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Cola buyout curbs focus on antitrust

The long-running race between Coca-Cola and Pepsi-Cola to be the world's No. 1 soft-drink company was slowed to a walk this week. The Federal Trade Commission told a federal judge Tuesday that pending PepsiCo and Coca-Cola takeovers may substantially reduce competition in the industry.

Seeking a preliminary injunction, the FTC wants to block both Pepsi's $380 million bid to buy Seven-Up and Coke's $470 million purchase of Dr Pepper. Royal Crown Cola Company had filed suit last week in Columbus, Ga., to block the acquisitions. A temporary restraining order was issued.

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In response to FTC objections, Philip Morris, which owns Seven-Up, says the agreement to sell the company to PepsiCo is off and that it is looking elsewhere for a buyer. Analysts, however, think PepsiCo may still be able to purchase Seven-Up's overseas operations.

Coca-Cola, on the other hand, says it still intends to buy Dr Pepper and will fight the FTC and the restraining order in court.

The FTC's concern is domination of the soft-drink industry, analysts say. Yet, despite those worries and the FTC action, the two soda pop giants already have a virtual stranglehold on the market, analysts say.

If the Coke and Pepsi acquisitions had been approved, some 80 percent of the market would have belonged to the two companies. Coke now has about 39 percent of the soft-drink market and PepsiCo about 29 percent. Seven-Up holds 7 percent and Dr Pepper about 6.5 percent.

``The smaller soft-drink companies are fighting a losing battle as it is,'' says William Wise, an analyst with Value Line Investment Survey. ``But there are still many small companies hanging in there.''

Mr. Wise and others say the stand taken by the FTC was perhaps the most remarkable aspect of the case. It is an infrequent example, they say, of Reagan administration appointees saying ``no'' to major business buyouts.

``It indicates there is an upper limit. We didn't really know that there was one until now,'' says Robert Harris, an antitrust specialist and professor of business at the University of California, Berkeley.

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At the least, it will focus attention on other pending acquisitions. Cadbury-Schweppes PLC recently agreed to buy Canada Dry and Sunkist brands from RJR Nabisco for about $230 million.

Of course, the two companies are not quite back at Square 1. If Pepsi succeeds in acquiring the overseas operations of Seven-Up, it will gain 20 percent of the overseas market. That would give it a greater presence in a highly profitable area that Coke dominates.

Analysts believe that staying No. 1 was on management's mind when Coke made its move to buy Dr Pepper after Pepsi agreed to buy Seven-Up. By jumping in with its own acquisition, Coke may have figured the FTC would reject both bids -- as it has done -- and that Coke would thus maintain its lead over Pepsi.

Yet, ``this is not a major setback to either company's long-term acquisition plans,'' says Emanuel Goldman, an analyst with Montgomery Securities in San Francisco. ``This is purely opportunistic.

``As far as soft drinks go, it's business as usual. They [Coke and Pepsi] were in a situation where if they win, they win -- and if they lose, they go back to the way things were. . . . Coke's move for Pepper was a direct function of Pepsi's move for Seven-Up.''

At least one small soft-drink company trying to ``hang in there'' welcomed the FTC decision.

The Vernors Company, owned by United Brands, sells most of its unique ginger ale in Midwestern states and some parts of the South and West. The company also has plans to ``expand as opportunity presents itself'' in places such as Dallas and New York.

``It's still difficult to compete,'' says Vernors president Joseph MacGilvray. ``But it's easier to compete in the near term [with the FTC ruling] than it might have been over the next four or five years.''

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