Anticipated acquisition by Robert Wiseman Dairies plc of the fresh milk business of Scottish Milk Dairies Limited

Affected market: Milk

No. ME/1896/05

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.

The OFT's decision on reference under section 33(1) given on 19 October 2005. Full text of decision published 27 OCtober 2005.

Please note square brackets indicate information excised or replaced by a range at the request of the merging parties or third parties for reasons of commercial confidentiality.

PARTIES

Robert Wiseman Dairies plc (Wiseman) is a public company whose shares are listed on the London Stock Exchange. The company produces fresh processed liquid milk (fresh milk) at processing facilities in Aberdeen, East Kilbride, Glasgow, Manchester and Droitwich. 

Scottish Milk Dairies Limited (SMD) is a wholly-owned subsidiary of First Milk Limited (First Milk). SMD processes fresh milk and UHT milk at its dairy in Glasgow and markets these products to customers mainly in the Glasgow area. SMD's turnover in the financial year ended 31 March 2005 was £9.4 million. SMD's parent, First Milk, is a farmer-owned dairy cooperative with approximately 3,600 members. First Milk procures raw milk from its members, collects it and then delivers it to milk processors such as fresh milk dairies, cheese producers and food processing factories. First Milk acquired a 15 per cent stake in Wiseman in 2004 (see note 1). 

TRANSACTION

On 9 August 2005 Wiseman announced that it had agreed terms for the acquisition of the goodwill (customer list), certain employees and assets of the fresh milk business of SMD. Wiseman is not acquiring the SMD processing facility. The administrative deadline in this case expires on 21 October 2005.

JURISDICTION

As a result of this transaction Wiseman and the fresh milk business of SMD will cease to be distinct. The OFT believes that the business being acquired constitutes an enterprise for the purpose of section 23 of the Enterprise Act 2002 (the Act). The parties have a combined share of supply in fresh milk to middle ground customers in Scotland of more than 25 per cent; therefore, 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 arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.

ASSESSMENT

The merger would result in a combined share of supply of fresh milk to middle ground customers in Scotland of approximately [60-70] per cent (Wiseman [50-60] per cent, SMD [0-10] per cent). The next largest competitors are significantly smaller than the merged entity (Graham's: [10-20] per cent, Claymore/Arla: [0-10] per cent). We do not have accurate shares of supply for the region of overlap, but since this is SMD's main area of operation, the increment may be more significant than the increment in respect of all of Scotland. 

Having considered all the evidence, we conclude that there is a realistic prospect that the conditions for coordination are present, and that the elimination of SMD, one of the principal smaller suppliers to the middle-ground customers in the Glasgow Area/Central Belt area, will lead to coordination being more perfect, durable or complete than it would be absent the merger. Smaller rival processors may lack the incentive, if not the ability, to compete with the leading supplier in a market in which the players may be able to tacitly coordinate their activities along leader-follower lines; a perceived lack of access to additional raw milk supplies may also impair their ability to expand production to fill their plants. In particular, we are unable to conclude with the requisite degree of certainty that smaller processors would have both the ability and the incentive to compete for the SMD customers that would transfer to Wiseman as a result of the transaction, and smaller middle ground customers in the region of overlap generally. 

Even in the absence of any coordination, the merger may permit Wiseman unilaterally to profitably increase the price of fresh milk to middle ground customers (in particular, but not limited to, former SMD customers) to a level higher than absent the merger. 

Moreover, while we are particularly sensitive to the commercial incentive for rivals to frustrate the merger approval process of their competitors, we are unable to resolve the question of whether or not Arla will compete for middle ground customers in the Greater Glasgow area and/or the Central Belt of Scotland to a degree sufficient to alleviate all competition concerns.

Consequently, the OFT believes 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 be referred to the Competition Commission under section 33(1) of the Act.

NOTES

1. OFT decision of 17 April 2005 on the completed acquisition by First Milk Limited of a 15 per cent stake in Robert Wiseman plc (the First Milk/Wiseman decision).

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