Unilever’s Sara Lee deal hits EU speed bump due to antitrust concerns

Unilever’s (UN) $1.3 billion proposal to acquire Sara Lee’s (SLE) home and body products business hit a major snag on Monday when European antitrust regulators announced they were launching a deeper investigation into the proposed deal.

Antitrust regulators are particularly concerned about overlaps in deodorant, leather cleansers and fabric care product lines across European countries. They fear Unilever’s move could eliminate an alternative supplier of these products and potentially lead to higher prices for consumers.

“As a result of this merger, there is significant overlap in many of the products consumers use every day. We must ensure that where competition concerns arise, they are properly addressed to avoid harm to consumers,” said Joaquin Almunia, European Commission’s competition commissioner, in a statement on Monday.

As part of an in-depth investigation that examines overlapping products and markets, companies typically agree to sell a product line in offending markets to a third party to allow the remainder of the transaction to be completed. In some cases, however, companies may find that spinning off such operations could make a deal much less attractive and may withdraw if antitrust regulators are unwilling to budge.

During the initial review of the merger, Unilever and Sara Lee did not propose any divestitures to European regulators, as is typical for such deals, until it appears the deal may face regulatory difficulties.

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

The commission noted that it will decide by October 5 whether to challenge the transaction and that its detailed examination does not constitute a final prejudgment on the merger proposal.

Unilever was apparently prepared for the Commission’s decision to take a deeper look at the transaction. Last week, the company issued a statement expressing its expectations regarding such actions. “Unilever welcomes the opportunity to engage more fully with the Commission’s competition authorities,” the company said in a statement. “Unilever believes that this process will balance the Commission’s legitimate interests with the company’s desire to maximize opportunities from an acquisition that will deliver greater value to consumers, customers and investors.”

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