Latimer Acquisitions Ltd / Weetabix Ltd
OFT closed case: Proposed acquisition by Latimer Acquisitions Limited of Weetabix Limited.
Affected market: Cereal products
No. ME/1529/03
The OFT's decision on reference under section 33 given on 11 February 2004
PARTIES
Latimer Acquisitions (Latimer) is a new limited company in which HMTF Europe Fund Cayman, LP holds a controlling interest. The general partner of the Europe Fund is Mr Hicks who holds controlling interests in a number of companies, including Burton's Foods Holdings Ltd (Burton) which manufactures and sells biscuits, snacks and confectionary.
Weetabix is active in the manufacture and sale of cereal products, mainly breakfast cereals and cereal bars. Its products are sold under the Weetabix, Alpen, Ready Brek and Weetos brands, as well as retailer brands. For the year ending 2 August 2003 Weetabix had a turnover of £225 million.
TRANSACTION
Latimer proposes to acquire the entire issued share capital of Weetabix valued at approximately £640 million through either cash or, by election, a loan note alternative. The transaction was notified to the OFT on 12 December 2003 and therefore the 40-day administrative timetable will expire on 11 February 2004.
JURISDICTION
As a result of this transaction Latimer and Weetabix will cease to be distinct. The UK turnover of Weetabix exceeds £70 million, so the turnover test in section 23(1)(b) of the Enterprise Act 2002 is satisfied. A relevant merger situation is likely to be created.
RELEVANT MARKET
Product market
The parties may be considered to overlap in the manufacture of cereal bars since Latimer, through its interests in Burton's, has a contract with [another company] (see [note 1]) to manufacture { } (see [note 1]) cereal bars. Based on the information available, Burton would not appear to be in a position to influence decision making with respect to [these cereal] bars and the merger is not considered to change the competitive relationship in the supply of cereal bars. { } (see [note 1]). Therefore, the overlap between the parties in cereal bars is not examined further.
Third party responses suggest a certain degree of demand side substitution between biscuits and cereal bars, with some evidence indicating customers use cereal bars as a substitute for other snacks (including biscuits, chocolate and crisps) and these products share similar consumption patterns. Furthermore, on the supply side, substitution appears to be possible as evidenced by examples of biscuit manufactures moving into cereal bars. Overall, the evidence gathered would appear to suggest that cereal bars and biscuits could be considered to be substitutes.
Geographic market
Cross border trade exists in the supply of biscuits and cereal bars. Independent figures provided by the parties, suggest that around 18 per cent of biscuits sold in the UK are manufactured abroad and 17 per cent of UK production is exported, with the majority traded within the EU. The relevant geographic focus would therefore appear EU wide. This view was supported by third parties. However, even examining supply on a UK basis does not give rise to competition concerns.
HORIZONTAL ISSUES
Post merger, the parties will together supply only [5-15 per cent (increment [less than 5} per cent (see [note 2]) of biscuits, inclusive of cereal bars, in the UK and [5-15] per cent (increment [less than 5] per cent (see [note 2]) of sweet biscuits, inclusive of cereal bars, in the UK.
Based on the non-direct nature of overlap between the parties' product lines, low market shares and overall lack of competition issues raised in this case, it is not considered necessary to fully consider countervailing aspects of barriers to entry or buyer power.
VERTICAL ISSUES
There are no vertical issues.
THIRD PARTY VIEWS
No concerns were raised by third parties we contacted.
ASSESSMENT
The merger qualifies on the turnover test. The overlap between the parties in the manufacture of cereal bars is not considered material. To the extent that biscuits and cereal bars are part of the same product segment, the parties' combined share of supply of biscuits, inclusive of cereal bars, in the UK is low.
Therefore, the OFT does not believe that it is or may be the case that the creation of the relevant merger situation may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom for goods or services. Nor does it believe that there is a credible alternative view that the merger might substantially lessen competition.
DECISION
This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.
NOTES
1. Text deleted or amended at the request of the parties for reasons of confidentiality. 2. Actual figures replaced by a range at the request of the parties for reasons of commercial confidentiality.