in other areas."
Christopher Doering contributed to this story.