FTC finally settles with Whole Foods

The Federal Trade Commission gave up their years of fighting the Whole Food / Wild Oats merger, getting Whole Foods to agree to a face-saving deal to sell off thirty-two Wild Oats locations (some of which were already closed), and give up the Wild Oats name.

The FTC said the settlement substantially restores competition that was eliminated by Whole Foods' acquisition of Wild Oats, its closest rival.

It does nothing of the sort, of course. It's unlikely that there will be many bidders for the locations to be sold, given the current glut of retail space. It's possible somebody will buy the Wild Oats name, but in reality there never was a competition deficit in the space -- Whole Foods' most serious competitor was not Wild Oats, it was the growing organic aisles/sections in every supermarket chain in the country.

Someday I hope someone explains to me why the FTC went off on such a crusade against this particular merger -- a fairly small one in the great scheme of things, and one that had little impact on competition -- when they were rather quiescent on so many other larger deals in recent years.

Triplefin acquires Flintfox USA

Triplefin, a Cincinnati-based provider of supply chain solutions, has acquired Flintfox USA as well as an interest in Flintfox's international business. Flintfox is based in New Zealand and offers a TPM package that will be complementary to Triplefin's offerings.

"Triplefin constantly works with our clients to make it transparent and easy for their staff, customers and other authorized users to create, execute and manage promotions," stated Jill Hein, Business Development Account Manager of Triplefin. "Triplefin has been a leader in promotion technology and execution for e-Commerce, DTC and retail channels, but it lacked a truly best-in-class technology for retail trade-spend. Flintfox is the answer, and I am very excited about the integration of Flintfox into Triplefin's Salefish technology platform," concluded Jill.

Flintfox had had a relationship with Kineticsware before that company ran into financial problems.

Update on Panasonic/Sanyo

I posted a few days back that Panasonic is planning to buy Sanyo. Here's an updated report, indicating that the bid will come in January, with a goal of completing the deal by March:

The Nikkei news service cited “company sources” in a report today saying Panasonic will launch a tender offer for Sanyo shares as early as January, with plans to make the acquisition a subsidiary after acquiring a majority stake at the end of March.

Panasonic is expected to begin due diligence on Sanyo's assets and hopes to reach a basic agreement with the three largest holders of Sanyo preferred stock about the purchase price and other terms of the tender offer by the end of November, Nikkei’s sources said.

Panasonic buying Sanyo?

Here's a report that Panasonic is in talks to buy Sanyo.

If a deal is reached to buy all their holdings, Panasonic, already the world's largest plasma TV maker, could become Japan's top electronics firm by sales.

Panasonic and Sanyo combined are expected to post 11.22 trillion yen ($114 billion) in revenue, according to their forecasts for the year ending March 2009, surpassing projected 10.9 trillion yen at Hitachi, the country's current sales leader.

The motivation might be to gain control of Sanyo's battery expertise. They are #1 in lithium ion batteries, and rechargeable batteries are, for obvious reasons, a fast-growing market. They are also among the leaders in solar cells.

Smithfield beef division sold to JBS

Smithfield Foods has sold its beef business to Brazil's JBS.

The deal, worth $565 million in cash, received clearance by regulators on Monday when they said they wouldn't challenge the merger, which pairs Smithfield Beef Group Inc., the nation's fifth-largest beef producer, with JBS, the nation's third-largest beef producer.

The Justice Department, though, is blocking another acquisition by JBS, the #4 beef company, National Beef Packing.

Federal regulators and attorneys general from 13 states said that deal, worth $560 million in cash and stock, could push up costs for consumers and drive down prices paid to ranchers and feedlots.

Smithfield remains the largest pork producer in the country.

Kineticsware buys Flintfox

Kineticsware announced today that it has acquired New Zealand TPM software firm Flintfox. According to the press release:

The acquisition will enable Kineticsware to provide a new generation of full lifecycle TPM solutions to consumer goods companies delivered both directly and through selected partners globally. The combined company will have 141 customers and operations in 12 countries across North America, Asia Pacific and Europe.

Kineticsware has built its reputation in the supply chain, and the acquisition of Flintfox would be intended to improve its trade promo capabilities as an extension of that basis. Or, as the press release puts it:

“Significant margin impact from skyrocketing raw materials costs such as wheat and oil have driven consumer goods companies of all sizes to explore ways to protect their margins in the contractual trading relationship with their retailers.” said Jeff Sampson, CEO, Kineticsware. “With this acquisition, Kineticsware increases the breadth of its functionality to support the entire lifecycle of a trade promotion from budgeting, planning, execution and settlement to monitoring and analysis."

Flintfox has a solid base in AsiaPac that will complement Kineticsware geographocally, plus they have some very good people.

JDA buys i2

JDA bought i2 Technologies earlier this week for $346mil.

JDA Chief Executive Officer Hamish Brewer expects that this latest move -- supported by its 2006 purchase of Manugistics as well as nine other acquisitions in 10 years -- will further strengthen its position in the global manufacturing market for supply chain planning and optimization solutions.

This is more broadly supply-chain technology than my narrow trade promo focus (though there are obvious overlaps), so I don't have the knowledge to discuss whether it's a good deal or not, but the analysts quoted in this Consumer Goods Technology article are sure doing a great job of controlling their enthusiasm, for example:

"The roll-up of assets in the supply chain planning market will have little effect on options for the consumer products market. Despite a lot of marketing on penetration of the consumer products market by i2, the only application where the company was able to gain traction was transportation planning. We expect that it will have little effect on these IT investments or the use of these technologies." - Lora Cecere, Research Director, Consumer Products, AMR Research

Sony and BMG parting company

The Sony/BMG merger that four years ago created the #2 record company is ending with a Sony buy-out. Bertelsmann will walk away with a lovely parting gift -- about $1.2bil, plus some European music rights.

My first reaction was that anybody leaving the music business was probably making a good move, but this article indicates that maybe there's more money still to be made there than I (or a great many others) had thought:

For Sony, the split-up is good news. Analysts say they were surprised to learn that the $3.9-billion company was sitting on such a big cash stockpile. In terms of earnings, Sony Music Entertainment won’t boost the numbers much. But it won’t hurt them, either. They’re expected add 2.2% to sales and almost nothing to profits if Sony consolidates the business in the second half of the fiscal year. (Though profit margins are 8%, profits will be offset by a restructuring charge this year, analysts say.)

8% is not fabulous, but it's certainly OK (the oil industry, which some folks think needs a windfall profit tax, makes about 8.5% or so).

The other reasons for the buyout seem to be that it gives Sony more content for its entertainment businesses, and it puts an end to the internal power struggles that plague so many mergers, and appear to have been a big problem within Sony/BMG.

A-B agrees to InBev buyout

Anheuser-Busch has agreed to be bought by InBev, which sweetened its original $65/share offer to $70.

The deal would create the world's largest brewer and the third-largest consumer product company under the name of Anheuser-Busch InBev. [...]

For InBev, the maker of Stella Artois and Beck's, the deal gives an aggressive company an iconic beer brand — Budweiser — to sell into emerging markets such as China and Brazil where it has already established a firm footprint.

InBev is the world's second-largest beer-maker, narrowly behind SABMiller. Swallowing Anheuser-Busch sees it leap ahead, capturing half of the U.S. beer market and a fifth of China and Russia.

InBev says they will sell off some "noncore" assets (e.g., Busch Gardens?) to help finance the purchase.

This might be further bad news for media, since A-B has always been a big spender in advertising, especially sports marketing, while InBev has a reputation for being more conservative. Time will tell on that, and on whether trade promo tactics will change.

Blockbuster withdraws offer for Circuit City

Blockbuster has decided not to make an offer for Circuit City:

The move comes less than two months after Circuit City reluctantly agreed to open its books to the movie-rental chain. In a statement, Blockbuster said that unfavorable market conditions and a closer review of the deal's finances led it to withdraw the offer.

The offer was for $6-$8 per share. The stock price dropped from $2.55 to $2.32 after Blockbuster withdrew.

Other reports, though, indicate that Blockbuster may come back to make another offer:

Blockbuster Inc, which abandoned its offer to buy Circuit City Stores Inc this week, may try to acquire the electronics retailer later, the New York Post said Thursday citing insiders.

One source told the paper that Blockbuster "verified the long-term benefits of a deal," and added that a there was a "real opportunity" to cut costs in combining the two chains' operations.

Presumably the new offer would be lower. Or it might even be a case of buying CC out of bankruptcy:

Will Circuit City join the long list of electronics retailers, like Tweeter Home Entertainment and Harvey Electronics, that have filed for Chapter 11 bankruptcy protection in the past year? Given that shares of the Richmond (Va.) company are trading at just over 2, Wall Street is betting that could be a possibility. "Circuit City is in very serious trouble, and any scenario is possible today," says Nick McCoy, senior consultant at TNS Retail Forward, a research firm.

BusinessWeek points out that waiting until the firm enters bankruptcy would allow a new owner to break leases on CC's many under-performing locations.

When will M&A come back?

This article suggests "at least nine months" before we see the return of mergers and cquisitions in retail (and, presumably, elsewhere).

"Beyond that it is quite difficult to predict because people are keen to get back in. Private equity is keen to second guess the starting whistle because someone is going to make a lot of money on the rebound."

European retail shares have shed nearly 30 percent of their value in the past six months, almost equal to the losses sustained by the European bank stocks.

Still, retail stocks are predicted to have further to fall because the impact from the credit crunch and rising commodity costs is only just starting to be felt by consumers.

I'm not into predicting the stock market, so I won't make a guess. Actually, my interest is primarily because I figure when M&A picks up, it will mean the economy in general is on the rise, and therefore it might make sense to get my house ready to sell.

What happens to companies like Circuit City and Borders, though, if private equity takes too long to return?

More on Anheuser-Busch and InBev

We reported on the rumors of a takeover bid for A-B a couple weeks ago, and it seems to be coming true, though whether it will go through or not still seems to be in question.

Here are a few developments:

• The Wall Street Journal is speculating that such a merger could have some significant marketing impacts (sorry, no link to WSJ, since it's subscription only -- here's a short item in Smart Brief). A-B spends very heavily on advertising ($475mil last year) while InBev is more into pricing: "Tom Pirko, president of the beverage industry consultancy Bevmark, said, 'The money InBev will spend will be on discounting and price wars, something that A-B built its empire to avoid.'"

• There's also a rumor that A-B is interested in buying Mexico's Grupo Modelo (they currently own 50%), which could make them too big for InBev to swallow.

• The Economist opines that the deal is all about distribution -- InBev's brands have little penetration in the US, while their networks in other countries could speed Budweiser's international expansion. Sounds right to me.

Will Barnes & Noble buy Borders? (volume 2)

I was going to call it "part 2", but given that it's bookstores we're discussing, "volume 2" seemed more appropriate.

About six weeks ago, when the rumors first arose, I mentioned the possibility that B&N might be interested in buying their main competitor. The rumor mill has heated up this week:

... Barnes & Noble may finally get ready to purchase Borders Group.

Investors, thrilled by the prospect of the two mega-sellers joining forces, pushed Borders Group shares up 11.3%, or 72 cents, to $7.07, in afternoon trading.

If Barnes & Noble does purchase Borders, the companies would face anti-trust hearings since the combined company would have more than a third of the market share.

Presumably this merger would get a lot of scrutiny from Washington. I reported a couple weeks ago that the FTC is still fighting the Whole Foods/Wild Oats merger, even after it was approved by the courts.

It's hard to see Borders surviving on their own, though. After giving it some thought, I realize now that this is really a variation on the traditional two-per-channel theme -- the two in this channel are B&N and Amazon, with Borders being third (and therefore probably doomed).

Mars buying Wrigley

The big news today, which I'm sure you've heard, is that Mars (with help from Warren Buffett) is buying the Wrigley Company. In Chicago, the significance is that thousands of drunken Cub fans are wondering if their favorite bars are now in Marsville.

(Answer: Probably not).

To the rest of the world, the point is that this creates the world's biggest confectionery company:

Combined, Wrigley and Mars controlled 14.4 percent of the global confectionery market in 2006, compared with 10.1 percent for Cadbury, according to the most recent market share data from Euromonitor International.

Cadbury (which is in the midst of spinning off its soft drinks as a separate entity) may now be looking at trying to buy Hershey, although the linked article says that state law in Pennsylvania may prevent Hershey being sold (which seems a bit strange).

This sort of transaction represents the flip side of the increasing concentration of retail channels. As retailers grow, their suppliers have to grow to be big enough to sit at the same table on terms of some sort of equality.

FTC digging in vs. Whole Foods

The Federal Trade Commission is not giving up on their opposition to the Whole Foods / Wild Oats merger.

Oh, you thought that was a done deal, completed last year?

So did everybody else, everybody except the FTC.

The U.S. government, in an unusual move, will ask an appeals court Wednesday to stop Whole Foods' takeover of Wild Oats, even though the deal closed last year.

The Federal Trade Commission tried to block Whole Foods' acquisition of Boulder, Colo.-based Wild Oats after the transaction was announced last February, arguing that it would stifle competition and harm consumers.

But a federal judge rejected the agency's request in August and Whole Foods and Wild Oats closed the deal later that month. Antitrust regulators usually throw in the towel after the courts allow a deal to go forward, because acquisitions can be difficult to unwind.

In this case, however, the FTC is continuing the fight. The agency argues that the companies haven't yet finished combining their operations and Whole Foods hasn't closed all the Wild Oats stores it plans to close. The entire process could take up to two years, the agency said in court papers ...

It's tough to figure what the FTC is going to say now that would cause the court to stop a half-completed merger when the same court rejected their arguments pre-merger.

But the really curious thing is why the FTC is getting so tough on this particular merger, which is pretty small potatoes (organic potatoes, no doubt), when there have been much larger mergers passed with little comment. Perhaps they're tired of the criticism from many quarters (including here) that they are sometimes a bit toothless.

Is Macy's the next private equity play?

There's been some speculation lately that Macy's will be the next retailer to be scooped up by private equity purchasers.

Wall Street sources cited as likely bidders Kohlberg Kravis Roberts, the buyout firm famous for its takeover of RJR Nabisco in the 1980s; and Goldman Sachs Group, Macy's longtime investment banker.

Macy's would be a ripe takeover candidate because its rich cash flows and attractive real estate could be used to pay off debt that leveraged buyouts pile up.

There has even been speculation that Eddie Lampert (of Sears/Kmart fame) might make a play for another big retail name. Although he seems to have his hands full with the continuing bad news from his current possessions.

Some analysts see the whole scenario as unlikely:

"We view a Macy's LBO as possible but not probable," Deborah Weinswig, a New York-based analyst [for Citigroup], wrote in a report Tuesday.

"While there are a few reasons why an LBO might make sense for Macy's, especially given the slow progress of the May turnaround, we believe Macy's past LBO experience makes a transaction unlikely."

Private equity and TPM

Over the past year or so, I’ve noted with increasing wonder the number of acquisitions of major brands by private equity and hedge funds, including both major retailers and their suppliers. I won’t bother with a list here, but I imagine you’ve been noting the same thing.

The question I’ve had (not surprisingly, given my focus) is what effect this will have on trade promotion practices. Here is an article in Brandweek that addresses the issue from a related marketing point – is such a buy-out good or bad for brands?

Although the tone of the article seems to me somewhat biased against private equity, nonetheless it seemed to come down to the classic non-answer: “It depends.” In this case, it depends on the reason for the buy-out and the strategy of the buyers.

Unsatisfying as that answer always is, I suspect it probably applies equally well to trade promotion. As many buy-outs as are happening, it’s safe to assume that they are happening for a variety of reasons and will therefore have a variety of effects.

Where I think buy-outs will have an effect on trade promo practices is in taking some emphasis off short-term results. I know I’m not alone in criticizing business for short-term thinking – it is, in fact, a bit of a cliché – but it has led to some of the worst abuses in trade promotion. Ahold is, of course, the poster child here, but we all are aware of many similar (though less egregious) cases from similar experience – a great many companies have used trade promotion funding to pad quarterly figures, to stuff the channel, and to hide problems in a variety of ways.

Being allowed to do more long-term thinking might also allow channel marketers to focus some funding on building up promising smaller accounts, rather than directing everything toward the largest accounts, who can often provide the greatest incremental lift in the shortest time. I've advocated such practices for years, in the belief that suppliers need to keep smaller channel players healthy as a defense against the effects of consolidation. My pleas have generally fallen on deaf ears, however.

All this, of course, presumes that private equity investors are willing to build a company up before making their profit on a resale, and that’s where the “it depends” comes in. Some will take that view, and some will just want to provide some quick fixes in a “buy and flip” operation – they’ll be no more interested in trade promo best practices than the antsiest Wall Street analyst.

Wal-Mart buying Gottschalk's?

Rumor has it that Wal-Mart is considering buying the Gottschalk's chain of department stores. The purchase would be intended to strengthen Wal-Mart's presence in California. Gottschalk's has a total of 63 stores, most in California, but also in Nevada and the Pacific Northwest. Most are in secondary markets (e.g., Fresno) or on the outskirts of major markets (e.g., San Bernardino).

The report, citing Wall Street analysts, said the Gottschalks prospectus was sent out by UBS Investment Bank about six weeks ago and Wal-Mart was given a copy of the book.

The article said opening bids are expected by early June.

In December, Gottschalks said it hired UBS Investment Bank to help it explore available options, including a sale or merger of the company.

What I find most interesting is that there is no mention of a department store interested in buying a fair-sized department store chain.

Foot Locker buying Genesco?

Women's Wear Daily says that Foot Locker, which has close to 4,000 stores is planning to pick up another 1,700 or so by buying Genesco.

Genesco has a bunch of shoe stores, including Journeys and Johnston & Murphy, but apparently the main interest for Foot Locker is the hat business.

Foot Locker has previously said it would open a chain of athletic hat stores called "Champs Sports Just Hats" to try to take market share from Genesco's Hat World chain. At the time, an analyst said the hat business had operating profit margins of 12 percent to 13 percent, higher than the average for specialty retail.

J&J bulks up

In contrast to the Kraft item below, Johnson & Johnson is planning to buy Pfizer's consumer health division for $16.6b.

Pfizer has had the division on the block for the past couple months. We reported about three weeks ago that J&J was among the leading bidders, along with Glaxo and Reckitt Benckiser.