Australian regulator blocks Rafferty's Garden acquisition by Heinz

The Australian regulator has blocked a proposed acquisition of organic baby food supplier Rafferty's Garden by US food giant H.J. Heinz Co on concerns that the deal would significantly reduce competition.

"The proposed acquisition would combine the two largest suppliers of wet and dry infant food in Australia, resulting in highly concentrated markets where barriers to entry and expansion are high," said Rod Sims, chairman of Australian Competition and Consumer Commission (ACCC).

In late October 2012, private equity firm Anacacia Capital agreed to sell Rafferty's Garden to H J Heinz, for an undisclosed sum.

But it has taken the ACCC more than seven months to give its ruling although it had earlier said that it hopes to announce its findings on 6 December 2012.

Heinz and Rafferty's Garden are the two largest suppliers of wet and dry infant food in Australia. A merged Heinz-Rafferty's Garden would have accounted for around 80 per cent of the share of sales in the wet infant food market and around 70 per cent in infant cereals and infant snacks.

Heinz supplies a range of wet infant food in cans, glass jars and pouch / pouch-and-spout packaging, while Rafferty's Garden supplies wet infant food in pouch / pouch-and-spout packaging only.

Both companies supply dry infant products, including cereals, snacks and teething rusks through the major supermarket chains.

The ACCC said that it consulted on the proposed acquisition, focussing on whether removing Rafferty's Garden would reduce competition in the current market structure.

In reaching its decision, the ACCC said that it carefully considered the dependence of both Heinz and Rafferty's Garden on the major supermarket chains for stocking their products.

''The proposed acquisition would combine the two largest suppliers of wet and dry infant food in Australia, resulting in highly concentrated markets where barriers to entry and expansion are high, particularly because of brand recognition and preference. This is likely to reduce the frequency and depth of promotional activity, increase prices and reduce innovation in the wet and dry infant food markets,'' Sims said.

''We are not satisfied that the power possessed by the major supermarket chains will necessarily constrain prices for consumers or drive innovation. Fierce inter-brand competition is more likely to achieve this,'' he added.

H.J. Heinz Co is to be acquired by Warren Buffett's investment arm and Brazilian private equity firm 3G Capital in a $23 billion deal. (See: Warren Buffett, 3G Capital to buy HJ Heinz Co for $23 bn)

The proposed acquisition announced in February, has received the necessary approvals and is expected to close tomorrow.