Prosper De Mulder Ltd and Croda International plc: A report on the merger situation

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Summary

In January 1991 Prosper De Mulder Ltd (PDM) acquired the animal waste rendering business of Croda International plc (Croda). The Secretary of State for Trade and Industry asked us in March to investigate and report on this merger (see Appendix 1.1 for the terms of reference).

PDM is a family-owned group of private companies whose principal activity is rendering animal waste. Croda is a broadly-based group of chemical companies and rendering was a very small and unprofitable part of its activities. Under the merger PDM acquired the plant and equipment, stocks and goodwill of the business carried on at Croda's rendering plant at Market Harborough (which processed high-grade waste collected mainly from shops) and took a ten-year lease on the site.

Animal waste consists of the lowest value byproducts of animal slaughtering and meat processing. The main elements are bones and fat (high-grade) and offal (low-grade). Abattoirs generate about 80 per cent of the animal waste supplied for rendering. The other sources are meat processing plants and shops, which produce only high-grade waste, and knackers who collect dead and diseased animals from farms. Abattoirs are legally required to have waste removed from their premises within 48 hours and are dependent on renderers for a reliable collection service since there are no practical alternatives to rendering as a means of disposal. Meat processing plants and shops face less strict legal requirements and may have alternative means of disposing of their waste.

The products of rendering (a mechanical and heat treatment process) are tallow (fat) and meat-and-bone meal. Tallow is used in the manufacture of soap and certain chemical products, while meat-and-bone meal is an ingredient in animal feed compounds. There are readily available substitutes for most of these uses. Renderers operate under regulatory controls both as regards the safety of their products and the environmental effects of their plants. These controls have become progressively stricter and will be strengthened further by an EC Directive which will come into effect at the end of 1991.

An MMC report published in 1985 found that PDM had a monopoly in that it processed 44 per cent of the animal waste acquired for rendering in Great Britain in 1982. The rendering industry has undergone difficult trading conditions since 1985 because of a collapse in the prices of its products and the effect of health scares concerning salmonella and BSE. These scares led to the imposition on renderers of new controls, resulting in higher costs and reduced income. Renderers therefore cut the prices they paid for high-grade waste and introduced progressively higher charges for low-grade waste. There has been further concentration in the rendering industry and PDM's share of the market has grown to 55 per cent in Great Britain and around 60 per cent in England and Wales. The effect of the merger is to add another 5 per cent to PDM's market share in England and Wales.

Concerns were expressed by abattoir and knacker trade associations and by renderers that the merger would further strengthen PDM's ability to dictate terms to waste producers and dominate its competitors. We found that the merger has an adverse effect on competition in the collection of high-grade waste in the Southwest and Southeast of England, although the effect is less serious than if Croda had processed the full range of abattoir waste. The merger has also modestly enhanced PDM's position in the overall waste collection market in England and Wales. But these adverse movements in the competitive position are marginal in relation to the structural defects in competition within the industry which existed, and had developed over many years, before the merger. Moreover Croda was no longer an effective competitive force and had decided to leave the industry.

There are important issues other than competition in this case. The merger is likely to improve PDM's efficiency and bring wider public health and environmental benefits. Although these effects too may prove modest, they will assist PDM in carrying out functions which represent an important public service as well as a commercial activity.

Having taken account of the limited adverse effects on competition on the one hand, and the important public issues of health and the environment as well as efficiency gains on the other hand, we conclude that the merger situation which we have identified does not and may be expected not to operate against the public interest.

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