Anticipated acquisition by Serviced Dispense Equipment Limited of the technical services function of Coors Brewers Limited

Affected market: Technical services equipment and technical services

No. ME/1275/04

The OFT's decision on reference under section 33 given on 29 September 2004

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 and decision.

PARTIES

Serviced Dispense Equipment Limited (SDEL) is a subsidiary of Serviced Dispense Equipment (Holdings) Ltd (SDEH), which is a joint venture company owned by Scottish Courage Limited, Carlsberg UK Limited, Mordaunt and Foster Ltd (controlled by Mr Mike Foster (see note 1) and his wife) and Hallriver Ltd (controlled by Mr Nick Bryan).  SDEL supplies technical services equipment and technical services relating to the dispense of draught beer, cider and wine.

Innserve Ltd (Innserve) is a newly formed technical services company, wholly owned by Mr Bryan (60 per cent) and Mr Foster (40 per cent).  Innserve is currently sub-contracted to provide technical services on SDEL's behalf to Scottish Courage Limited and Carlsberg UK Limited.

Coors Brewers Limited (Coors) is a brewer and wholesaler of beer and other beverages in the UK and elsewhere.  It is ultimately a subsidiary of Adolph Coors Co, a company incorporated in the USA.

Scottish Courage Limited (Scotco) is a subsidiary of Scottish & Newcastle plc (S&N).  S&N, through its subsidiaries, brews beer and wholesales beer and other beverages in the UK and elsewhere.

Carlsberg UK Limited (Carlsberg UK) is a subsidiary of Carlsberg UK plc (formerly Carlsberg-Tetley plc) and ultimately Carlsberg A/S.  The Carlsberg Group's core business is the production, sale and distribution of beer but it is also active in the supply of soft drinks, wines and spirits.

TRANSACTION

SDEL proposes to acquire the technical services function of Coors.  There are three main aspects to the transaction:

(a) Coors will acquire a minority shareholding in SDEL's holding company, SDEH.
(b) SDEL will purchase the existing assets of Coors relating to equipment for the dispense of draught beer and cider at the premises of Coors' on-trade customers.
(c) Under a rolling 10 year agreement, SDEL will provide the technical services equipment and technical services which Coors has undertaken to provide to Coors' on-trade customers.  Provision of technical services equipment will remain with SDEL as the owner and supplier of those assets.  SDEL will appoint Innserve as a sub-contractor to provide the technical services to Coors on SDEL's behalf.

On completion of the proposed transaction, SDEH will be jointly owned by Scotco (30 per cent), Carlsberg UK (30 per cent), Coors (30 per cent), Mordaunt & Foster (5 per cent) and Hallriver Limited (5 per cent).  SDEL will own the technical services capital assets of all three brewers and will be contracted to maintain and procure the replacement of those assets.  Innserve will be appointed as the exclusive service provider to undertake day to day provision of technical services work on behalf of all three brewers.

The parties notified the transaction by way of a merger notice dated 3 August 2004.  The merger notice was withdrawn on 6 September 2004.  The administrative deadline is 29 September 2004.

JURISDICTION

As a result of this transaction SDEL and Coors' technical services division will cease to be distinct.  The OFT believes that Coors' technical services division constitutes an 'enterprise' for the purposes of section 23(1) of the Enterprise Act 2002 (the Act).  The parties overlap in the supply of technical services equipment and technical services and the share of supply test in the Act is met.   The OFT therefore believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.

ASSESSMENT

The parties maintain that the proposed transaction constitutes, in essence, an outsourcing arrangement.  They state that no market share for the provision of technical services equipment and technical services is transferred to another party by the transaction; that no customers are affected by the transaction; and no existing market is altered by the transaction in any way except that the captive market for the supply of 'sub-sub-contracted' services to brewers is increased in size.

There is evidence that competition in the supply of technical services equipment and technical services does exist, and has the potential to develop further. 

The competitive constraint placed on SDEL by the technical services functions of Coors and Interbrew is greater than that provided by independent third party suppliers or self-supply.

As the second largest technical services operation on a national scale, Coors' technical services function is the most significant existing competitive constraint on SDEL.  The transaction removes the potential for competition (particularly on quality) to continue to develop between Coors' technical services function as a distinct entity from SDEL.  By removing Coors' technical services function as an alternative, the transaction may stifle existing and future competition in the supply of technical services equipment and technical services.

The evidence in this case also indicates that the prospect of new entry has diminished since the Scotco/Carlsberg decision.  New entrants would be hampered by the difficulty in purchasing or gaining access to installed equipment and the need for their retail customers to secure a discount on beer supply to make independent supply of technical services viable.

Third parties have identified a number of vertical issues that may arise as a result of the transaction.  Such issues will arise out of market power on the part of SDEL at the technical services equipment and technical services level and can therefore be seen as additional to the horizontal concerns discussed.

Consequently, 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 United Kingdom.

DECISION

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

NOTES

1. Correction.

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