Completed acquisition by Claymore Dairies Limited of the milk business of Allarburn Farm Dairy Limited

Affected market: Milk

No. ME/2256/06

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, third party views, assessment and decision.

The OFT's decision on reference under section 22 given on 3 May 2006. Full text of decision published 15 May 2006.

Please note that square brackets indicate text or figures which have been deleted or replaced with a range at the request of the parties for reasons of commercial confidentiality.

PARTIES

Claymore Dairies Limited (Claymore) is a processor and distributor of fresh milk in Scotland operating from a processing facility in Nairn and through a number of depots in Dingwall, Fort William and Wick. Its principal customer base is in the Highlands, but Claymore also has customers in Grampian, Tayside, Argyll and the Western Isles. Claymore is 75 per cent owned by Arla Foods UK plc (Arla), a dairy company operating throughout the UK with processing facilities, inter alia, in Lockerbie; the remaining 25 per cent is held by North Milk Co-op (NMC), a farmers' co-operative.

Allarburn Farm Dairy Limited (Allarburn) operates a dairy farm and milk processing facility from premises in Elgin, Scotland. It distributes around [ ] litres of fresh milk per annum (mlpa). Allarburn's UK turnover in the last financial year was around [ ].

TRANSACTION

On 2 February 2006, Claymore entered into an agreement to acquire the milk processing and milk distribution business of Allarburn; the seller will continue its dairy farming business (Allarburn Farm). The administrative deadline in this case expires on 3 May 2006.

JURISDICTION

As a result of this transaction enterprises carried on by or under the control of Claymore (and its majority shareholder, Arla) and Allarburn have ceased to be distinct. The parties overlap in the supply of fresh milk and the share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met since the merged entity's share of supply of fresh milk in Great Britain exceeds 25 per cent. The OFT therefore believes that it is or may be the case that a relevant merger situation has been created.

THIRD PARTY VIEWS

Third parties who responded to our inquiries in this case did not raise competition concerns.

ASSESSMENT

The parties overlap in the supply of fresh milk to middle ground retailers and doorstep customers, mainly located in the north of Scotland. Allarburn is a small dairy, so the overlap in the middle ground segment is limited to smaller middle ground customers.

The parties' combined share of supply of fresh milk, for the geographic areas considered, ranges from [0-10] per cent to [25-35] per cent, with increments from [0-5] per cent to [10-15] per cent. Although the market is concentrated, evidence indicates that customers have alternative supply sources and the parties will be constrained by the presence of remaining suppliers; no competition concerns were raised by third parties.

Certain characteristics of the milk industry indicate that it may be susceptible to coordination. However, the OFT does not consider that coordinated effects arise or are enhanced as a result of the merger. This is due to the limited competitive constraint exercised by Allarburn pre-merger and the absence of any evidence suggesting that it was a 'maverick'. Furthermore, the leader-follower conduct referred to in Wiseman/SMD is not facilitated by the merger. Finally, evidence available to the OFT of the relationship between the main milk suppliers in Scotland (Claymore/Arla and Wiseman) indicates that it is not expected that they will collude and the merger does not affect their incentives or ability to change their historic behaviour.

Consequently, the OFT does not believe that it is or may be the case that the merger has resulted or 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 22(1) of the Act.

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