D.O.J.: Bimbo divestiture should proceed as planned
Feb. 12, 2013
by Eric Schroeder
WASHINGTON — A motion calling for a delay in Flowers Foods, Inc.’s pending acquisition of the Sara Lee and Earthgrain brands in California from Grupo Bimbo S.A.B. de C.V. should be denied, according to a Feb. 8 filing by the Department of Justice. The U.S. District Court for the District of Columbia is expected to rule on the motion tomorrow.
The transaction, which would give Flowers Foods perpetual, exclusive and royalty-free licenses to the Sara Lee and Earthgrains brands for sliced bread, buns and rolls in California, a business with annual sales of about $134 million, was approved by the D.O.J. in October 2012.
In Grupo Bimbo’s Jan. 29 motion to delay the transaction, the company cited a change in the competitive landscape of the U.S. bread industry in recent weeks, specifically, Flowers’ selection as the stalking horse bidder for the majority of the assets related to Hostess’ bread business, including the Wonder, Home Pride, Merita, Butternut and Nature’s Pride brands.
But the D.O.J. said the changed circumstance does not alter the original antitrust issues that were raised when Grupo Bimbo agreed to acquire the fresh bakery business of Sara Lee in November 2010. In October 2011, Grupo Bimbo reached an agreement with the Department of Justice under which the company would divest certain brands and related assets and routes in specified markets. That mandate has not changed, the D.O.J. said.
“Delaying (the) divestiture delays that remedy, which should have been implemented a year ago, delays the date on which Flowers can start operating and investing in the California assets, and threatens to leave the violation in California markets that gave rise to this action unremedied altogether,” the D.O.J. said. “While Bimbo claims it ‘does not seek more drastic or permanent relief at this time,’ the only reason to delay the divestiture of the California assets to Flowers would be if the court might ultimately order that Bimbo not divest those assets to Flowers. But Flowers is the only potential, viable purchaser, as Bimbo’s and the trustee’s efforts demonstrate, so such an order would result in the divestiture not occurring at all. The result would be that the violation alleged in the complaint — the loss of competition in the California sliced bread markets — would not be remedied.”
The D.O.J. said the potential Flowers-Hostess transaction “is beyond the scope of this proceeding,” adding that Flowers’ acquisition of Hostess’ bread assets is being investigated by the Antitrust Division, “which will take appropriate action — including challenging the acquisition, if appropriate.”
The California divestiture is scheduled to close on Feb. 23. If closing does not occur by May 30, Flowers has the right to terminate the purchase agreement.