Anticipated acquisition by Bakkavor Group Hf of Geest plc

Affected market: Food products

No. ME/1588/05

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 decision.

The OFT's decision on reference under section 33 given on 28 April 2005. Full text of decision published 11 May 2005.

Please note that square brackets indicate information excised, or exact figures replaced by a range, at the parties’ request for reasons of commercial confidentiality.

PARTIES

Bakkavor Group HF (Bakkavor) is an Icelandic company that specialises in the production of chilled prepared convenience foods. Over 99 per cent of Bakkavor’s sales are in the UK and are mainly own label supplies to the major supermarkets (the ‘national multiples’).

Geest plc (Geest) is primarily a producer of own label produce for the national multiples. Geest’s UK turnover in its last financial year was £795.5 million.

TRANSACTION

Bakkavor currently holds a 20 per cent shareholding in Geest, although the shareholding does not give Bakkavor any material influence over Geest. The proposed transaction to acquire the remaining shares would be by way of a recommended cash offer.

Bakkavor notified the transaction on 1 March 2005. The administrative deadline is 29 April 2005.

JURISDICTION

As a result of this transaction Bakkavor and Geest will cease to be distinct. The UK turnover of Geest exceeds £70 million, so the turnover test in section 23(1)(b) of the Enterprise Act 2002 is satisfied. 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 overlap in the supply of chilled ready meals, dips, salad dressings and sauces. Products are own label and almost all are supplied to the national multiples. There are few branded products present in any sector, with the exception of salad dressings.

In chilled ready meals, there is limited overlap between the types of products supplied by the parties. Post-transaction, there will remain numerous credible competitors to which customers could switch. New entry is possible, and the sector is large enough to warrant the cost. No third parties have raised concerns in this area.

In dips, the parties’ combined share of supply will be [50-60] per cent. However, two significant competitors will remain and the national multiples have in the past sponsored entry and could sponsor further entry by other firms. Entry from existing suppliers of chilled foods is straightforward and would be considered. The dips sector is forecast to grow, and existing firms currently have some spare capacity. Few customers have raised concerns in this sector, but those that have feel that the prospect of new entry and buyer power mitigates any concern.

In salad dressings, a number of branded competitors are present. Third parties indicate that branded goods are substitutable on both the demand and supply side. Customers are mostly unconcerned, even if chilled dressings are taken as a separate sector, on the basis of new entry and buyer power. Even if the number of supply options is low, customers state that buyer power can be exercised through actions in relation to other products supplied by the parties.

In sauces, Bakkavor is a minor player and the increment to the combined share of supply is small. A number of credible alternative supply options will remain post-transaction and third parties have no concerns in this area.

Consequently, the OFT does not believe 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 not be referred to the Competition Commission under section 33(1) of the Act.

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