Completed acquisition by Dairy Crest Group plc of the dairy business of East of England Cooperative Society Limited

Affected market: Milk

No. ME/3496/08

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 33(1) given on 19 March 2008. Full text of the decision published on 28 March 2008. 

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

PARTIES

Dairy Crest Limited (Dairy Crest) is the main trading subsidiary of Dairy Crest Group plc active in the dairy sector.

East of England Co-operative Society Limited (EofE) is a cooperative society active in East Anglia. EofE's activities include convenience store retailing, funeral and travel services, as well as a dairy business. The turnover associated with the dairy business in the last financial year was £[  ] million.

TRANSACTION

The transaction, which was completed on 16 February 2008, involves the acquisition by Dairy Crest of various assets pertaining to EofE's dairy business, excluding its dairy in Ipswich which is due to close this month. Therefore the transaction refers to the distribution, but not the production, of dairy products.

An informal merger submission was received by the Office of Fair Trading (OFT) on 23 January 2008 and the OFT's administrative deadline for deciding whether to refer the merger to the Competition Commission (CC) is 19 March 2008.

JURISDICTION

As a result of this transaction Dairy Crest and EofE's dairy business have ceased to be distinct. The parties' combined share of supply of fresh processed milk to doorstep and middle ground customers is above 25 per cent and as a consequence 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 a relevant merger situation has been created.

THIRD PARTY VIEWS

Concerns about this merger were only raised by one customer and one supplier to the parties. These concerns have been dealt with above.

The Department for Environment Food and Rural Affairs (DEFRA) considered that the merger would not give rise to concerns in the doorstep segment due to the lack of competition between the parties and the availability of alternative sources of supply, such as supermarkets. In respect of the middle ground segment DEFRA felt that the primary issue for concern was that of coordination, but did not expand on this issue, which is dealt with in some detail above.

ASSESSMENT

Dairy Crest and EofE overlap in the supply of fresh processed milk to doorstep and middle ground customers.

In relation to the doorstep segment, despite the high shares of supply and substantial increments in the Anglia region, the parties do not overlap on individual rounds. Therefore, there was little, if any, pre-merger competition between the parties' doorstep businesses, even in regions where both had a presence, due to the local monopoly aspect of individual doorstep rounds. In addition, there are significant external competitive constraints on the doorstep segment, which is in decline, placed in particular by grocery retailers. This is consistent with the OFT's and the CC's conclusions in previous cases involving this segment.

In relation to the supply to middle ground customers, in the London area increments to Dairy Crest's share of supply are too small to raise any competition concerns. In the Anglia area, although the increment is more significant, the OFT also does not believe that the merger will cause competition concerns. Of primary importance to this assessment is the lack of current competitive interaction between the merging parties. The limited supply of EofE to middle ground customers other than its own retailers and cooperatives makes it unlikely that competitive conditions post merger will be substantially weakened.

In addition, there is an active fringe of competitors who offer an alternative for middle ground customers, as well as alternatives outside the middle ground segment who could nonetheless supply middle ground customers. In this issue it is worth reminding that middle ground is in effect a 'catch all' concept to describe customers who are not national retailers and not doorstep. In addition, the evidence before the OFT does not suggest that specific groups such as schools would be vulnerable to detrimental effects of the merger.

In relation to coordinated effects, while the milk market structure in general may be conducive to coordination, the OFT does not believe that, in this case, the affected sector is particularly favourable to coordination nor that the merger will make any coordination more likely or stronger. This is due to some characteristics of the middle ground market discussed in the coordinated effects section above, as well as to the weak competitive interaction between EofE and Dairy Crest discussed in the assessment of unilateral effects.

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.

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