Anticipated acquisition by British Sugar plc of the Billington Food Group Limited

Affected market: Sugar

No. ME/1112/04

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.

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

The OFT's decision on reference under section 33 given on 4 August 2003

PARTIES

British Sugar plc (British Sugar) is a wholly-owned subsidiary of Associated British Foods plc (ABF). British Sugar produces sugar from sugar beet grown in the UK for supply to the retail and industrial sectors. It also sells organic cane sugar sourced from Brazil [ ] to the retail and industrial sectors.

The Billington Food Group Limited (Billingtons) is a wholly-owned subsidiary of Billington Foods Limited, whose ultimate holding company is Edward Billington & Son Limited. Billingtons turnover for the year ended 30 April 2003 was around £29 million. Billingtons' principal operations are importing unrefined cane sugars from a number of countries (primarily Mauritius) into the UK, which it supplies to UK retail purchasers under its own brand and for private label sales. It also supplies UK industrial purchasers.

TRANSACTION

On 26 May 2004, British Sugar agreed to acquire the entire issued share capital of Billingtons. British Sugar also agreed to acquire Billingtons' minority shareholding in Sukpak Limitee (Sukpak), a hand sugar packing operation in Mauritius.

The parties notified the transaction on 2 June 2004 and the administrative deadline is 4 August 2004.

JURISDICTION

As a result of this transaction British Sugar and Billingtons will cease to be distinct. The parties overlap in the supply of sugar and the share of supply test in section 23 of the Enterprise Act 2002 (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.

THIRD PARTY VIEWS

Customers (including customers specifically in the organic sector) have not raised widespread concerns about the effect of this transaction on competition in any product category. Where concerns have been raised, they have tended to focus on the merger potentially reducing product range, rather than on increasing prices. British Sugar stated that it does not intend to rationalise its range (or Billingtons' range) in relation to organic cane sugar. It adds that the parties' organic cane products are currently stocked in different supermarkets and it would not make commercial sense to rationalise any of these product ranges as this would remove sales at a number of supermarkets which could not be guaranteed to be regained by the merged entity.

There has been some competitor concern, focusing on the strengthening of British Sugar's overall position in sugar supply. However, no evidence was received in support of this concern.

ASSESSMENT

Generally speaking, British Sugar specialises in refined sugars while Billingtons specialises in unrefined sugars. This appears to be an important distinction for most types of sugar and on this basis, the parties do not have any overlaps in most categories. The quantitative evidence and the views of the third parties confirm this and indicate that the two parties have not been a competitive constraint on each other in most categories.

The one possible area of concern is organic sugar, specifically organic granulated cane sugar, where the price correlation on retail figures is consistent with some competitive interaction between the parties' products and the shares of supply are relatively high. Nonetheless, as noted, it is arguable that the parties' products in this sector are not perceived as being substitutable and in any event, there are a number of additional factors to consider, namely:

• barriers to entry to the organic granulated sugar sector appear to be low, especially since all suppliers of organic cane sugar source from outside the Sugar Regime and ACP preferential treatment regime, and therefore face the same customs levy
• there appears to be countervailing buyer power in that all of British Sugar's organic granulated sugar sales and over 95 per cent of Billingtons' are to the major supermarkets
•  third parties specialising in organic products were mostly unconcerned about the effect of the transaction in that sector
• the evidence has allayed concerns about the risk of coordinated behaviour arising as a result of the transaction and
• the value and volume of the organic granulated sugar sector is very small and a tiny proportion of total sugar sales.

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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