This Food Merger Didn't Save Money

The giant food company ConAgra announced this week that it would sell off Ralcorp, a private label food manufacturer it acquired just a few years ago for $5 billion after a prolonged bidding war. ConAgra owns a number of processed foods brands like Hunt’s Ketchup, Orville Redenbacher popcorn and Chef Boyardee, and Ralcorp primarily manufactured private label products that supermarkets sell under their own brand names and competed directly with ConAgra’s products.

We objected to the acquisition, since it lead to further consolidation in the food industry and potentially higher prices for shoppers through reduced competition. ConAgra claimed that the merger would eventually lead to cost savings (“synergies” in corporate business speak) of $225 million a year. Federal regulators allowed the merger to go through unhindered.

But ConAgra had it all wrong. It turns out that this merger has actually been dragging the company down over the past two and a half years. In just the last year alone, ConAgra lost almost $1.5 billion. And the company did so poorly after the acquisition that the deal was mentioned in the discussion of why ConAgra’s CEO eventually stepped down.

Merging companies and sadly, federal regulators, often justify these food mergers as good for shoppers because any cost savings from running a supposedly more efficient merged company will be passed on to us in the form of lower prices. But what happens when the mergers lead to higher costs for the companies? Not only do these companies have to make up for their losses somewhere (like by raising prices), but post-acquisition there are fewer competitors in the marketplace, ones that could have helped keep consumer prices down.

The Federal Trade Commission and the Department of Justice need to learn from ConAgra’s failure, and realize that they can’t just take promises made by merging companies at face value. Because, ultimately, the public ends up paying for these mistakes in the form of fewer options at the supermarket and higher prices for the products on the shelves.