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29/03
1 August 2003
COMPETITION COMMISSION INQUIRY INTO
THE PROPOSED MERGER OF ARLA FOODS/EXPRESS DAIRIES
Issues Statement
The Competition Commission has sent
an issues letter to the main parties, Arla Foods amba and
Express Dairies plc, in its inquiry into the merger in contemplation
between the two companies.
The Commission has identified a number
of issues that it wishes to consider, arising from information
received to date from Arla Foods and Express Dairies, from
other interested parties and from other sources. Analysis
of these issues—and any others that may be identified
as the inquiry proceeds—will help the Commission reach
conclusions on the question whether the potential merger may
be expected to operate against the public interest.
An issues letter is always sent to main
parties before the Commission has reached any conclusions
and is designed to highlight those matters which have been
identified by the investigating group for further consideration,
and to ensure that nothing significant has been missed. The
purpose of making the statement of issues public is to inform
all interested parties and give them an opportunity to raise
any further points with the Commission. The Commission would
be grateful to receive any written views that interested parties
may wish to put forward by 15 August.
The issues the Commission has identified
are set out below.
Market definition
In its consideration of issues that may be relevant
to the definition of the product market
in this case, the Group would like, in particular, to explore
whether there are distinct market segments, perhaps based
on different customer requirements, different purchasing practices,
and/or supplier costs.
In this regard, the Group would like
to discuss the extent to which national supermarkets, middle
ground customers and doorstep delivery constitute distinct
market segments. The Group would also like to explore the
definitions of these segments in light of the relevant factors
given above.
The Group’s provisional view is
that the relevant geographic markets
are no wider than Great Britain because neither party has
a presence in Northern Ireland. However, the Group would like
to consider further whether there are separate geographical
markets within GB for any distinct market segment.
Public interest issues
Against this background, the Group would like to
explore the following issues:
- Whether the reduction in the number
of major suppliers from four to three would cause a substantial
lessening of competition in supply to national supermarkets.
- Whether, on the other hand, the
national supermarkets would retain considerable buyer power,
eg because of:
- Spare capacity in fresh milk processing
- Ease of expansion by existing suppliers
- Ease of entry by new suppliers if fostered by customers
- Own label sales facilitating switching suppliers.
- Whether there are parts of GB in
which the number of suppliers able to meet the requirements
of national supermarkets would reduce from three to two;
if so, whether this would cause a substantial lessening
of competition.
- Whether the reduction in the number
of major suppliers would lead to an increased probability
of coordinated behaviour among the three remaining suppliers.
- Whether the merger would lead to
a substantial lessening of competition in supply to middle
ground and doorstep customers in all or any part of GB.
- Whether the merger’s effect
on competition in the supply of processed milk would have
consequences for farm-gate prices, wholesale prices and/or
quality.
- Whether the merger would enable
efficiency improvements to be achieved which could not be
achieved in the absence of the merger, and if so, to what
extent those savings would be passed onto customers and
the final consumer.
Hypothetical remedies
On the hypothesis that the Commission might conclude
that the merger is against the public interest because of
some or all of the possible adverse effects listed above,
the Group would like to explore the following points in relation
to possible remedies:
- Whether any adverse effects could be remedied fully by
the divestment of one or more dairies and/or distribution
depots.
- If not, whether there are any other possible remedies
or whether the merger should be blocked.
Notes to editors
1. The reference concerning the
proposed acquisition by Arla Foods amba of Express Dairies
plc was made under the Fair Trading Act 1973 on 7 July 2003.
(See DTI Press Notice P/2003/394)
2. On 10 June 2003, the European Commission referred this
proposed acquisition to the UK competition authorities under
Article 9 of the EC Merger Regulation (ECMR). Article 9 (6)
of the ECMR imposes a four month deadline from the EC’s
referral for a member State’s competent authorities
to publish any report or announce their findings on examination
of the concentration in question. Under Article 7 of the Implementing
Regulation (Regulation 447/98/EC), that period will expire
on 15 October 2003.
3. Further information can be obtained from the Commission’s
website.
4. Enquiries should be directed to Francis Royle, Press Officer,
Tel: 0207 271 0242
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