• Market Crumbs

Who Knew There Was So Much Drama In The Canned Tuna Industry?

Image via EcoTopical

Compact discs, perfume, liquid crystal display panels and canned tuna. All of these have one unlikely thing in common - a history of price fixing. In the United States, price fixing can be prosecuted as a criminal federal offense under Section 1 of the Sherman Antitrust Act. 

In August 2015, a class-action lawsuit filed in a federal court alleged that the three major U.S. tuna producers—StarKist, Bumble Bee Foods and Tri-Union Seafoods—colluded to inflate prices for years. Olean Wholesale Grocery Cooperative claimed the three companies conspired to "fix, raise, maintain, and/or stabilize prices for PSPs [packaged seafood products] within the United States, its territories and the District of Columbia in violation Sections 1 and 3 of the Sherman Antitrust Act" since 2011. 

At the time of the lawsuit, the three companies controlled 73% of the $1.7 billion U.S. canned tuna market. Tri-Union and Bumble Bee had been in discussions to merge when the lawsuit was filed, which would've created a duopoly. The merger was abandoned less than four months after the lawsuit was filed, with the United States Department of Justice's Antitrust Division saying "Consumers are better off without this deal." 

In 2017, Bumble Bee pleaded guilty to price fixing and was ordered to pay a $25 million fine. The DOJ had agreed to a fine $111 million lower than initially sought after Bumble Bee said a larger penalty could cause the company to go bankrupt.   

Apparently, $25 million could as well. Just last month, Bumble Bee filed for Chapter 11 bankruptcy protection as a result of "recent and significant legal challenges." The company sold its assets to its largest creditor for $925 million and expects to continue operations uninterrupted. 

In 2018, Starkist pleaded guilty to conspiring to fix prices for canned tuna and paid a $100 million fine earlier this year. Starkist's request to pay a lower fine was declined as the company's financial circumstances didn't justify a lower penalty. 

Tri-Union, which was the whistleblower on the price-fixing scheme, received conditional leniency under the DOJ's Corporate Leniency Program. In exchange for providing information to assist the investigation, neither the company or its employees would face any prosecution. 

Other than civil lawsuits that may drag on for a while, the scandal appears to be closing its final chapter as Chris Lischewski, the former CEO of Bumble Bee Foods, was found guilty this week for his role in the scheme. Lischewski allegedly conspired with colleagues and executives at Bumble Bee's competitors on a "peace proposal" intended to boost prices and meet earnings targets. Lischewski faces a maximum of 10 years in prison and a $1 million fine, according to the indictment. 

While this is not the first or last time companies will be busted for price-fixing, it's an interesting reminder of the lengths people will go to make money, even in industries as mundane as selling canned tuna. 

Leftover Crumbs

  • Has employment peaked? According to ADP and Moody’s Analytics, U.S. private payrolls increased by 67,000 in November, the lowest increase since May and well below expectations of 150,000. "The job market is losing its shine," Mark Zandi, chief economist for Moody’s Analytics, said. "Manufacturers, commodity producers, and retailers are shedding jobs. Job openings are declining, and if job growth slows any further unemployment will increase." Following the lackluster number, all eyes will now be on the Department of Labor's November nonfarm payrolls report set to be released Friday.  

  • Titanic comparisons are never good. Activist investor Carl Icahn wrote an open letter to shareholders of HP, urging them to reach out to HP's directors to let them know "immediate action is necessary to explore this opportunity." Icahn, who owns about 10.85% of outstanding shares of Xerox and 4.24% of outstanding shares of HP, called HP's standalone restructuring plan "rearranging the deck chairs on the Titanic." Icahn believes HP has ulterior motives for refusing Xerox's acquisition offer, saying "I am left to wonder whether this is simply a delay tactic aimed at attempting to preserve the lucrative positions of the CEO and members of the board."

  • You can't buy something that hasn't even shipped. Air cargo demand fell 3.5% in October from the same period a year ago, according to the International Air Transport Association. This is the 12th-consecutive monthly decline and comes at a time when retailers are typically stocking inventory for the holiday season. Air cargo capacity has now exceeded demand for the last 18 months as the air cargo industry faces its worst year since the financial crisis. "Air cargo’s peak season is off to a disappointing start," Alexandre de Juniac, director general of the IATA and its CEO, said in a release. "It has been a very tough year for the air cargo industry."

  • Someone is lying. Last week Papa John's founder and former CEO, John Schnatter, hilariously said "I've had over 40 pizzas in the last 30 days. It's not the same pizza. It's not the same product. It just doesn't taste as good." Now Papa John's current CEO Rob Lynch is striking back, saying "We haven’t made any changes to the way we make it or what goes into our products." In a sign he's not too worried about Schnatter, he said "We’re focused on doing the things that are going to move the business forward." If that's the case, Schnatter may have the last laugh as he's still Papa John's largest shareholder. 

  • Maybe he can borrow some money from the Cyber Truck preorders. Tesla CEO Elon Musk, who is in court this week for his defamation trial, admitted he doesn't know his net worth and "does not have a lot of cash." Musk, who called British diver Vernon Unsworth "pedo guy," could have to pay up to $75,000 in damages if he loses the case. After rescuing 12 boys and their soccer coach from a flooded cave in Thailand last summer, Unsworth said Musk should "stick his submarine where it hurts" after Musk tried to intervene in the rescue mission. During this week's testimony, Musk said "I assume he literally didn’t mean to sodomize me with a submarine. I literally didn’t mean he was a pedophile."