Anticipated acquisition by National Milk Records plc of The Cattle Information Service Limited

Affected market: The provision of milk recording services

No. ME/1550/03

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

The OFT's decision on reference under section 33 given on 3 March 2004

PARTIES

National Milk Records plc (NMR) is active in the supply of milk recording and information management services to the dairy industry throughout England and Wales, the Channel Islands and the Isle of Man.  In the financial year to April 2003, its turnover was £11.8 million. 

The Cattle Information Service Limited (CIS) is a wholly owned subsidiary of Holstein UK (HUK) which is a registered charity.  CIS is also active in the supply of milk recording in Great Britain.  Its turnover in the financial year to 31 March 2003 was £2.5m.

TRANSACTION

NMR proposes to acquire certain assets representing CIS's milk recording business.  The parties are also considering combining their separate databases of milk recording information, which will be operated as a charity by the Centre for Dairy Information (CDI), a subsidiary of HUK (see note 1).  The parties state that although the merger between the parties and the creation of the combined database are related transactions, neither of them is dependent on the other taking place. Given the different ownership, the creation of the combined database may constitute a second relevant merger situation requiring separate investigation.

The parties notified the transaction on Wednesday 7 January 2004 and the 40 working day administrative deadline is Wednesday 3 March 2004. 

JURISDICTION

As a result of this transaction the milk recording businesses of NMR and CIS will cease to be distinct.  The parties overlap in the supply of authentic milk recording services and the share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met.  The OFT believes that it is or may be the case that a relevant merger situation is likely to be created for the purposes of section 33(1)(a) of the Act.

ASSESSMENT

The merged entity will be the sole supplier of authentic milk recording services in Great Britain. 

The parties argue that competition between them is limited in any event, and that post merger their behaviour will be constrained by the threat of customers ceasing to milk record as well as by NMR shareholders who are also its customers. 

However, the OFT's investigation suggests that there does appear to be actual and potential competition between the parties in parts of Great Britain, which appears to have helped bring customer benefits including increased innovation and broader service ranges.  It appears unlikely that the combined business would be constrained competitively either by customers choosing not to use the parties' authentic milk recording services, as a proportion of them are reliant on authentic milk recording to manage their herds, or by NMR shareholders, as they are not considered to exert influence on NMR's authentic milk recording business.

Moreover, new entry may be unlikely given the need to acquire a critical mass of customers to make entry viable in a mature market with tight margins and a declining customer base.  New entry does not therefore appear to be sufficiently likely to allay concerns that the merger may lessen competition, resulting in lower service levels, less value for money, and/or less incentive on the merged entity to innovate.  Although third parties welcome the efficiencies that may arise from the centralisation of the parties' databases of milk recording information, the parties state that the creation of the database is not dependent on the merger taking place and they have not been able to produce detailed and verifiable evidence of any anticipated customer benefits that it may bring. 

In these circumstances, the OFT believes that it is or may be the case that the merger may be expected to result in a substantial lessening of competition within a market or markets in the UK.  The conditions for the customer benefits exception to the duty to refer are not met.

UNDERTAKINGS IN LIEU

Pursuant to section 73(2) of the Act, the OFT may, instead of making a reference, accept undertakings for the purposes of remedying, mitigating or preventing the substantial lessening of competition concerned or any adverse effect which may be expected to result from it.  However, the parties have not offered any undertakings in this case.

DECISION

This merger will therefore be referred to the CC under section 33(1) of the Act.

NOTES

1. HUK point out that in fact CDI will operate as a not for profit company.

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