Newsroom

OFT considers undertakings instead of reference to protect UK competition in cheddar cheese-making equipment

118/06    20 July 2006

The OFT has decided today not to refer the anticipated acquisition by Tetra Laval Group of Carlisle Process Systems to the Competition Commission.

The decision has been taken on the condition that satisfactory undertakings are given to address the competition concerns arising from the supply of certain equipment used for the industrial manufacture of cheddar cheese. If Tetra Laval Group does not give such undertakings, then the transaction will be referred.

The parties have in recent years been the two most successful suppliers of cheese vats, cheddaring machines and cheese towers to UK cheese producers. By eliminating competition between them, the merger may lead to higher prices and a reduction in innovation in industrial cheddar-making equipment.

The remedy offered by Tetra Laval Group includes undertakings to grant a suitable purchaser an irrevocable European Economic Area (EEA)-wide licence of intellectual property rights relating to cheese equipment sold under the 'Wincanton' brand.

This is the first time since the Enterprise Act came into force that the OFT has decided to consider undertakings based on licensing of a package of intellectual property rights (IPR) to resolve national competition concerns.

Vincent Smith, OFT Director of Competition Enforcement said:

'The OFT's provisional view is that the package offered, including access to IPR such as the design rights and use of the Wincanton brand, which is well-established in the UK, should enable a suitable purchaser to compete effectively with the merged group and restore the rivalry lost as a result of the merger.

'Divestment of manufacturing capacity appears unnecessary in this case, because it appears that potential purchasers either have this capability already or can outsource it in a cost-effective manner.'

In due course, the OFT will consult on the proposed undertakings to verify these points before making a final decision.

NOTES

1. The Reference Test — The OFT has a duty to make a reference to the CC if the OFT 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; and the creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.

2. Under the Enterprise Act 2002 a relevant merger situation is created if two or more enterprises have ceased to be distinct enterprises; and the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million; or as a result of the transaction, in relation to the supply of goods or services of any description, a 25 per cent share of supply in the UK (or a substantial part thereof) is created or enhanced.

3. Under section 73 of the Enterprise Act 2002 the OFT may, instead of making a reference, and for the purpose of remedying, mitigating or preventing the substantial lessening of competition concerned, or any adverse effect which has or may have resulted from it or may be expected to result from it, accept from such of the parties concerned as it considers appropriate undertakings to take such action as it considers appropriate. In doing so, the OFT will have regard to the need to achieve as comprehensive a solution as is reasonable and practicable to the substantial lessening of competition and any adverse effects resulting from it.

4. Before accepting any such undertakings under Schedule 10 of the Enterprise Act 2002, the OFT shall give notice of the proposed undertakings and will consider any representations made in accordance with that notice.

5. The text of this decision can be seen in the mergers section and will also appear in the Office's Weekly Gazette as soon as is reasonably practicable.

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