Federal Judge Blocks Coke-Dr Pepper MergerDAVE SKIDMORE , Associated Press
Jul. 31, 1986 11:59 PM ET
WASHINGTON (AP) _ A federal judge Thursday issued a preliminary injunction blocking Coca Cola's planned $470 million takeover of Dr Pepper, a Federal Trade Commission spokeswoman said.
The injunction issued by U.S. District Judge Gerhard A. Gesell came at the request of the FTC, which is examining the antitrust implications of the takeover, said commission spokeswoman Barbara Rosenfeld.
She said the injunction, preventing the takeover of DP Holding Inc., Dr Pepper's parent company, would remain in effect pending the outcome of FTC hearings, which could take as long as several years.
Jim Ball, a spokesman for Dr Pepper in Dallas, said: ''We would be interested in pursuing other interested parties'' now that the Coke deal is on hold.
Coca-Cola, the No. 1 soft drink maker, announced Feb. 20 that it wanted to buy the No. 4 Dr Pepper. Coke's announcement followed a move by Pepsico Inc., the No. 2 soft drink maker, to acquire the No. 3 Seven-Up.
The FTC objected to both deals, contending they would reduce competition.
Coke's brands account for 39 percent of the U.S. soft drink sales. Dr Pepper holds 7 percent of the national market, mostly in the South.
In its complaint, the FTC charged that the Coke-Dr Pepper merger would substantially lessen competition, making it more difficult for new firms to enter the market and more costly for existing firms to compete. The merger would likely lead to increased prices and restricted output of carbonated soft drinks, it said.
Jeffrey I. Zuckerman, director of the FTC's bureau of competition, said he was gratified by the court's decision, adding ''It will help to ensure continuing competition in the carbonated soft drink industry to benefit of American consumers.''
The Gesell injunction is the second issued in the case. Royal Crown Cola Co. won a temporary injunction against the move from U.S. District Judge J. Robert Elliott in Columbus, Ga. Elliott set an Aug. 25 trial date on Royal Crown's claim that the merger would stifle competition.
James W. Harralson, executive vice president and chief operating officer for RC Cola, said the Gesell ruling confirms the ruling in Georgia, adding ''Of course, we are pleased.''
Coca-Cola officials were ''disappointed with the court's decision.'' spokesman Randy Donaldson said, adding that officials had not reviewed the judge's decision and would not comment further.
The FTC has scheduled a pre-hearing conference between the parties for Sept. 18. At that time, the starting date for hearings before an administrative law judge will be set. The administrative judge's decision can be appealed by either party to the full FTC.
After the FTC challenge, Pepsico dropped its plan to purchase Seven-Up's United States operations, although it did buy the international operations of that company. Coca-Cola pursued its plan, resulting in the case before Gesell.
Meanwhile, Coca-Cola admitted earlier this week that a middle-level manager wrote an internal memo suggesting that Coke make a bid for Dr Pepper in order to thwart the Pepsi-Seven-Up merger.
However, a Coca-Cola spokesman said top Coke officials disagreed, with the memo, which suggested that stirring up publicity would help scuttle the Pepsico deal. The memo, which was filed with other documents in U.S. District Court, came to light in a report in the Wall Street Journal.
Dr Pepper was purchased by a group of investors for $650 million in 1984, but the buyers then sold off the company's Canada Dry division, nine bottling plants and some other assets. Dr Pepper's sales grew 8 percent last year.
Coke has been struggling for years to retain its top ranking against the aggressive challenge of Pepsico. In 1985, industry analysts said Pepsi finally managed to capture first place with its name brand, Pepsi-Cola, although it remained second in overall sales of all company brands.
Pepsi-Cola captured 18.6 percent of soft drink sales last year, according to Beverage Digest.
Coca-Cola Co., based in Atlanta, produced Coca-Cola Classic, Coke, Caffeine Free Coke, Diet Coke, Caffeine Free Diet Coke, Cherry Coke, Tab, Caffeine Free Tab, Sprite, Diet Sprite, Fanta flavors, Fresca, Mello Yello, Mr. Pibb, Minute Maid and Diet Minute Maid brands.
Dr Pepper, based in Dallas, produced Dr Pepper, Diet Dr Pepper, Pepper Free and Sugar Free Pepper Free.