Completed acquisition by Napier Brown Foods plc of James Budgett Sugars Ltd

Affected market: Supply of sugar to industrial users in the UK

No. ME/1199/04

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, undertakings in leiu and decision.

The OFT's decision on reference under section 22 given on 12 October 2004

PARTIES

Napier Brown Foods plc (NBF) was established in July 2003 to acquire the Napier Brown group of companies – Napier Brown & Company Limited (Napier Brown), Garrett Ingredients Limited (Garrett) and Sefcol Ingredients Limited (Sefcol). The business of NBF is focussed on the supply of sugar, value added sugar and nut products, and dairy powders and associated food products.

Napier Brown is the largest sugar merchant in the UK. It supplies a range of sugar to customers throughout the industrial, retail and catering sectors of the food industry.

James Budgett Sugars Ltd (Budgett) is the second largest sugar merchant in the UK. Its principal activity is the supply of sugar to industrial users. Budgett's UK turnover for the year ended 31 October 2003 was £119.1 million.

TRANSACTION

On 7 July 2004, NBF acquired 100 per cent of the share capital of Budgett from ED&F Man Holdings Limited and Greencore Group plc.

The parties notified the transaction on 16 July 2004. The administrative deadline is 13 October 2004.

JURISDICTION

As a result of this transaction NBF and Budgett have ceased to be distinct. The UK turnover of Budgett exceeds £70 million, so 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.

ASSESSMENT
 
The supply of sugar to industrial users in the UK is subject to the controls established by the EU Sugar Regime and is principally carried out by the vertically integrated producers, British Sugar and Tate & Lyle. Their most significant competitors are the two remaining independent sugar merchants, Napier Brown and Budgett.

Given the structure of the sector, it is arguable that the merchants only provide limited price competition for the two producers. However, the evidence in this case suggests that the merchants do represent a competitive constraint on each other as well as the producers. Larger industrial users actively use the merchants to generate some leverage against the two UK producers. Small and medium industrial users see the merchants as their main sources of supply.

The evidence also indicates that constraints on the four major UK sugar suppliers are weak. The extent of imports as a competitive threat is not clear, [ ]. The threat of entry and buyer power are not competitive constraints in this sector.

It is arguable that the merger will lead to a 'third force' in the supply of sugar to industrial users, by creating an enlarged merchant that is better placed to compete with the two producers. The merger might create cost savings in overheads for the merged entity. More importantly the enlarged merchant might be able to generate cost savings as a result of the larger volumes it supplies. Such economies of scale are crucial in a commodity business.

While the third force argument is plausible, the OFT has not been provided with sufficient reliable or consistent information to counter the competition concerns identified above. It is also unclear to what extent any savings will be passed on to customers.

In light of the above, the OFT believes that it may be the case that the merger has resulted or may be expected to result in a substantial lessening of competition in the supply of sugar to industrial users in the United Kingdom.

UNDERTAKINGS IN LIEU

Napier Brown considered the scope for providing undertakings in lieu of reference, were that to be the outcome, but concluded that it was not possible to structure an appropriate and proportional undertaking.

DECISION

This merger will therefore be referred to the Competition Commission under section 22(1) of the Act.

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