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Heinz, Milnot back on hold
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November 8, 2000: 7:28 p.m. ET
Panel keeps Heinz, Beech-Nut baby food maker apart until further ruling
By Staff Writer Kim Khan
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NEW YORK (CNNfn) - A federal court of appeals panel agreed Wednesday to keep the brakes on H.J. Heinz's proposed merger with the maker of Beech-Nut baby food until an appeals court can review a previous federal court decision giving a green light to the deal.
According to the panel, the "FTC has demonstrated a substantial probability of success on the merits" of its effort to stop the union of Heinz (HNZ: Research, Estimates), the No. 2 U.S. baby food maker, and Milnot Holding Co., the No. 3 baby food producer, because of competition concerns.
"This is definitely good for the FTC," a Commission spokesman said.
Heinz said the companies remain committed to the merger and have been granted an expedited appeals process, according to one of their lawyers.
 The FTC is concerned that the combination of Pittsburgh, Pa.-based Heinz and St. Louis, Mo.-based Milnot will stifle competition, leaving only two baby food companies, Heinz and Novartis AG's Gerber, which dominates with a 70 percent share of the market.
As it stands now, Heinz and Milnot may not complete the deal until an appeals court in Washington D.C. can rule on whether the district court was right in denying a preliminary injunction. The FTC requests preliminary injunctions to give it time investigate deals further and save it the trouble of trying to pull apart an already merged company if it finds serious competition concerns.
It is generally acknowledged such an injunction, which could take months or even years, would scuttle the $185 million merger because the companies could not afford to keep their plans on hold indefinitely.
There was even some concern that the appellate panel's decision on Wednesday could have terminated the process. Both Heinz and Milnot have expressed pessimism that investors would be willing to wait even longer for the completion of a deal announced in July.
But Milnot Vice President Sal Stazzone said the companies viewed their chances of a favorable panel decision at just 50-50, and are committed to the deal despite the setback.
Heinz said in a statement it expects the appeals court to uphold the district court's Oct. 18 opinion.
In his ruling clearing the way for the merger, District Court Judge James Robertson said the combination of a stronger company to battle Gerber could actually help consumers and increase competition. Judge Robertson said it was not in the public interest to issue a preliminary injunction and kill the deal.
But the three-judge panel disagreed, noting "it is indisputable that the merger will eliminate competition between the two merging parties at the wholesale level."
Ted Henneberry, a lawyer representing Heinz, said that argument was already addressed in the district court ruling, which found it had not impact on the retail market.
The panel also had to weigh the FTC's chances for successfully stopping the merger in determining whether to keep Heinz and Milnot apart.
"Essentially this is just a procedural ruling," Henneberry said. "At this point the district court opinion still stands and (the merger will go through) when there is a full appellate review of the decision."
"The questions raised by the FTC were already addressed by the district court," he said.
According to Henneberry the appeals are going to put the case on an expedited basis and a decision on the schedule is expected in a couple of days. This is not a guarantee though, as the appeals panel was expected to issue its decision in a couple of days, but took two weeks.
Shares of Heinz rose 19 cents to $42.44 on the New York Stock Exchange. 
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