Antitrust enforcers at the U.S. Federal Trade Commission will go to court to block the acquisition of Leiner Davis Gelatin Corp. and Goodman Fielder USA Inc. by Germany's Deutsche Gelatine-Fabriken Stoess AG, the agency said yesterday.
The FTC said the merger would eliminate competition between DGF Stoess and Leiner Davis and leave the companies with more than half the U.S. market for pigskin and beef hide gelatin.
Germany's DGF Stoess is the world's largest producer of gelatin. Goodman Fielder Ltd. is a diversified food products company based in Sydney, Australia.
Leiner Davis Gelatin, a subsidiary of Goodman Fielder, is the world's second-largest producer of beef hide and pigskin gelatin. Goodman Fielder chief executive Tom Park said the company was disappointed but not necessarily surprised by the FTC's concerns but remains committed to pursuing the sale.
"The sale was always subject to anti-trust clearance and we remain committed to continuing to explore the available options following the commission's decision," Park said in a statement.
The gelatin products are used by the food industry, and also by the pharmaceutical industry to produce capsules and tablets, the FTC said. The FTC said competition would be hobbled by the deal because other gelatin makers around the world are "extremely small and are not a viable option for customers in the United States".
The market for gelatin is "production constrained", with most plants running at or near capacity, the FTC said. The market is also constrained by the limited availability of beef and pigskin hides.
"Cows and pigs are slaughtered based on the demand for meat, not for gelatin, and beef hides and pigskins are used for a variety of end uses in addition to gelatin. Beef hides and pigskins are thus a finite resource," the FTC said.
DGF Stoess proposed to divest one of Leiner Davis's eight plants in order to assuage the FTC's antitrust concerns, the agency said.
"This proposed divestiture, however, would fall short of replacing the competition of either Leiner Davis or DGF Stoess in the relevant market," the FTC said.