In a ruling on Tuesday, U.S. District Judge Steven Seeger in Chicago said the risk of unfair prejudice against the egg producers and marketers by showing the graphic videos was “extreme” and outweighed any minimal value in the antitrust litigation accusing them of curbing domestic supply in order to charge higher prices.

“After watching the videos, it would not take much for jurors to believe that the egg industry abuses chickens,” Seeger wrote.

Kraft and the other plaintiffs wanted to play the videos at the trial next month to bolster their claim that an industry-wide animal welfare initiative announced in 2002 was a “sham” and actually part of a broader scheme to restrain the supply of eggs.

Seeger’s ruling on the videos was among several orders he issued on Tuesday addressing the scope of what jurors will be allowed to see and hear at the five-week trial.

Kraft and the other plaintiffs, also including General Mills and Nestle, are seeking more than US$110 million in damages against United Egg Producers and other defendants, including two farms.

Lawyers for the defendants on Wednesday did not immediately respond to a request for comment.

Representatives for Kraft and the other companies either declined to comment or did not immediately respond to a request for comment.

Seeger is presiding over a case that was previously in Philadelphia federal court as part of a multidistrict litigation proceeding. Kraft’s case returned to the Northern District of Illinois in 2019.

Lawyers for Kraft and co-plaintiffs said they obtained the videos from the Humane Society of the United States. They purport to show “day-to-day operations within defendants’ facilities.”

In a court filing, attorneys for United Egg Producers and the other defendants said the videos were “surreptitiously” recorded by animal rights activists and include “highly edited footage.”

The attorneys also said the recordings were irrelevant to the plaintiffs’ claims.

Seeger said the plaintiffs’ lawyers do not need the videos to argue that the egg industry’s promotion of animal welfare was not genuine.

“After personally watching all of the videos, the court is convinced that the videos would undermine the truth-seeking function of the trial,” Seeger wrote.

— Mike Scarcella is a Reuters legal affairs reporter in Washington, D.C.

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Kraft Heinz, which was Kraft Foods until 2015, and snack food firm Mondelez bought $90 million of December 2011 wheat futures, which gave the companies a dominant position in the market, even though they never intended to take possession of the grain, the CFTC said (all figures US$).

The move sent a false signal that the companies had demand for wheat and caused an artificial price fluctuation that earned them more than $5 million in profits, the CFTC said.

Both companies said they strongly disagree with CFTC’s statement, which “blatantly violate and misrepresent the terms and spirit of the consent order” and will be seeking immediate relief from the court.

The commission first filed its complaint against the two firms four years ago, focusing on trading alleged to have taken place before Mondelez spun off from Kraft in 2012.

The CFTC said the companies’ goal was to narrow the price spread between the December 2011 and deferred-month wheat futures contracts, causing the market to sell cash wheat to the companies at lower prices, while earning them a profit on their speculative futures positions.

Wheat futures and options traders had also accused the companies of illegally manipulating the grain’s price at their expense.

The penalty is about three times the companies’ alleged gain, the CFTC said in a statement.

— Reporting for Reuters by Nivedita Balu in Bangalore.

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The federal Competition Bureau on Thursday said it issued a “no action letter” to the two companies and would put up a position statement detailing its reasons in the “coming days.”

The deal is expected to give Milan-based Parmalat ownership of three natural cheese brands in the Canadian market: Cracker Barrel, aMOOza! and P’tit Quebec.

That brand portfolio carries “high added value” in the Canadian market, Parmalat said in November when it announced the deal, and would allow it to leverage Cracker Barrel as a complementary brand to its own Black Diamond natural cheese.

Parmalat’s other dairy brands in Canada today include Beatrice, Lactantia, Astro and Balderson. It said in November the deal will allow it to “improve its positioning throughout Canada, with particular reference to Quebec, a region in which Parmalat Group currently has a limited penetration, and to other areas of the country in which the group is not present.”

The deal also gives Parmalat the Kraft Heinz cheese processing plant at Ingleside, Ont., about 85 km southeast of Ottawa, and its “relevant volumes of milk quotas.” The plant today employs about 400 people, who would become Parmalat staff when the deal closes.

The Competition Bureau reiterated Thursday its mandate includes reviewing mergers and acquisitions such as this one to see whether they’re likely to result in a “substantial lessening or prevention of competition.”

The bureau also noted that, for the first time in such a review since federal amendments to the Competition Act in 2009, it obtained a federal court order requiring executives of the two companies to be interviewed under oath by bureau investigators.

The bureau said its review gathered evidence and information from “key market participants” including grocery retailers, food service companies, regulators, industry associations and cheese processors.

Kraft Heinz CEO Bernardo Hees, in a separate release in November, said the deal will allow the U.S. company to “focus on the segments and categories where we have stronger brand equity, competitive advantage and greater growth prospects.”

Kraft Heinz’s cheese market space in Canada still includes brands such as Philadelphia, Cheez Whiz and Kraft Singles, made at Mount Royal, Que., where the company employs about 900 people.

Kraft Heinz, which plans to use proceeds from the deal to pay down debt, said in November the cheese business being sold produced about $560 million in net sales in 2017. — Glacier FarmMedia Network

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Kraft had made a surprise offer for Unilever to build a global consumer goods behemoth — an offer flatly rejected on Friday by London- and Rotterdam-based Unilever, whose food brands in Canada include Becel margarine, Ben and Jerry’s ice cream, Knorr soups, Lipton tea and Hellmann’s mayonnaise.

Kraft withdrew its offer because it felt it was too difficult to negotiate a deal following the public disclosure of its bid so soon after its approach to Unilever, according to people familiar with the matter who requested anonymity to discuss confidential deliberations.

Kraft had not expected to encounter the resistance it received from Unilever, one of the people said. Some key concerns raised during talks included potential U.K. government scrutiny, as well as differences between the companies’ cultures and business models, the person added.

“Kraft Heinz’s interest was made public at an extremely early stage,” Kraft Heinz spokesman Michael Mullen said in a statement. “Our intention was to proceed on a friendly basis, but it was made clear Unilever did not wish to pursue a transaction. It is best to step away early so both companies can focus on their own independent plans to generate value.”

Kraft was forced to publicly disclose its offer on Friday to comply with Britain’s takeover regulations, after rumours of its approach to Unilever circulated among stock traders.

Under U.K. takeover rules, Kraft’s public withdrawal of its offer precludes it from reviving takeover talks with Unilever for six months.

A combination would be the third-biggest takeover in history and the largest acquisition of a U.K.-based company, according to Thomson Reuters data. The combined entity would have US$82 billion in sales.

The premature exposure of Kraft’s bid left the aggressive acquisition machine scrambling to craft an appetizing message for shareholders, the press, Unilever’s rank and file, and British and Dutch leaders.

Prime Minister Theresa May ordered top officials to investigate if the proposed deal posed potential threats to British economic interests, the Financial Times reported.

May has been adamant the government should be more active in vetting proposed foreign acquisitions of U.K. companies. She had previously singled out Kraft’s 2010 acquisition of another British household name, Cadbury, as an example of a deal that should have been blocked.

A deal for Unilever would have marked the next instalment of Brazilian private equity firm 3G Capital Management’s longstanding strategy of buying food companies and slashing costs.

In 2013, 3G teamed up with billionaire investor Warren Buffett to acquire Heinz and then purchased Kraft two years later. It is now the second-largest shareholder in Kraft, behind Buffett’s Berkshire Hathaway.

Unilever feared that a merger with Kraft, under 3G Capital’s relentless cost-cutting, risked eroding the value of its brands and could impede its expansion in emerging markets, which requires more investment, according to people familiar with the company’s thinking.

Unilever also saw its household products and consumer care divisions as too distinct from Kraft’s food business, the people added.

3G made its name in corporate America by orchestrating large debt-laden acquisitions and then slashing costs dramatically to juice profits. Using a strategy called zero-based budgeting, its managers must justify all expenses, from pencils to forklifts.

Kraft still hungry?

The breakdown in deal talks sparked speculation among analysts and investors about whether Kraft might attempt to purchase another large consumer goods company as a backup plan.

“We believe this announcement serves as a reminder — if needed — of (Kraft’s) interest, capacity, and commitment to pursuing large-scale M+A in a potentially near-term time horizon,” said Barclays analyst Andrew Lazar in a note.

Its bid for Unilever, where more than 60 per cent of sales come from home and personal care products, signals a willingness to make big buys outside of its historic area of focus — food — said Sanford Bernstein analyst Ali Dibadj.

He cited Colgate-Palmolive as one potential target, noting that its stock popped four per cent Friday on news that Kraft was eyeing Unilever.

However, the breakdown of the Unilever talks means that some food companies that have long been speculated as potential targets for Kraft, such as Mondelez, are still very much on the table, said an industry banker, who declined to be named because he was not authorized to speak to the press.

Low interest rates and cheap debt have fuelled big cross-border deals, marking the busiest start to the year for M+A activity on record. The bid also reflected a broader interest in UK companies as acquisition targets, in part due to the British pound, which has been under pressure since Britain announced plans to withdraw from the European Union.

Labour union representatives expressed relief that the deal talks broke down, citing concern about its potential effect on jobs and consumers.

“How many scares must the government put U.K. workers through before they actually do as they have promised, which is to make the takeover process socially responsible?” said Len McCluskey, general secretary at Unite, Britain’s largest union.

— Carl O’Donnell reports on mergers and acquisitions for Reuters from New York. Reporting for Reuters by Ismail Shakil in Bangalore, Pamela Barbaglia in London and Lauren Hirsch and Greg Roumeliotis in New York.

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3G made its name in corporate America by orchestrating large debt-laden acquisitions and then slashing costs dramatically to juice profits. Using a strategy called zero-based budgeting, its managers must justify all expenses, from pencils to forklifts.

Its investment approach has attracted backers ranging from billionaire investor Warren Buffett, who has helped bankroll all four major 3G deals, to celebrities such as supermodel Gisele Bundchen and tennis champion Roger Federer, who invested in 3G’s latest approximately $10 billion fund (all figures US$).

This relentless focus on costs, however, may end up making Kraft’s pursuit of Unilever more difficult. In rebuffing Kraft’s bid publicly on Friday, Unilever cited “strategic” in addition to financial reasons.

While sources told Reuters that Kraft believes that investing in innovation would be an important part of the combined company, analysts have begun to question whether 3G’s operational approach hinders Kraft’s ability to grow over the long term.

“We can understand how some investors could wonder if Kraft’s efficiency-centric model is as sustainable as many have believed,” Barclays analysts said earlier this month.

Kraft’s sales were down 3.8 per cent to $6.86 billion in the fourth quarter of 2016. Kraft has attributed the decline in sales to a pruning of its portfolio, as it weeds out non-profitable products. It sees tight operational management as perfectly compatible with sales growth.

London- and Rotterdam-based Unilever — whose food brands in Canada include Becel margarine, Ben and Jerry’s ice cream, Knorr soups, Lipton tea and Hellmann’s mayonnaise — defines itself as a business “making sustainable living commonplace.”

This means putting money with an eye beyond the immediate bottom line, such as products with low environmental impact and resources toward bringing safe water to under-served regions.

“(The rebuff of Kraft) makes us also wonder if Unilever’s focus on sustainability might make it very resistant to any further approach from Kraft,” said Royal Bank of Canada analyst David Palmer.

Adding to Kraft’s challenges, the U.S. consumer food company will need to either integrate or find other options for Unilever’s household and personal care (HPC) business, which makes products such as toothpaste, soaps and detergents.

“It seems plausible that the HPC piece of (Unilever) then becomes a merger partner for something 3G might do on its own in HP. In other words, this could be part one of a huge two-step process,” said Don Bilson, head of research at event-driven research firm Gordon Haskett.

Kraft, Unilever and 3G Capital declined to comment.

Management philosophy brewed at Anheuser Busch

Co-founded by Brazilian billionaire financier Jorge Paulo Lemann, 3G combined Kraft and H.J. Heinz Co in 2015 to create a company that now has a $112 billion market capitalization, and combined Burger King and Tim Hortons in 2014 in a $11 billion deal.

The 3G management philosophy was developed by Lemann and Brazilian investment bankers Marcel Herrmann Telles and Carlos Alberto Sicupira, and pioneered at Budweiser brewer Anheuser Busch InBev, the world’s biggest brewer, which they helped create through a series of big mergers.

Lemann, Telles and Alberto Sicupira made their mark at Banco Garantia, the investment bank they founded in Brazil in the 1970s. After selling it to Credit Suisse Group AG in 1998, they formed private equity firm 3G to invest in U.S. consumer names.

After 3G teamed up with billionaire Buffett to buy Heinz in 2013, they closed six factories and cut 7,000 jobs in 18 months. Operating margins jumped from 18 per cent to 26 per cent.

Lemann, Brazil’s richest man and a former tennis pro, once served on the board of Gillette, where he met Buffett, who has partnered with Lemann on Heinz and Kraft and has said he would like to do more deals.

While 3G is often seen as extreme — at Heinz they limited employee use of company printers to 200 pages per month, requiring double-sided printing — zero-based budgeting has been adopted elsewhere, such as at Oreo cookie maker Mondelez International.

— Reporting for Reuters by Michael Flaherty and Lauren Hirsch in New York.

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Ardent Mills, the joint North American flour venture of agrifood giants Cargill, CHS Inc. and ConAgra, announced Thursday it will buy the former Kraft Milling operation in Mississauga, Ont. from Mondelez Canada for an undisclosed sum.

The site of the Mondelez facility, along the Credit River in Mississauga’s Streetsville area, has hosted flour milling operations since the 1830s, but ramped up operations starting in 1968, when it converted from a river-powered operation to a pneumatic electric-powered mill.

The mill operation was sold to cookie manufacturer Christie Brown and Co. in 1969, then went to Kraft Foods in 2000. In 2012 the mill became part of snack giant Mondelez Canada, formed when Kraft spun off its grocery business, including the Christie and Nabisco cookie and cracker lines.

According to the Ontario Municipal Board (OMB), the Mississauga mill is the largest soft wheat flour mill in Canada and the second-biggest in North America, sourcing wheat primarily from growers in the surrounding region.

As of 2009, the facility had peak annual production capacity of 130,000 tonnes of soft wheat and hard wheat flour.

The deal, expected to close in the next few weeks, marks Ardent’s first acquisition since the joint venture was formed last year.

Ardent said Thursday the Mississauga mill, which makes soft- and hard-wheat flours for Mondelez brands and for other processors, will “add to its capabilities to serve food manufacturers across Canada.”

The mill’s staff, which today numbers over 30 people, is expected to join Ardent when the deal closes, the company said.

Ardent CEO Dan Dye said the mill has a “strong team in place” and the buyer wants to “nourish this facility and its people as we serve our Canadian customers and ultimately consumers with safe, nutritious grain-based products.”

Dye said the company is “excited about this mill’s future and we’re confident we can leverage our innovation and supply chain capabilities, after the transaction closes.”

The expanding Mississauga mill in recent years has run up against residential development of the surrounding area.

Kraft, at the OMB in 2009, successfully appealed against a move by Mississauga officials that would have limited any further expansion of mill operations to five per cent of the existing plant floor space. The city’s move would also have allowed nearby land to be redesignated for high-density residential development.

Ardent’s other operations in Canada include the former Robin Hood flour mills in Montreal and Saskatoon; the former Robin Hood dry baking mix plants at Burlington, Ont. and Saskatoon; and a product development facility at Burlington.

Horizon Milling, the ConAgra/CHS venture that brought those assets to Ardent, had also planned in late 2011 to build another flour mill on land it owns at Guelph to serve food processing customers in the southwestern Ontario market. — AGCanada.com Network

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Heinz, backed by Warren Buffett’s Berkshire Hathaway and Brazilian private equity firm 3G Capital — known as an aggressive cost-cutter — combined with Kraft in March in a $46 billion deal that created the third-largest North American food company (all figures US$).

Kraft Heinz currently has about 46,000 employees, including about 1,900 at the company’s headquarters, spokesman Michael Mullen in an emailed statement to Reuters on Wednesday.

The combined Kraft Heinz has said it expects to save about $1.5 billion in annual costs by the end of 2017.

After buying Heinz in 2013 with Berkshire Hathaway, 3G cut 7,000 jobs over 18 months and closed six factories.

It also implemented many smaller curbs on spending, such as limiting employee use of company printers to 200 pages per month.

Kraft Heinz shares were down 0.8 per cent at $77.32 in early trading. The shares have risen about nine per cent since they started trading on July 6.

— Reporting for Reuters by Yashaswini Swamynathan in Bangalore.

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Canada’s Competition Bureau has confirmed that it wrapped its review of the proposed deal and issued its “no action” letter to the companies on Wednesday.

A “no action” letter, in such deals, confirms the bureau will not challenge the proposed transaction at Canada’s Competition Tribunal, as per the merger provisions of the federal Competition Act.

The bureau, in its review, is “satisfied that the proposed transaction is unlikely to result in a substantial lessening or prevention of competition in any relevant market in Canada.”

The decision follows the expiration Tuesday of the U.S. government’s mandatory waiting period on the Heinz/Kraft deal, as per the federal Antitrust Improvements (Hart-Scott-Rodino) Act.

Among other closing conditions, the deal now requires a vote by Kraft shareholders, scheduled for a special meeting on July 1, Kraft said in a release Wednesday.

The deal calls for Heinz to take a 51 per cent stake in what would be called the Kraft Heinz Co., giving Kraft shareholders one share in the combined company plus a special US$16.50 cash dividend for every Kraft share held.

The deal, which gives Kraft stakeholders 49 per cent of the new company, is expected to create North America’s third-largest food and beverage company, and the world’s fifth largest.

Market analysts previously predicted a Heinz/Kraft pairing wouldn’t face any major antitrust hurdles as the two companies have relatively little overlap in their product lines.

Kraft, whose facilities in Canada include two processing plants and three distribution centres, has cheeses, processed meats, packaged meals and coffee in its product lines. Heinz, whose assets include two processing plants in Ontario, is well known in ketchup, sauces and frozen foods.

The deal is seen as giving Heinz access to the Kraft brands, which are believed to be in 98 per cent of North American households. Heinz’s international infrastructure, in turn, is expected to help capitalize on “untapped opportunity” overseas for the Kraft lines.

Combined, the Kraft Heinz Co. would have eight brands it estimates as worth over US$1 billion each, including Kraft, Heinz, Oscar Meyer, Philadelphia, Velveeta, Lunchables, Maxwell House and Planters, and five other brands worth over US$500 million each, including Jell-O, Kool-Aid, Cracker Barrel, OreIda and CapriSun. — AGCanada.com Network

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Nestle chairman Peter Brabeck-Lemathe told the company’s annual shareholder meeting the creation of Kraft Heinz Co. and Jacobs Douwe Egberts, as well as “spectacular” growth of some other companies in developing markets, required two things of Nestle in order to remain the global leader.

“First of all, an acceleration in our policy of adjusting our portfolio of activities and at the same time better use of our size,” Brabeck said.

Nestle, the world’s biggest food group by sales, has already taken steps toward both of those goals. It has sold underperforming businesses including PowerBar and the bulk of Jenny Craig, and created a new executive board role to oversee several corporate support functions globally. The move was aimed at making the most of its scale.

In Canada, Nestle’s business includes 21 processing plants, distribution centres and sales offices across the country, with brands in pet foods, baby foods, frozen pizzas and desserts, prepared meals, coffee and chocolate.

Nestle’s acquisitions in recent years have included Kraft’s Delissio frozen pizza business in Canada and the U.S., the Gerber line of baby foods and, in 2012, Pfizer’s infant-nutrition product lines, such as Materna vitamins.

Brabeck’s comments come three weeks after the announcement that H.J. Heinz agreed to buy Kraft Foods, backed by Warren Buffett’s Berkshire Hathaway and private equity firm 3G Capital, creating the third-largest packaged food company in North America.

“Ruthless”

“3G and Buffett have pulverized the food industry market, particularly in America with serial acquisitions,” Brabeck said. “3G’s partners are known in our industry for ruthless cost-cutting and have already proven numerous times that they are capable of reducing operating costs in particular by between 500 and 800 basis points, which has a revolutionary impact on all the other members of the industry.”

A spokesman for 3G declined to comment on the remarks.

3G’s founders orchestrated the formation of Anheuser-Busch InBev, and the takeovers of Burger King, Tim Hortons and Heinz.

European coffee company D.E. Master Blenders is in the process of forming a joint venture with the coffee business of Mondelez International. The combined company will be the world’s largest standalone coffee company, though it will still be far behind Nestle’s coffee business.

Brabeck also voiced support for the Swiss National Bank’s recent currency move, saying the stronger Swiss franc would aid Swiss competitiveness in the long run by encouraging innovation. He also dismissed the possibility of Nestle moving to report in any other currency.

“I’ve often said that for as long as the Swiss flag flies over our corporate buildings, Nestle will stick with the Swiss franc,” he added.

— Martinne Geller is a Reuters correspondent covering the European consumer goods sector from London. Includes files from AGCanada.com Network staff.

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The regulator alleged that Kraft and Mondelez bought $90 million of wheat futures, or a six-month supply, but never intended to take delivery of the grain (all figures US$).

The two then earned more than $5.4 million in profits as a result of market shifts in reaction to the enormous position, the CFTC said in its complaint.

“A market participant who is not happy with cash prices available to it may not resort to manipulative trading strategies in an attempt to artificially lower that price,” CFTC enforcement head Aitan Goelman said in a statement.

The regulator said it was seeking a permanent injunction from future violations by the two companies, as well as disgorgement and civil monetary penalties.

Kraft said it did not expect the matter to have a financially material impact and that Mondelez International would predominantly bear the costs of the matter.

The complaint focused primarily on trading that occurred before the two companies split in 2012, Kraft said.

Mondelez declined to comment. It has said in a previous regulatory filing that it was being investigated by the CFTC, and that it would seek to resolve the matter prior to any formal action being taken. It said at the time it expected to predominantly bear the cost of the probe, but that this would not have a material effect on results.

The CFTC said that the companies had also violated speculative position limits, and that they had engaged in numerous noncompetitive trades in wheat.

— Reporting for Reuters by Douwe Miedema and Anjali Athavaley in Washington, D.C. and New York City.

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