Anticipated acquisition by AB Agri Ltd of certain of the business and assets of JE Porter Ltd from the Porters Group

Affected market: Animal feed (manufacture)

No. ME/4057/09

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 33(1) given on 17 April 2009. Full text of the decision published on 24 April 2009.

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

PARTIES

AB Agri Limited (AB Agri) is a wholly owned subsidiary of Associated British Foods plc (ABF). AB Agri manufactures and distributes agricultural products, animal feed and related products.

The Porters Group (Porters) comprises the JE Porter Limited Private Pension Scheme, JE Porter Limited (JE Porter) and GE Porter and Sons Limited. The Porters Group owns two mills, in Flixborough and Navenby, both of which produce compound monogastric animal feed.

This acquisition relates to the Flixborough Mill and its associated assets in Scunthorpe (Flixborough Business). The UK turnover of the Flixborough Business is approximately £[ ] million.

TRANSACTION

Porters has agreed to sell the Flixborough Business to AB Agri (the Acquisition). AB Agri has submitted that the Flixborough Business comprises:

• the freehold interest in Flixborough Mill
• the assets and rights owned by Porters and used in connection with the operation of Flixborough Mill
• the plant, machinery and equipment at Flixborough Mill.

AB Agri notified the transaction to the OFT on 23 February 2009. The Office of Fair Trading's (OFT) administrative deadline is 22 April 2009.

JURISDICTION

The OFT considers that the Flixborough Business constitutes an enterprise within the meaning of section 129 of the Enterprise Act 2002 (the Act). As a result of this transaction AB Agri and the Flixborough Business will cease to be distinct. AB Agri and the Flixborough Business overlap in the supply of compound monogastric feed and together, AB Agri estimates that they account for approximately [25-40] per cent of the supply of UK retail compound poultry feed in the UK. Consequently, the share of supply test in section 23 of the Act is met. The OFT therefore believes that it is or may be the case that a relevant merger situation has been created.

THIRD PARTY VIEWS

During the course of its investigation the OFT solicited views from competing suppliers and also customers of AB Agri and the Flixborough Mill. None of the third parties that responded to the OFT indicated that the Acquisition raised competition concerns.

ASSESSMENT

AB Agri and the Flixborough Business are both compound feed manufacturers which overlap in the supply of compound monogastric animal feed to end-users.

The OFT has examined the Acquisition on the basis of the supply of compound feed for monogastric animals. The OFT has not found it necessary to conclude on the geographic scope of the market as no competition concerns arise on the narrowest geographic market definition of a 100 mile radius.

Within 100 miles of Flixborough Mill, there are four AB Agri monogastric feed mills. AB Agri's post Acquisition share of supply of compound feed for monogastric animals would be [35-45] per cent (an increment of [10-15] per cent). AB Agri is the strongest player in the 100 mile catchment, however there are two national competitors each with two mills in the 100 mile catchment as well as a number of smaller suppliers, two of which have confirmed that they have spare capacity and actively compete with AB Agri. Customers raised no concerns, naming a range of alternative suppliers, including several outside the Flixborough Mill 100 miles catchment area. This may support a wider market definition, which would lower the combined share of supply.

Switching costs appear to be low and churn rates are in the region of [ ] per cent per annum. Flixborough Mill appears to be a less close competitor to AB Agri than the JE Porter Navenby Mill, as Flixborough Mill only has one customer who accounts for 60 to 70 per cent of its output. JE Porter's Navenby Mill will continue to operate as an independent competitive constraint to AB Agri post Acquisition.

It appears that large buyers may possess a degree of buyer power that will not diminish as a result of the Acquisition, due to the volumes they purchase and price transparency through the existence of toll manufacturing agreements. However, the OFT does not need to conclude on the extent of buyer power present as it does not affect the outcome of this case.

On the basis of the range of alternative suppliers, the existence of spare capacity, the possibility of constraints from outside the 100 mile catchment and the lack of third party concerns, the OFT considers it unlikely that the Acquisition will give rise to competition concerns.

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

DECISION

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

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