Unilever's Sara Lee Deal Hits Speed Bump in EU Over Antitrust Fears

Unilever's (UN) $1.3 billion proposal to acquire Sara Lee's (SLE) household and body products operation hit a snag Monday when European antitrust regulators announced they are opening a deeper investigation into the proposed transaction.

Antitrust regulators are particularly concerned about the overlap between the companies' deodorant, skin cleansing and fabric care product lines in specific European countries. They fear the Unilever move could eliminate an alternative supplier for these products and potentially lead to higher prices for consumers.

"This merger creates significant overlaps in a number of products used by consumers on an everyday basis. We need to make sure that if there are competition concerns these are duly addressed so that consumers are not harmed," said Joaquin Almunia, the Competition Commissioner for the European Commission, in a statement Monday.

In an in-depth investigation that examines overlapping products and markets, companies typically agree to sell off the product lines in the offending markets to a third party as a means to allow the rest of the deal to go through. In some cases, however, the companies may find that spinning off such operations may make doing the deal far less attractive, and walk away if it appears antitrust regulators are unwilling to bend.

During the initial review of the merger, Unilever and Sara Lee did not propose any divestitures to European antitrust regulators, as is usually the case in such deals until it appears a transaction may hit rough regulatory waters.

Under the merger proposal announced in late April, Unilever agreed to pay 1.275 billion euros in cash for the Sara Lee Personal Care and European Laundry business. The proposed transaction would involve Sara Lee's market leaders Sanex, Radox and Duschas brands, as well as oral care brands Zendium, Prodent and others. These brands generated 750 million euros last fiscal year.

The Commission noted it will render a decision on whether to challenge the deal by Oct. 5 and that its in-depth investigation is not a final prejudgment on the merger proposal.

Unilever apparently was prepared for the Commission's decision to take a deeper look into the transaction. Last week, the company released a statement indicating its expectation of such action."Unilever welcomes the opportunity to engage more fully with the Commission's competition authorities," the company said in a statement. "Unilever believes the process will balance the legitimate interest of the Commission with the company's desire to maximise the opportunities from an acquisition that will deliver more value to consumers, customers and investors."

Despite this bump in the road, Unilever still expects the deal to close in the fourth quarter.