Completed acquisition by Dr Oetker (UK) Limited of the business and assets of Schwan's Consumer Brands (UK) Limited

Affected market: Pizza

No. ME/4033/09

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, jurisidction, third party views, assessment and decision.

The OFT's decision on reference under section 22(1) given on 05 May 2009. Full text of decision published 12 May 2009.

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

PARTIES

Dr Oetker Group ('Dr Oetker Group') manufactures and distributes a diverse range of food products to over 40 countries around the world. Dr Oetker Group's subsidiary in the UK is Dr Oetker (UK) Limited ('Dr Oetker'). Dr Oetker Group's UK turnover during the financial year 2007 was £102 million, of which £20.9 million was generated from Dr Oetker's UK frozen food business - which is the business area most relevant to this decision.

Schwan's Group (Schwan's Group) is based in the USA and is a producer of branded frozen food worldwide. Its products are sold in almost 50 countries, and its primary market is the U.S.A. The UK turnover of Schwan's in the last financial year was £77 million.

TRANSACTION

Dr. Oetker UK acquired Schwan's Groups European frozen pizza business by an asset purchase agreement on 2 December 2008, by which Dr Oetker acquired assets from Schwan's Consumer Brands UK Limited and The Schwan's Food Company which are subsidiaries of the Schwan's Group - together 'Schwan's'. The transaction covered the acquisition of Schwan's':

i. frozen pizza brands 'Chicago Town' (a strong brand in the UK) and 'The Great Texas Pizza Company'

ii. production facilities in Leyland, UK and part of the production facilities in Magdeburg, Germany. 

Dr. Oetker told the OFT that one of the main motivations for the transaction was to increase its presence in the UK frozen food market. In two years time, it therefore intends to physically transfer its German production facility purchased through this transaction to the UK. Dr Oetker intends to continue to supply the acquired brands as sub-brands.

The parties notified the transaction on 4 March 2009 and the extended administrative deadline for consideration of this case is 5 May 2009. The statutory deadline is 13 May 2009 and has been extended by 20 working days by agreement with the parties.

JURISDICTION

As a result of this transaction Dr Oetker and Schwan's have ceased to be distinct. The parties' share of supply of frozen pizzas in the UK exceeds 40 per cent and the turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is satisfied. The OFT therefore believes that it is or may be the case that a relevant merger situation has been created.

THIRD PARTY VIEWS

Third party views have been referenced in the relevant sections of the competitive analysis above.

ASSESSMENT

The parties overlap in the supply of branded frozen pizzas.

It was not considered necessary to segment the market by retail channel, as the OFT has concluded, in previous retail mergers, that grocery retail multiples act as a constraint on convenience stores. The OFT believes this approach is particularly appropriate for the frozen pizza market. As such the focus of our analysis was on the supply of branded frozen pizzas across all retail outlets.

The OFT considered there to be sufficient evidence to suggest that own-label frozen pizzas act as a constraint on branded frozen pizzas. The chilled pizza category was, however, not considered to exert sufficient constraint to be included.

Taking a cautious approach to market scope and excluding all chilled pizzas, the combined market share of the parties is around 30 per cent including an increment of around 10 per cent. However, concerns regarding this market share are mitigated by a number of factors.

The parties operate in different segments of the market: in no segment is the increment more than 2 per cent. In addition, there is convincing evidence that Green Isle is a closer competitor to Dr Oetker, than Schwan's. The OFT also noted the existence of constraints from outside the market, in particular the chilled pizza category (specifically in relation to the thin and crispy segment).

Some buyer power may be expected, with around 80 per cent of frozen pizza sales being made through the major multiples but it has not been necessary to conclude on this point.

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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