Heinz global reach means regulators worldwide have to OK deal

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Last week, the Competition Commission of India in New Delhi gave its approval to the $28 billion acquisition of Pittsburgh's H.J. Heinz Co. by a joint venture involving Berkshire Hathaway and 3G Capital.

Regulatory agencies in Israel and Brazil already had signed off on the deal, according to Heinz filings with the U.S. Securities and Exchange Commission. A company spokesman reported Tuesday that Japan also has OK'd the merger.

Still more bureaucrats around the globe are considering the implications for their countries and whether the deal announced Feb. 14 at Heinz headquarters in Pittsburgh would hurt the markets that its products compete in -- ranging from baby food in China to ketchup in Russia and juice in Australia.

PG graphic: Heinz around the world
(Click image for larger version)

The acquisition of a global business has become more complicated, thanks to the growing number of countries that have set up rules to try to protect their markets on issues of competitive fairness, said Peter J. Wang, a Jones Day attorney who works on antitrust cases in Shanghai and Beijing.

As many as 100 countries can require the right to weigh in on mergers and acquisitions, depending on how much business the parties involved do inside their borders, Mr. Wang said.

Heinz -- with $11.6 billion in annual revenue -- may not have to go to 100 countries, but the company has been busy.

"We are waiting for antitrust clearance in China, the European Union, Mexico, South Africa, Russia, Ukraine and South Korea," said Michael Mullen, senior vice president, corporate and government affairs. "Additionally, Heinz has filed for other regulatory approvals in New Zealand, Ireland and Russia."

In the company's proxy filing in late March, officials reported filing merger notifications with Mexico on March 11, South Africa on March 13, Russia and India on March 15, Ukraine on March 18, Japan and South Korea on March 21.

The European process is a bit more complicated. On March 8, Berkshire Hathaway and 3G Capital had submitted "formal pre-notification" to the European Commission. Depending on any questions the commission raises, the joint venture partners expect to formally submit their "final notification" by mid-April, the SEC filing said.

On March 12, they started a similar process in China, where the Ministry of Commerce of the People's Republic of China is working with an anti-monopoly law that went into effect in 2008, Mr. Wang said. "The system is essentially new," he said, which means that companies are still learning what Chinese regulators want and how long the process might take.

The law that China spent more than a decade fine-tuning does not require all mergers to get governmental approval. Like many other countries, China sets a revenue threshold. If the parties individually have a certain level of revenue and the combination that would be created by the deal exceeds a certain level, the regulators want to take a look.

"No country wants to review every deal because they don't have enough people and time," Mr. Wang said.

As in Europe, China's system has an initial phase in which regulators check to determine if the notification is complete or if more information is needed. Once they've accepted the application, the law allows for up to 180 days of review, Mr. Wang said.

Companies sometimes focus on getting their U.S. and European paperwork done as quickly as possible, because they don't want the approval processes to slow things down. Mr. Wang said China should probably go on that early short list.

"In many deals, China is the last country out. They're the last country to approve," he said.

China's regulators rarely block deals but -- like those in other countries -- they have sometimes demanded changes to remedy problems they see, such as too much overlap between the parties involved.

Heinz is familiar with the hazards involved in mergers and acquisitions.

More than a decade ago, the company gave up on an attempt to acquire the Beech-Nut baby food business after the Federal Trade Commission threw up roadblocks.

Heinz is still waiting for the Australian Competition & Consumer Commission to decide on its planned purchase of Rafferty's Garden, a maker of infant food. According to the commission's website, the two companies are the largest suppliers in their market and the deal would create a entity with about 78 percent of sales in wet infant food. Regulators asked for more information and extended the review process.

Meanwhile, the sale of the global company appears to be on track.

Shareholders are scheduled to vote on the acquisition at a special meeting April 30. The company reported it had received an early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, which allows the FTC and the Department of Justice to review planned mergers and acquisitions.

But whether the parties to the Heinz deal can get the process done before the end of the second quarter could depend on the various foreign bureaucrats.

"Although we expect that all required regulatory clearances and approvals will be obtained," the SEC filing warned, there are no guarantees such approvals will be timely or won't come with conditions. "These conditions or changes could result in the conditions to the merger not being satisfied."

So far, foreign regulators don't seem worried about the owners of such brands as Burger King, Geico, Budweiser and Dairy Queen taking over production of Heinz ketchup.

In the report from the India commission, the deal seemed almost to produce a yawn. "As per the information given in the notice and other documents on record, it is observed that neither of the acquirers have any presence in the food sector in India," the opinion said. "The proposed combination is not likely to give rise to any adverse competition concern in India."

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Teresa F. Lindeman: tlindeman@post-gazette.com or at 412-263-2018. First Published April 10, 2013 4:00 AM


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