By Diane Bartz

WASHINGTON, (Reuters) – A joint venture between Cargill Inc. and Continental Grain Co aims to merge two large chicken processors. Sanderson Farms (NASDAQ:), and Wayne Farms — flies in face of Biden’s attempts to combat not only consolidation but also inflation.

Even though in January, the U.S. Labor Department declared that inflation reached an almost 40-year peak, the deal was being considered. The previous year, chicken prices increased 10.4%.

The administration of President Joe Biden, worried about rising prices in general, and in particular in the meat industry, declared earlier this month it will spend $1Billion and create new rules to combat a lack “meaningful competition” in meat processing.

If it chooses to contest the deal, the Justice Department will be able argument that there was already price fixing in the sector.

Experts say that their market shares aren’t as high as in cases of merger challenges. According to two sources familiar with the matter, Wayne and Sanderson would combine for 13.5% market share.

Cargill, a commodities trader and Continental Grain, an agricultural investor, announced in August that they were planning to purchase Sanderson Farms Inc., the third-largest U.S. poultry producer for $4.53 trillion. Two companies were asked for further information by regulators in December, which is a clear indication that they are seriously considering the deal.

Both sides have expressed concern over the proposed deal. Both Senators Chuck Grassley (a Republican) and Elizabeth Warren (a Democrat) urged the Justice Department not to approve the transaction, as it could raise prices.

A source close to the case says that the Minnesota attorney General’s office has also reached out and assisted in federal investigation. A request for comment was not received by the Minnesota state attorney general.

Continental Grain intends to merge Sanderson Farms (owned by Continental Grain) with Wayne Farms, which is a small rival.

    Tyson Foods Inc leads the U.S. chicken market at 21%, Pilgrim’s Pride (NASDAQ:) Corp is second at 17% and Sanderson third at 10%. According to the Tyson Investor Fact Book, 7% and 6% are respectively for Perdue Foods and Koch Foods, which was published in 2020.

A second argument to stop the agreement being canceled is the fact that both companies are in different parts of the chicken industry. Wayne supplies restaurants, while Sanderson is focused on retail.

Pilgrim’s Pride, however, pleaded guilty to conspiring in February 2021 for fixing chicken prices to pass the cost on to other buyers. Tyson claimed that in June 2020, it self-reported prices-fixing to Justice Department.

Antitrust experts agreed price fixing would, even if Wayne or Sanderson weren’t involved in it, be considered evidence of a concentrated marketplace.

William Kovacic, an ex-chair of the Federal Trade Commission, stated, “That’s something that weighs against the merging, even if there are high market shares.”

Scott Gant is a partner at the law firm Boies Schiller Flexner and represents U.S. Foods (NYSE:) in a lawsuit alleging that Sanderson was involved with price fixing. In the 2018 case, Scott said the White House’s tough talk, rising prices, and other price fixing accusations do not bode well on the transaction being approved.

He stated, “It’s an uphill fight.”