Proposed acquisition by Genus plc of Supersires Ltd

Affected market: Distribution of bovine semen and artificial insemination services on cattle

No. ME/1097/04

Please note that the full text of the decision can be downloaded from the link on the right. What follows are extracts regarding the parties, the transaction, jurisdiction, assessment and decision.

The OFT's decision on reference under section 33 given on 8 July 2004

PARTIES

Genus plc (Genus) is active in bovine genetics and related businesses. It operates in three principal areas: (1) the collection of semen from bulls within its own studs; (2) the distribution of bovine semen worldwide; and (3) the provision within the UK of artificial insemination services on cattle (AI services). In the financial year ending 31 March 2003, Genus' reported worldwide turnover was £161m.

Supersires Ltd (Supersires) distributes bovine semen within the UK and provides AI services within a specific regional area, comprising Somerset and parts of Devon and Cornwall. Supersires sources its supplies of bovine semen from studs outside the UK (mainly from its parent company, Sersia, in France). Supersires' worldwide turnover for the financial year ending 31 March 2002 was £2.5m.

TRANSACTION

Genus' acquisition of the business, assets and certain liabilities of Supersires has been agreed in principle by both parties. It is subject to the satisfactory completion of due diligence, contract and approval from the Office of Fair Trading (OFT). The proposed transaction was notified to the OFT by means of a Merger Notice and the statutory deadline was extended and expires on 9 July 2004.

JURISDICTION

As a result of this transaction, Genus and Supersires will cease to be distinct. The UK turnover of Supersires does not exceed £70 million. The turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is consequently not met. However, the share of supply test in section 23 of the Act is satisfied in respect of the distribution of bovine semen and the supply of professional AI services on cattle within the UK. A relevant merger situation has therefore been created.

THIRD PARTY VIEWS

A number of complaints have been received in respect of this case, including many responses to the Office's Invitation to Comment. Key concerns, which have been addressed above, include:

• The merger will create a monopoly supply of professional AI services in certain parts of south west England.
• DIY is not an alternative for many farmers.
• Semen suppliers will lose access to a large number of cows in South West England.
• Genus will use monopoly profits earned in the South West to subsidise its AI operations in other parts of the country and undercut other AI providers in other regions thereby putting any competitors out of business.

ASSESSMENT

The parties' activities overlap in the bovine genetics industry, specifically:

a. the distribution of bovine beef and dairy semen in the UK, and

b. the provision of professional AI services on cattle at the local level.

The merger also raises one potential vertical issue in that concerns have been raised for the possibility of the route to market for competitors' supplies of bovine semen to be blocked.

In the distribution of bovine beef and dairy semen, the importance of natural insemination in siring beef cattle means that no issues emerge in relation to beef semen. As for bovine dairy semen, Genus is acquiring only a small player in Supersires, one of a fringe of alternative suppliers, many of which are already larger than Supersires. In addition, farmers' ability to switch among distributors will not be diminished since they make choices based on which bull's semen they wish to buy. Consequently, the small increment in Genus' share of supply of bovine semen does not raise competition concerns. 

In the supply of professional AI services, Genus and Supersires overlap only in the south west and will face limited rivals only in Somerset. However, barriers to entry are particularly low: the supply of professional AI services offers scope for expansion, and entry is achievable on a timely and sustainable basis. There is evidence of entry having been achieved in the south west recently. Further, farmers' ability to switch to DIY is a constraint on prices for professional AI services and switching, or the threat of switching, to DIY has driven prices downward over recent years. This merger does not change those incentives.

Concerns that the merger will impede the route to market for competing suppliers of bovine semen are not commercially realistic given that farmers have considerable choice in sourcing bovine semen from bulls in studs all over the world. The farmer makes the ultimate purchasing decision and, as a provider of a professional AI services, Genus would forgo business if it refused to inseminate cows with bovine semen sourced from its competitors.

Consequently, the OFT does not believe that it is or may be the case that the merger will be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.

DECISION

This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.

 

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