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I bought in yesterday, so it follows that this report would come out today:

FTC could try to block Pepsi-Quaker merger

By Paul Davidson and Theresa Howard, USA TODAY

Federal Trade Commission staff plans to recommend that the agency go to court to try to block PepsiCo's $13.4 billion takeover of Quaker Oats, citing concerns that the deal hurts competition in the sports-drink market, people familiar with the matter say.

Quaker (OAT) stock fell Thursday, dropping $4.15, or 4.2%, to $93.65 in morning trading. Pepsi (PEP) stock was up 29 cents, or 0.6%, at $45.83.

Quaker makes Gatorade, by far the dominant brand with 78% of the sports-drink market. It is the most-prized asset for Pepsi in the merger. Pepsi, however, already markets All Sport, the No. 3 brand with 4.4%. Coca-Cola's Powerade is No. 2 with 15%.

Pepsi had said it would sell All Sport to Monarch, which makes Dad's root beer, as a condition for merger approval. FTC officials were not appeased, fearing All Sport would wither in the hands of tiny Monarch.

Pepsi responded that it would sell to Monarch anyway, say people who know of the response. Pepsi said they have agreed on terms but would not reveal them.

Some experts say that if that sale closes, the FTC's case against Quaker is eviscerated. And while it could review the All Sport sale, it would have no basis to stop it, says Bob Lande, law professor at the University of Baltimore. "(Pepsi) gets away with it," he says.

Other antitrust experts disagree, saying the FTC could move to block the All Sport sale on the grounds that it, in tandem with the Quaker deal, is an attempt to squash competition.

Even if Pepsi still owns All Sport, the FTC's case against the Quaker merger would not be clear sailing, experts say. The FTC would likely argue in court that All Sport, with Pepsi's marketing muscle behind it, eventually could be a serious rival to Gatorade.

Pepsi would likely counter that it had given up trying to promote All Sport in recent years and had no plans to do so. And Pepsi likely would contend that while the deal would give it dominance in the sports-drink market, the court should consider the deal in the context of the overall market for soft drinks, of which Gatorade is a small slice.

The review of the deal also is complicated at the FTC by the transition to Bush administration appointees. While Democratic appointees now enjoy a 3-2 majority on the commission, Chairman Robert Pitofsky steps down next month. He will be replaced by Bush appointee Timothy Muris, who would be "less likely to challenge" the merger, Lande says.

Other lawyers say Muris likely would recuse himself from reviewing the deal because, as an attorney, he has represented Pepsi.

The FTC's blockage of the merger "would be a major negative for Pepsi," which is banking on Gatorade and Quaker's healthy snack foods to fuel growth, says analyst Bill Pecoriello of Sanford C. Bernstein.

Pepsi is publicly confident. "We expect to complete the (Quaker) deal by the end of June," spokesman Dick Detweiler says.

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