No Ardent Support for ConAgra Flour Mills Merger

Delays and opposition beset its mega three-way acquisition.

Feb 24, 2014 at 11:10AM

Even as food giant ConAgra (NYSE:CAG) pushes back again the timetable for completing its mega flour mill merger, opposition grows unabated until it hangs in the balance of a Justice Department antitrust review.



The three-way, $4 billion merger between ConAgra's mill operations and the Horizon Milling joint venture of Cargill and CHS (NASDAQ:CHSCP) first proposed last July created an uproar of opposition because it promised to concentrate more than a third of the U.S. flour market in its hands, dwarfing the 17% share held by No. 2 miller Archer-Daniel Midlands, and more than five times bigger than the third- and fourth-largest flour milling companies.

The new, independently operated milling giant, which would be called Ardent Mills, would have combined sales of $4.3 billion, operate 44 flour mills, three bakery mix plants, and a specialty bakery facility that would spread out across the U.S., Canada, and Puerto Rico. Cargill and ConAgra would each own a 44% stake, while CHS would get a 12% share of the company.

Last week, the American Antitrust Institute and watchdog group Food & Water Watch filed objections to Ardent Mills' creation, saying it will depress the price for wheat that farmers get while raising prices at stores.

By locating the new company in Denver, the choice of mills available to wheat growers will be dramatically reduced, giving Ardent Mills a "nearly captive" market in the Midwest and Pacific Northwest. Moreover, its ability to increase prices to bakers will rise precipitously as nearly a quarter of all bread manufacturing is performed in the New York, New Jersey, and Pennsylvania region. Consumers will be the ones to feel the pinch.

To help placate critics, ConAgra has proposed selling four of the mills, but the industry watchdog says this would still give Ardent Mills monopoly-like status. It would own six of 11 mills in one region and five of eight in another. In Minnesota, where it said it would sell one of the mills, it would still control half of the mills in the state after divestiture. Food & Water Watch calls ConAgra's plan a "minor concession [that] just puts lipstick on a pig."

Other analysts aren't so sure it's as dire as all that, noting that it's still a large fragmented market, with the costs to consumers negligible at best. And when it comes to international markets for U.S. wheat, there are external constraints limiting Ardent's ability to jack up prices. Bunge bought Mexican wheat mills to leverage its North American wheat-origination operations, and consumption has been flat such that higher prices wouldn't benefit anyone.

Yet it's part of a growing trend of consolidating the country's food chain into fewer and fewer hands. Food distributor Sysco is taking over its only major competitor, U.S. Foods, in an $8.2 billion deal; organic milk producer WhiteWave Foods just acquired the largest organic salad and packaged fruits and vegetables retailer, Earthbound Farms, for $600 million; and ConAgra itself acquired private-label food maker Ralcorp for $5 billion last year.

We've seen it further down the line, too, where the biotech industry is taking over the seed industry. Over the past two decades, Dow ChemicalDuPont, Monsanto, Syngenta, and Bayer have together purchased more than 200 seed companies, and they now completely dominate the seed market. Three of them -- Monsanto, DuPont, and Syngenta -- account for 53% of the world's seed production with their GM variants. Because virtually all alfalfa, corn, soybean, and sugar beets are grown from genetically modified seed, and because of their widespread use in processed foods, anywhere from 60% to 70% of the food on supermarket shelves today is genetically modified.

ConAgra originally pegged the mill merger to close by the end of last year, but it said in December it would probably be in the first quarter of 2014. Earlier this month it moved the date once more to the second quarter, saying the Justice Department review, among other issues, was delaying its completion.

Because it's facing headwinds in its private-label business, ConAgra revised its outlook for 2014 profits lower. With shares down 12% so far this year, and more than 20% from its 52-week highs, further delays in the acquisition won't have investors refining their impression that a recovery is still a ways off.

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