Respondent Treehouse Foods, Inc. Answer

UNITED STATES OF AMERICA BEFORE THE FEDERAL TRADE COMMISSI OFFICE OF ADMINISTRATIVE LAW JUDGE . In the Matter of Post Holdings, Inc. a corporation, Docket No. 9388 and TreeHouse Foods, Inc. a corporation. TREEHOUSE FOODS, INC.'S ANSWER TO THE FEDERAL TRADE COMMISSION'S PART 3 COMPLAINT Defendant TreeHouse Foods, Inc. ("TreeHouse"), by and through its counsel, answers the Federal Trade Commission's ("FTC") Part 3 Complaint as follows: I. NATURE OF THE CASE 1. Post and TreeHouse are two of only three significant manufacturers and distributors of private label ready-to-eat ("RTE") cereal in the United States. Pursuant to an Asset Purchase Agreement, Post plans to acquire TreeHouse's RTE cereal assets for ("the Proposed Acquisition"). Response to Complaint No. 1: TreeHouse admits it is a manufacturer and distributor of private label RTE cereal in the United States through its subsidiary TreeHouse Private Brands, Inc. TreeHouse admits it entered into an Asset Purchase Agreement with Post Consumer Brands LLC to sell TreeHouse's RTE cereal assets for~. TreeHouse denies that private label RTE cereal in the United States is a proper product mru·ket, and denies that it is one of only three significant manufacturers. The Kellogg Company ("Kellogg's"), General Mills, Inc. ("General Mills"), and PepsiCo, Inc./Quaker ("Quaker") all are much more significant manufacturers of RTE cereal than either Post or TreeHouse, and Post and TreeHouse compete with them head-to- 1 Public Version head. TreeHouse’s sales of RTE cereal in the United States comprise less than percent of total sales by dollar value. TreeHouse denies the remaining allegations in Paragraph 1. 2. Respondents compete vigorously today. Respondents’ own internal business documents show that the effect of the Proposed Acquisition “may be substantially to lessen competition, or to tend to create a monopoly” in violation of the Clayton Act, and harm U.S. consumers. In internal business documents, both Post and TreeHouse recognize each other as close competitors for private label RTE cereal business. Post historically has acknowledged that TreeHouse is the “market leader” in the private label RTE cereal category and recognizes that it has grown its own private label share by “stealing” volume primarily from TreeHouse. TreeHouse’s describes itself as the “#1 U.S. Private Label RTE Cereal Manufacturer.” TreeHouse correspondingly describes Post as its “largest private label competitor” and a “major threat” to take away private label RTE cereal business. Response to Complaint No. 2: TreeHouse admits that it competes with Post, but denies that Post is its closest competitor. TreeHouse admits that the FTC correctly quotes a portion of its sales document, the Confidential Information Presentation (“CIP”), which described TreeHouse as the “#1 U.S. Private label RTE Cereal Manufacturer,” but denies this is evidence of a private- label only RTE cereal product market, or evidence that Post is its closest competitor. TreeHouse further admits that “largest private label competitor” and “major threat” are accurate quotes from TreeHouse documents. TreeHouse further states that it has voluminous internal business documents demonstrating that TreeHouse competes vigorously with branded RTE cereal manufacturers—Kellogg’s, General Mills, and Quaker—as well as other manufacturers like Gilster Mary-Lee Corporation (“Gilster”), Brüggen, Hearthside Foods, California Cereal Products, Organic Milling, and others. TreeHouse lacks knowledge and information sufficient to admit or deny the contents of Post’s internal business documents, and, therefore, denies the allegations relating to such documents. TreeHouse denies the remaining allegations in Paragraph 2. 3. Respondents’ are often retailers’ two best options for private label RTE cereal. Retailers play Post and TreeHouse off each other to obtain lower pricing, better service, and other contract terms. Indeed, Post and TreeHouse frequently lower their prices and make other concessions to take business away from each other and to avoid losing business to each other. 2 Public Version The Proposed Acquisition would eliminate this head-to-head competition and would give Post the power and incentive to increase prices and decrease services for private label RTE cereal for retailer and their customers post-acquisition. Response to Complaint No. 3: TreeHouse lacks knowledge and information sufficient to admit or deny information pertaining to retailers’ beliefs about Respondents and retailers’ business strategies and, therefore, denies them. TreeHouse admits that it competes against Post. TreeHouse further states that retailers have many options for RTE cereal, and frequently switch from private label to branded cereal manufacturers or discontinue private label items in favor of branded RTE cereal items. TreeHouse denies the remaining allegations in Paragraph 3. 4. Under the 2010 U.S. Department of Justice and Federal Trade Commission Horizontal Merger Guidelines (“Merger Guidelines”), a post-acquisition market-concentration level above 2,500 points, as measured by the Herfindahl-Hirschman Index (“HHI”), and an increase in market concentration of more than 200 points, renders an acquisition presumptively anticompetitive. Based on volume of sales, the Proposed Acquisition would significantly increase concentration in an already highly concentrated market for the sale of private label RTE cereal to U.S. retailers, well beyond the thresholds set forth in the Merger Guidelines. Thus, under the Merger Guidelines, the Proposed Acquisition is presumptively anticompetitive. Response to Complaint No. 4: TreeHouse denies the allegations of Paragraph 4 that there is a relevant market for the sale of private label RTE cereal, that the merger is presumptively anticompetitive, that in a properly defined relevant market there is high concentration, or that the merger would significantly increase concentration. To the extent the allegations relate to the Horizontal Merger Guidelines, TreeHouse refers to the Horizontal Merger Guidelines themselves for their true and complete content. To the extent that a response is required as to the allegations about the Horizontal Merger Guidelines, TreeHouse denies that Paragraph 4 provides a true and complete characterization of the Horizontal Merger Guidelines, that Paragraph 4 properly applies 3 Public Version the Horizontal Merger Guidelines to this case, or that the Horizontal Merger Guidelines can establish that a merger is presumptively anticompetitive as a legal matter. 5. New entry or expansion by current market participants would not be timely, likely, or sufficient to deter or counteract the likely anticompetitive effects of the Proposed Acquisition. Response to Complaint No. 5: TreeHouse denies the allegations in Paragraph 5. TreeHouse further states that entry or expansion by current market participants would be quick, likely, and sufficient to deter or counteract any anticompetitive effects, evidenced by the numerous examples of branded and other manufacturers entering private label manufacturing at a retailer’s request, including in RTE cereal and adjacent categories. For example, Post began manufacturing private label RTE cereal at a large retailer’s request. Similar examples abound in other categories. Manufacturers with current RTE cereal capabilities—of which there are at least ten in the United States alone—could begin producing private label cereal with minimal capital investment. 6. Respondents cannot demonstrate cognizable and merger-specific efficiencies that rebut the strong presumption and other evidence that the Proposed Acquisition likely would substantially lessen competition in the relevant market. Response to Complaint No. 6: TreeHouse denies the allegations in Paragraph 6. TreeHouse further answers that the Proposed Acquisition will generate substantial merger-specific efficiencies resulting primarily from shifting production among facilities formerly owned by separate entities that will be combined into one entity. These efficiencies outweigh any hypothetical adverse competitive effects. II. JURISDICTION 7. Respondents, and each of their relevant operating entities and parent entities are, and at all relevant times have been, engaged in commerce or in activities affecting “commerce” 4 Public Version as defined in Section 4 of the FTC Act, 15 U.S.C. § 44, and Section 1 of the Clayton Act, 15 U.S.C. § 12. Response to Complaint No. 7: The allegations in Paragraph 7 are legal conclusions to which no response is required. 8. The Proposed Acquisition constitutes an acquisition subject to Section 7 of the Clayton Act, 15 U.S.C. § 18. Response to Complaint No. 8: The allegations in Paragraph 8 are legal conclusions to which no response is required. III. RESPONDENTS 9. Respondent Post, headquartered in St. Louis, Missouri, is a publicly traded corporation organized under the laws of Missouri. Post has offerings in the center-of-the-store, foodservice, food ingredient, refrigerated, active nutrition, and private brand food categories. Through its Post Consumer Brands unit, Post manufactures, markets, and sells a broad portfolio of well-known national RTE cereal brands, including Honey Bunches of Oats, Pebbles, and Grape-Nuts, as well as a variety of private label RTE cereal products. Post produces approximately 28 formulations of private label RTE cereal and offers retailers natural, organic, and clean label private label RTE products. In fiscal year 2018, Post Consumer Brands’ retail sales of private label RTE cereal

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