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OFT refers completed Nufarm and A.H. Marks merger to competition commission

102/08    29 August 2008

The OFT has today referred the completed acquisition by Nufarm Limited (Nufarm) of AH Marks Holdings Limited (AH Marks) to the Competition Commission (CC) for further inquiry.
 
Nufarm and AH Marks are the leading suppliers to UK customers of two phenoxy acetic acids, technically known as 'MCPA' and '2,4-D', which are chemicals used to make herbicides. These phenoxy-based herbicides are used by farmers to protect against weeds.

In making its decision to refer the completed acquisition to the CC, the OFT considered the following:

• Other herbicides used by UK grassland farmers are generally far more expensive or target a different spectrum of weeds, so the OFT was not convinced that enough farmers would switch to them if there was an increase in the price of herbicides based on Nufarm's phenoxy-based chemicals.
• A number of UK herbicide formulators and distributors – who buy chemicals directly from the parties and supply the herbicides to farmers – were themselves of the view that Nufarm could raise prices post-merger.
• There is just one other existing supplier of these products in the UK, Dow AgroSciences, but the OFT was not convinced that competition from Dow AgroSciences alone would prevent Nufarm from raising prices.
• While it was plausible that other foreign suppliers could enter the UK post-merger, the evidence was too weak to give comfort that new entry would be likely, timely, and on the scale required to replace the competition lost by the merger.

Overall, the risk therefore remains that Nufarm will be able to exercise market power and charge near-monopoly prices.

In this case, the overall value of the markets directly affected by the merger is not particularly large – less than £10 million. However, taking all factors in the round – including the deterrent effect of an OFT decision to refer the OFT considered it proportionate that the CC investigate further and, if the evidence justifies it, impose remedies.

This is the latest in a series of completed mergers not notified to the OFT that have raised competition concerns. Earlier in August, (see press release 94/08) the OFT accepted undertakings from Home Retail Group, owner of Homebase, to sell an acquired Focus DIY store back to Focus, because the original completed merger raised competition concerns.

Simon Pritchard, OFT Senior Director of Mergers said:

'Nufarm was perfectly entitled to take the risk of completing this acquisition and integrating the UK businesses. For the OFT, however, protecting UK customers and consumers comes first, and while we take no satisfaction from the inevitable disruption, we will not hesitate to intervene whenever necessary.

'While the markets here are not large, the merger's impact is significant, with customers potentially exposed to near-monopoly prices, and the deterrent effect on future mergers that could result in monopolies is also an important consideration for us. As such, the Competition Commission has a valuable job to do in giving this merger thorough scrutiny.'

NOTES

1. While the majority of mergers reviewed by the OFT arise from voluntary notification by the parties, the OFT's own-initiative inquiry programme has led to remedial action by the OFT or CC in thirteen cases under the Enterprise Act 2002 regime. In some of these cases, it is always possible that the parties would have voluntarily notified the OFT of their merger at a later date; in other cases, it was clear to the OFT that this would not have been the case. As of March 2008, the OFT has a dedicated Mergers Intelligence Officer responsible for monitoring non-notified merger activity and liaising with other competition authorities. That person can be contacted confidentially at mergers.intelligence@oft.gsi.gov.uk if any interested party wishes to make the OFT aware of a merger that it considers might potentially be anti-competitive.

2. 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.

3. 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.

4. The text of this decision will be placed on the mergers section of this website.

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