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Justice Department bids sweet dreams to big sugar merger

Federal antitrust regulators warn that the consolidation would eliminate a Georgia sugar producer whose competition keeps prices down for everyone.

WILMINGTON, Del. (CN) — A major U.S. sugar manufacturer's $315 million plan to buy out its rival could leave an acrid taste in the mouths of consumers, the Justice Department warned, saying those who bake or just sweeten their coffee will bear the costs.

Attorney General Merrick Garland filed suit Tuesday in Delaware, alleging that the merger of U.S. Sugar and Imperial Sugar would create a duopoly in the southeast United States.

Imperial Sugar operates an independent sugar refinery out of Savannah, Georgia, selling directly to customers, and made more than $700 million in 2020, according numbers cited by the Justice Department. 

According to the federal complaint, Imperial's parent company Louis Dreyfus Co., which operates out of Sugar Land, Texas, agreed this past March to a $315 million acquisition offer from the Florida-headquartered U.S. Sugar.

“If U.S. Sugar is allowed to acquire Imperial and to fold Imperial’s production into the United cooperative, United and just one other company, American Sugar Refining, would account for nearly 75 percent of sugar sales across the Southeast, leaving wholesale customers in this region at the mercy of a cozy duopoly,” the complaint states “As a result, fragile supply chains would be further strained, and American families would pay more for sugar and many staple food and beverage products.”

The 27-page filing explains that food-grade sugar, whether it has molasses added to it to make brown sugar or pulverized with corn starch to make powdered sugar, is first produced by the refinement of either sugar beets or raw cane sugar.

With the average American consuming 40 pounds of the substance last year, the government notes that profit margins have been strong at both U.S. Sugar and Imperial Sugar. Among the few companies that refine sugar in the United States, according to the complaint, the duo make up half of the four that produce dry refined cane sugar. Rounding out the quartet are the Louisiana Sugar Refinery and Domino, whose full name is American Sugar Refining.

The Florida-headquartered Domino is the third major U.S. sugar provider in the Southeast region, but U.S. Sugar is “the world’s largest vertically-integrated cane sugar milling and refining corporation,” producing roughly 850,000 tons of refined sugar per year, according to the complaint. The corporation sells its refined sugar through United Sugars Corp., a Minnesota-based subsidiary that it co-owns with three more companies in the field. In 2020, regulators say, United generated $1.8 billion in sales. 

Once U.S. Sugar swallows up Imperial, the Justice Department warns that United could raise prices while also facing less pressure to provide reliable service and a good product. Down the line, everyone from food and beverage manufacturers, retailers, distributors and American families would feel harm from that, according to the complaint. 

Attorney General Merrick Garland said in a statement Tuesday that his department is committed to robust antitrust enforcement in the interest of protecting economic opportunity and fairness for all. 

“We will not hesitate to challenge anticompetitive mergers that would harm American consumers and businesses alike,” Garland said.

Assistant Attorney General Jonathan Kanter, whose name is signed to the complaint, emphasized that U.S. Sugar and Imperial Sugar are already multibillion-dollar corporations and that their merger would eliminate the competition in the area that ensures lower prices, higher quality and reliable service.

“This deal substantially lessens competition at a time when global supply chain challenges already threaten steady access to important commodities and goods,” added Kanter of the Justice Department’s Antitrust Division. “The department’s lawsuit seeks to preserve the important competition between U.S. Sugar and Imperial Sugar and protect the resiliency of American domestic sugar supply.”  

In its complaint, the federal agency asked the court to bar the parties from merging. 

“Defendants have claimed that this deal would allow U.S. Sugar to improve Imperial’s operations. But such improvements can be achieved without eliminating the significant competition at stake in this deal,” the suit states. “Time and again, history has shown that competition — not consolidation — drives corporations to improve their products. Grocers, food and beverage manufacturers, and consumers will be better off if these rivals continue to compete for their business.”

Because the Imperial refinery is located in Savannah, prosecutors say, Georgia and its bordering states — including Alabama, Delaware, the District of Columbia, Florida, Georgia, Kentucky, Maryland, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, and West Virginia — would see the most harm from the merger.

Around 5.5 billion pounds of refined sugar are purchased each year in this area, according to an estimate from the Justice Department. It notes that transportation costs hike up the total price customers pay for refined sugar, so the nearest sugar producers tend to be the lowest prices for customers.

Louis Dreyfus is a Delaware corporation that is headquartered in the Netherlands and a global leader in the sugar industry netting $33 billion in 2020.

Representatives at U.S. Sugar and Imperial Sugar did not immediately respond to request for comment Tuesday.

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