Completed joint venture between Constellation Brands Incorporated and Punch Taverns plc relating to Matthew Clark Wholesale Limited, Forth Wines Limited and Wine Studio Limited

Affected market: Wholesale supply of alcoholic and non-alcoholic beverages to the on-trade

No. ME/3013/07

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 22(1) given on 5 July 2007. Full text of decision published 13 July 2007.

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

PARTIES

Punch Taverns plc (Punch) is a UK based pub operator with a portfolio of over 9,000 pubs (the Punch estate), [see note 1] 90 per cent of which are leased to tenants.

Constellation Brands Incorporated (CBI), is a US based producer and seller of alcoholic beverages, and owns the three companies that are the subject of this investigation (referred to in this decision as the 'Joint Venture Companies'):

• Matthew Clark Wholesale Limited (MCW) is a UK based wholesaler and distributor of alcoholic and non-alcoholic beverages to on-trade businesses (hotels, pubs and restaurants). MCW achieved [more than £70 million] of (unaudited) sales in the financial year ending 28 February 2007.
• Forth Wines Limited (FWL) is a small specialist wine merchant operating in Scotland and other parts of the UK. FWL achieved approximately [less than £70 million] of (unaudited) sales in the financial year ending 28 February 2007.
• Wine Studio Limited (WSL) is a new business which came into operation in January 2007. Its turnover for the first two months of operation was approximately [less than £70 million].

TRANSACTION

As a result of the joint venture Punch acquired a 50 per cent interest in the Joint Venture Companies from CBI. The joint venture was completed on 17 April 2007 and the parties notified the transaction to the OFT on 30 April 2007. The (extended) administrative deadline is 5 July 2007 and the statutory deadline is 16 August 2007.

JURISDICTION

As a result of this transaction Punch and the Joint Venture Companies will cease to be distinct. The UK turnover of the Joint Venture Companies 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.

THIRD PARTY VIEWS

There were a number of vertical concerns expressed regarding the merger. One concern raised was that Punch would use the joint venture to increase the ties it currently has on its leased pubs, or otherwise foreclose access to the Punch estate. At present, the vast majority of tenants (more than [85-95] percent) are not obliged to source wine and spirits from Punch, although Punch tenants are obliged to buy beer from Punch. However, the OFT found no evidence to suggest that Punch would seek to increase ties following the joint venture.

Another third party was concerned that the joint venture will restrict the choice of wine available to Punch tenants, and hence the availability of wine to consumers. However, Punch accounts for a very small proportion of the market for the on-trade supply of wine, and Punch tenants are not generally required to purchase wine directly from Punch. Hence, the joint venture is not likely to raise any issue as to the choice of wine available at on-trade premises.

A number of third parties were unconcerned about the merger, and in particular there were very few concerns from third parties at the retail level.

ASSESSMENT

The transaction concerns a joint venture between Punch and Constellation, involving the wholesale supply of alcoholic and non-alcoholic beverages to the on-trade. While the parties do overlap in the wholesale supply of alcoholic and non-alcoholic beverages, Punch's activities are restricted to the supply of its own (managed and tenanted) pubs. As a consequence, the increment for the wholesale supply to the on-trade is relatively small, and the merger does not raise competition concerns on a horizontal level. 
A number of third parties had concerns regarding the vertical effects of the merger. These concerns included an increase in the parties' purchasing power, the possibility of the joint venture offering preferential trading terms to the Punch estate and access by Punch to its competitors' confidential information. However, the OFT generally considers that vertical concerns are unlikely except in the presence of existing market power at some level of the supply chain, or where there are already significant vertical integration restraints. In the current case, the joint venture will not result in market power at either the wholesale or retail level. As such, the OFT does not consider that the joint venture will raise competition concerns on a vertical level.

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.

NOTE

1. The OFT understands that Punch was to reduce the number of pubs it owns to around 8330 during the course of the investigation.

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