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Stay on Heinz deal denied
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October 19, 2000: 7:44 p.m. ET
FTC request to continue block on baby food deal denied, but firms will wait
By Staff Writer Kim Khan
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NEW YORK (CNNfn) - The Federal Trade Commission's request to keep the door shut on the proposed merger between H.J. Heinz and the maker of Beech-Nut baby food was denied by a federal judge Thursday. However, the companies agreed to hold off on their controversial merger until an appeals court ruling next week.
The FTC requested a stay pending appeal Thursday, one day after Federal District Court Judge James Robertson ruled it would not be in the public interest to grant a temporary injunction requested by the FTC, which he said would effectively kill Heinz's acquisition of Milnot Holding Co.
However, Judge Robertson denied the stay request Thursday afternoon, and FTC Spokesman Mitch Katz said the Commission would file the same motion with an appeals court Monday afternoon. The FTC wants a temporary injunction so it has more time to consider antitrust issues related to the deal.
 Both companies said they agreed to hold off on the $185 million merger until an emergency appeals court panel rules on the stay. The ruling is expected Tuesday or Wednesday
"We gave them two days to get their papers on file and then we have to respond within a day," said Ted Henneberry, a lawyer representing Heinz.
The FTC is concerned the merger will stifle competition in the baby food market -- where only Heinz, Beech-Nut and Novartis AG's Gerber are players -- by limiting customer choice to only two products.
The commission won a temporary injunction in July pending a fuller investigation of antitrust concerns.
Heinz, the No. 2 baby food producer, and Milnot, No. 3, argued that since Gerber has a 65-to-70 percent market share and brand loyalty stronger than Nike (NKE: Research, Estimates) or Coca-Cola (K: Research, Estimates), the creation of a stronger second company would increase competition and benefit consumers.
In his opinion, Judge Robertson agreed. Among his reasons, he noted that nearly all supermarkets stock only two kinds of baby food, Gerber and either Beech-Nut or Heinz, and that Gerber has not expressed interest in "aggressively pursuing" market share or competing in the "value-based" sector.
Ball in the appeals court
The appeals court must now look at the likelihood of a successful antitrust suit.
If the court feels the FTC has a strong case, it will approve the stay in order to avoid the trouble of pulling an already merged company apart. If the court feels likelihood for success is low, it will allow the companies to proceed with the deal.
Henneberry said Heinz will argue likelihood of success is low and a further delay will hurt consumers by prolonging Gerber's dominance and will also hurt investors.
At the moment the FTC is just asking for time to keep its options open, while it decides whether or not to pursue a full antitrust suit, but another delay could be the final straw for Pittsburgh-based Heinz.
Judge Robertson said in his opinion "it is undisputed a preliminary injunction would kill this merger."
"If the stay is granted Heinz would have to decide what to do," said Sal Stazzone, vice president at Milnot, but a Heinz spokesman had no comment on the company's plans beyond the appeal.
Shares of Heinz (HNZ: Research, Estimates) rose 50 cents to $39.88 Thursday on the New York Stock Exchange. 
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