A
SUMMARY OF STORA KOPPARSBERGS BERGSLAGS AB/SWEDISH
MATCH NV, AND STOA KOPPARSBERGS BERGSLAGS AB/THE GILLETTE
COMPANY: A REPORT ON THE MERGER SITUATIONS
On 13 June 1990 we were asked to investigate
whether merger situations qualifying for investigation had
been created between Stora Kopparbergs Bergslags AB (Stora)
and Swedish Match NV, and between Stora and The Gillette
Company (see Appendix 1.1). This reference arose from a leveraged
buy-out of the Consumer Products Division (the CP Division)
of Stora, which included the Wilkinson Sword businesses (Wilkinson
Sword), using a shelf company later to be called Swedish
Match NV. Finance was provided by a number of Swedish investors,
banks and finance houses, together with The Gillette Company
and its subsidiaries (collectively referred to as Gillette).
Some of the senior management of the CP Division also participated.
Gillette is the largest supplier of razors
and razor blades in most of the world's major economies.
Its United Kingdom market share is 60 per cent by value and
40 per cent by volume, while that of Wilkinson Sword (its
only full range competitor) is 20 per cent by value and 23
per cent by volume. The only other supplier of significance
in the United Kingdom is Biro Bic Ltd (Bic), which just supplies
disposable razors and has a market share of 15 per cent by
value and 30 per cent by volume.
Gillette played the central role in the
initiation and development of the buy-out arrangements. It
told us that its objective was to acquire as much of the
Wilkinson Sword wet-shaving businesses throughout the world
as was permitted by competition authorities. As part of the
transactions Gillette acquired the non-EC businesses of Wilkinson
Sword; subsequently, following anti-trust action by the US
authorities, the US business was resold to Swedish Match
NV. Gillette told us that it structured its involvement so
as not to have any influence over the new company, Swedish
Match NV, because of concern about possible action by competition
authorities.
Gillette did, however, retain important
rights and interests in Swedish Match NV. It took a holding
of 22 per cent of the equity of the company in the form of
non-voting convertible loan stock. This holding could convert
to voting shares in certain circumstances. Gillette also
provided almost $69 million in mezzanine debt, although it
is bound to follow the other creditors on matters such as
enforcement. Gillette also has pre-emption rights, either
for itself or for a person nominated by it, to acquire the
equity of Swedish Match NV where a sale or listing on a stock
exchange is proposed and to acquire the wet-shaving businesses
and assets of Wilkinson Sword in the event of their sale.
We considered that in each case a merger
situation had been created and that the main issue for the
public interest was whether the existence of these rights
and interests in the hands of Gillette, whether considered
alone or together with Gillette's actions in setting up the
transactions, was likely to have implications for competition
in the United Kingdom wet-shaving market. This issue was
also raised in a concurrent monopoly reference made to us
by the Director General of Fair Trading arising out of the
same transactions.
In our view a prudent Wilkinson Sword management
would be bound constantly to take into account the fact that
Gillette was a major shareholder in its parent company, Swedish
Match NV, was its parent company's largest creditor and had
important rights in relation to significant decisions affecting
the future of the company, notwithstanding the limits to
Gillette's rights. Moreover, we also considered that the
structure of the transactions, as effectively determined
by Gillette, was likely to reduce the competitiveness of
Wilkinson Sword, by placing a heavy burden of debt on Swedish
Match NV. We therefore expected that Wilkinson Sword would
compete less aggressively with Gillette. We also considered
that Gillette's competitive position had been enhanced vis
a vis Wilkinson Sword as a result of its involvement in the
transactions.
Further, we considered it to be against
the public interest for Gillette to have a significant influence
over the potential flotation of its principal competitor
in the United Kingdom, or the sale of its shares or assets,
particularly as its pre-emption rights could enable Gillette
to prevent transactions which would further competition.
We did not believe that any new entry or
development of existing suppliers would be likely to check
the diminution of competition in the United Kingdom and did
not identify significant benefits from the transaction. Undertakings
to the US authorities given by Gillette reduced the adverse
effect to some extent, but they did not remove our concerns.
We have therefore recommended that Gillette
should divest its equity and creditor interest in Swedish
Match NV and, pending divestment, should waive its pre-emption
and conversion rights and options.
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Last Updated: July 1999
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