Pork pies merger may give rise to competition concerns
The CMA has found that Pork Farms’ completed acquisition of Kerry Foods’ chilled savoury pastry (CSP) business gives rise to a realistic prospect of a substantial lessening of competition and will be referred for an in-depth phase 2 investigation unless acceptable undertakings are offered.
Pork Farms’ and Kerry Foods’ CSP business both manufacture and supply branded and own label CSP pork products to the food retail sector. The CSP sector includes a range of products, such as pork pies, sausage rolls, pasties and slices, quiches and scotch eggs, and is worth approximately £1 billion a year.
The Competition and Markets Authority (CMA) found that, as a result of the transaction, which completed on 17 August 2014, the merged entity will become the largest or second largest manufacturer and supplier of some CSP products to grocery retailers and to convenience stores, either as own label or branded goods. For these products, the merged entity will face competition from only 1 or 2 other large suppliers.
The CMA has found that there is a realistic prospect that the merger will result in a substantial lessening of competition in the branded, own label and convenience retail segments of the supply of cold pies, and the supply of sausage rolls, pasties and slices (when considered in combination) or the supply of sausage rolls (when considered individually). The CMA has also found that there is a realistic prospect that the merger will result in a substantial lessening of competition in the own label segment of the supply of hot pies. The CMA is concerned that a lessening of competition may result in higher prices or a reduction in choice or quality for consumers of these CSP products.
This transaction will be referred for an in-depth phase 2 investigation unless Pork Farms offers acceptable undertakings to address the competition concerns in a clear-cut manner.
Andrea Coscelli, Executive Director, Markets and Mergers and decision maker in this case said:
These are very popular products which are currently produced by a small number of manufacturers. This merger will further reduce the choice available to retailers and consumers and may give the merged company the ability to raise prices or reduce the quality of these products. Unless Pork Farms offers undertakings that resolve these concerns, we think it is necessary to investigate the merger in greater detail to see whether it could harm consumers’ interests.
Notes for editors
- The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law. From 1 April 2014 it took over the functions of the Competition Commission and the competition and certain consumer functions of the Office of Fair Trading, as amended by the Enterprise and Regulatory Reform Act 2013.
- The Reference Test – under the Enterprise Act 2002 (the Act) the CMA has a duty to make a reference to phase 2 if the CMA believes that it is or may be the case that a relevant merger situation has been created, or arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation; and the creation of that situation has resulted, or may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.
- Under the Act a relevant merger situation is created if 2 or more enterprises have ceased to be distinct enterprises; and the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million (‘the turnover test’) or as a result of the transaction, in relation to the supply of goods or services of any description, a 25% share of supply in the UK (or a substantial part thereof) is created or enhanced (‘the share of supply test’).
- The CMA’s duty to refer the merger for a phase 2 investigation under section 22(1) of the Act is not exercised pursuant to section 22(3)(b) whilst the CMA is considering whether to accept undertakings (if offered) under section 73 of the Act in lieu of a reference. Pursuant to section 73A(1) of the Act, Pork Farms has until 24 December 2014 to offer an undertaking to the CMA that might be accepted by the CMA under section 73(2) of the Act. If no undertaking is offered or accepted, then the CMA will refer the merger pursuant to sections 22(1) and 34ZA(2) of the Act.
- All the CMA’s functions in phase 2 merger inquiries are performed by inquiry groups chosen from the CMA’s panel members. The appointed inquiry group are the decision makers on phase 2 inquiries.
- The CMA’s panel members come from a variety of backgrounds, including economics, law, accountancy and/or business; the membership of an inquiry group usually reflects a mix of expertise and experience (including industry experience).
- The inquiry group may extend the 24-week period within which it is required to publish its report by no more than 8 weeks if it considers that there are special reasons why the report cannot be published within that period.
- The text of this decision will be placed on the case page as soon as is reasonably practicable.
- Enquiries should be directed to Siobhan Allen (Siobhan.Allen@cma.gsi.gov.uk,020 3738 6798).
- For more information see the CMA’s homepage, or follow us on Twitter @CMAgovuk, Flickr and LinkedIn. Sign up to our email alerts to receive updates on merger cases.