Nestlé's Deal to Buy Ralston Purina Wins European Commission Approval 

Sarah Ellison, John R Wilke, and Philip Shishkin / Wall Street Journal 30jul01

Giant Swiss food concern Nestle SA cleared the first regulatory hurdle in its $10.1 billion bid to acquire American pet-food maker Ralston Purina Co. when it won the European Commission's conditional approval of the deal Friday. But the deal's biggest regulatory challenge, from the U.S. Federal Trade Commission, is yet to come.

Nestle agreed to solve competitive problems identified by the European Commission in Italy, Spain and Greece by the licensing of several pet-food brands and the divestiture of a plant in Spain.

But the purchase of Ralston can't be closed until the FTC approves it. The agency is continuing to review the deal but is expected to come to a decision shortly.

Power Over Shelf Space

The deal has been sharply criticized by U.S. consumer and farm groups, who say the combined companies will have too much power over supermarket shelf space in several market segments.

The FTC investigation, however, has focused largely on the companies' dominance in the dry cat-food market, people close to the review said Friday. These people say the agency is likely to seek the divestiture of one or more cat-food brands to maintain competition in this market segment.

To get speedy approval in Europe, Nestle offered the European Commission two options in Spain. One was to sell Ralston Purina's 50% sake in Gallina Blanca Purina. The other was to sell a Nestle production plant and grant exclusive licenses for the Friskies pet-food brand line for three years, the commission said.

'Reduces Risk for Buyer'

The commission said it preferred the latter option. "The scope of the latter option ensures the viability of the divestment, as it secures the transfer of a complete business and reduces the risk for the buyer," the commission said in a statement.

The commission said a three-year license will cover the Chow line of pet food in Italy and Greece. "In each of the three countries, the parties also undertake not to reintroduce or promote the licensed brands for nearly five years" after the expiration of the licensing period. "This will give the future purchaser in each country sufficient time to rebrand the acquired products," the commission said.