Anticipated acquisition by James Finlay Limited of Flamingo Holdings Limited

Affected market: Flower production and wholesale

No. ME/3039/07

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, assessment and decision.

The OFT's decision on reference under section 33 given on 29 June 2007. Full text of decision published 9 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 and third parties for reasons of commercial confidentiality and clarity.

PARTIES

James Finlay Limited (Finlays) is a wholly-owned subsidiary of John Swire & Sons Limited (JS&S), a commercial group active in property, aviation, marine services and the trading and industrial sector. Finlays produces and supplies cut flowers and black tea, together with agency services, parts distribution services and other plantation interests. The UK turnover associated with Finlays in 2006 was approximately £66 million.

Flamingo Holdings Limited (Flamingo) is a vertically integrated horticulture business active in the growing, processing and packaging, airfreight operation, marketing and wholesale distribution of cut flowers and fresh vegetables. Flamingo concentrates its cut flower wholesaler activities in the UK with its own African production sites, including six major farms in Kenya operated by its wholly-owned Kenyan subsidiary (Homegrown Kenya Limited), as its primary source of supply. Flamingo's UK turnover for the financial year ended 31 December 2006 was approximately £[ ] million.

TRANSACTION

On 17 May 2007, Finlays announced its proposal to acquire the entire issued share capital in Flamingo and the parties notified the transaction to the OFT by way of a Merger Notice. The extended statutory deadline expires on 29 June 2007.

JURISDICTION

As a result of this transaction Finlays and Flamingo will cease to be distinct. The UK turnover of Flamingo 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 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

Third parties were unconcerned by this transaction, save one retail multiple customer which commented that its occasional supply arrangements for Finlays' fair-trade flowers through a wholesaler other than World Flowers could be affected by the merger. As the parties confirmed that Finlays' supply arrangement with World Flowers [ ], this was not considered further.

ASSESSMENT

The merging parties overlap in the production and the wholesale supply of cut flowers, in relation to which the impact of this transaction has been considered.

The parties both grow flowers in Africa but not in Europe (including the UK). If the production of cut flowers is considered to be global, their combined share of supply is estimated by the parties to be less than one per cent (increment negligible). Therefore, the OFT does not believe that the merger will result in a substantial lessening of competition in the UK as related to flower production.

The parties also overlap in the wholesale supply of cut flowers in Europe, in relation to which the merged entity will have a share of supply of less than five per cent (increment less than one per cent). [ ] The parties do not overlap in the wholesale supply of fair-trade flowers in Europe. 

In the UK, Finlays (and its parent group, JS&S) make no direct sales of flowers. Rather, it sells flowers produced in Kenya - including fair-trade accredited flowers - destined for the UK to an unrelated third party wholesaler (World Flowers). This is estimated by the parties to account for less than one per cent of total UK retail sales of cut flowers. While Finlays and Flamingo could be considered to be potential competitors in the UK wholesale of flowers, the OFT considers that there exist alternative suppliers in Europe and the UK which will provide a competitive constraint on the merged entity. In addition, the existence of European flower auctions (most notably in the Netherlands) can also be considered as viable alternative sources of supply for customers to diminish any actual or potential loss in competition resulting from the merger.

A vertical concern has been considered that the merger may result in a restriction of the existing supply of cut flowers - in particular, fair-trade accredited flowers - by Finlays to World Flowers following the expiry of their [ ] UK supply agreement. In considering whether Finlays could undertake such a foreclosure strategy, the OFT was informed by the parties that this supply was not a substantial proportion of World Flowers' total UK requirement. In any event, the OFT believes that it would be possible for World Flowers to replace any lost supply through a number of alternative existing and new channels and suppliers. Therefore, the OFT believes that the loss of any competitive constraint on the vertical level as a result of the transaction will not be significant.

In conclusion, taken in conjunction with a general lack of third party concerns, the OFT does not consider that the transaction gives rise to any substantial lessening of competition concerns at any level. 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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