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OFT accepts licensing of an 'up-front buyer' to protect UK competition in cheddar-cheese making equipment sector

162/06    20 November 2006

The OFT has decided today to accept the undertakings offered by Tetra Laval Group (Tetra Laval) to address the competition concerns arising from the anticipated acquisition by Tetra Laval of part of Carlisle Process Systems from Carlisle Companies Inc.

The transaction raised concerns in relation to the supply to UK customers of certain equipment used for the industrial manufacture of cheddar cheese. As a result of the undertakings offered by Tetra Laval, the transaction will not be referred to the Competition Commission.

The OFT considered that the merger of two leading competitors in the supply of vats, cheddaring machines and cheese towers to UK customers would reduce competition and innovation and would result in higher prices and lower levels of service in the sector.

Instead of a reference to the Competition Commission, the parties have offered to grant an exclusive irrevocable EEA-wide licence of intellectual property (IP) rights relating to cheese equipment sold under the 'Wincanton' brand (the Divestment Package) to Moody plc (Moody). For this package to be a viable remedy, it was important to find a buyer that already had the necessary manufacturing capability, expertise and industry contacts to be an effective competitor. The OFT wished to manage this risk up-front by assessing Moody's business case, the licensing agreement, and the detailed terms of the undertakings. Having done so and consulted publicly before accepting the undertakings, the OFT is now satisfied that Moody's significant experience as a supplier of services of equipment to the dairy sector combined with possession of the relevant IP rights makes Moody as effective a competitor to Tetra Laval after the merger as Carlisle was before it.

Vincent Smith, Senior Director for Competition at the OFT said:

'This case is novel for the OFT under the Enterprise Act. It is the first time we have accepted the licence of intellectual property rights alone as a merger remedy; it is also the first time we requested and have approved an 'up-front purchaser' before accepting undertakings in lieu of reference. This case demonstrates the OFT's flexibility on merger remedies when parties show constructive engagement with the OFT on this issue at an early stage, as they did here. Accordingly, the need for a Competition Commission Investigation was avoided, while customers and consumers will be protected from the adverse effects of the merger.'

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 a relevant merger situation has been created; and the creation of that situation has resulted, or 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 the OFT shall give notice of the proposed undertakings under Schedule 10 of the Enterprise Act 2002, and considered any representations made in accordance with that notice.

5. The text of this decision will be published in the mergers section as soon as is reasonably practicable.

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