Sugar industry attorneys paint takeover target Imperial as weak; Justice Department fears coordination
United States Sugar Corp., a Florida company that markets sugar cooperatively with Red River Valley sugarbeet growers through United Sugars, is seeking to purchase Imperial Sugar Co. The U.S. Department of Justice is suing to block the purchase.
WILMINGTON, Delaware — Tom Cruise plays Pete “Maverick” Mitchell in the summer blockbuster movie “Top Gun: Maverick.” But defense lawyers are panning Imperial Sugar as a “maverick” in the sugar industry.
“Imperial is a high-cost refiner that struggles to compete; it is not a ‘maverick,’” attorneys for the sugar industry say in court filings in the case of a proposed purchase of Imperial.
The Department of Justice is suing to stop United States Sugar Corp. from buying Imperial Sugar, arguing that consolidation in the sugar business would be bad for consumers, especially those in the southeast U.S., where United States Sugar and Imperial refine cane sugar.
Also named in the lawsuit is Minnesota-based United Sugars Corp. United Sugar is a marketing partnership that includes United States Sugar, as well as three sugarbeet cooperatives: American Crystal Sugar, based in Moorhead, Minnesota; Minn-Dak Farmers Co-op, based in Wahpeton, North Dakota; and Wyoming Sugar.
Attorneys for the two sides made their arguments before a federal judge in Delaware in April. The judge then asked the attorneys to file briefs supporting their cases; those were filed in late May. It is unclear when the judge might rule in the case.
United States Sugar, with a refinery in Florida, wants to buy Imperial Sugar, which has a refinery near the port city of Savannah, Georgia. Imperial is owned by Louis Dreyfus, an international agribusiness based in Holland.
Louis Dreyfus “has been trying to sell Imperial over the past five years,” defense attorneys note in their filings. “Absent acquisition by U.S. Sugar, Imperial’s CEO is “quite worried” about Imperial’s future prospects.”
U.S. Sugar says it would invest in the Georgia refinery making it and the whole company more efficient, which it says will keep prices lower for consumers. Attorneys say by acquiring Imperial’s retail brands, it will be able to offer products it currently can’t make at its Florida refinery, including brown and powdered sugar, and various sizes of bagged products.
The Justice Department for its case cites an Imperial analysis describing U.S. Sugar as a “close competitor,” and that the merger is clearly illegal.
“Defendants argue repeatedly that Imperial is a ‘residual or backup seller,’ based on nothing more than their executives’ say-so. But that — even if true — does not negate the evidence of head-to-head competition in the record.”
A footnote in the federal governments notes that the “Defendants wrongly suggest that the United States must show Imperial is a ‘maverick’ firm … .” But continues that Imperial need not be a maverick, “the question is simply whether the merging parties are close substitutes … ”
“The acquisition of even a less ‘effective’ competitor can still cause harm.”
The Justice Department also asserts that United Sugars and Domino Foods are already exchanging too much information to ensure fair markets.
“There was overwhelming evidence at trial that Domino and United, the industry’s two largest players, are already coordinating by exchanging detailed, competitively sensitive information through an intermediary in a manner that can help would-be competitors coordinate on limiting competition,” the Justice Department argues.
The sugar industry counters that information is shared with third-party industry analysts. “Those documents, however, do not show actual coordination or that the industry is vulnerable to coordination.”
“The only pricing information that United and Domino shared was publicly available,” the filing continues. “The prices United shared … are spot or ‘list’ prices (and not the price paid by any particular customer).”
The sugar industry cited reasons why coordination is unlikely, including:
- Sugar is sold to sophisticated customers who use requests for proposals, blind-bidding, and long-term contracts.
- Suppliers cannot restrict output.
- Output is variable, citing the sugarbeet freeze of 2019 as an example.
- Pricing is customer specific and every contract is different.
- Demand for sugar is elastic.
Much of the legal sparring in the briefs includes each side trying to thwart testimony and analysis of economic experts on the sugar trade in the U.S. and how non-producing distributors affect competition.
Another argument put forth by the sugar industry is that it is already federally regulated, citing the testimony of Barbara Fecso of the U.S. Department of Agriculture.
The briefing says Fecso testified that “if, for some reason, United (Sugars) did try to raise prices, and if, for some reason, the domestic supply response were not enough to lower prices back down, then USDA has ample tools available that it could use to increase supply and lower prices.”