Anticipated acquisition by Diageo plc of the 'Old Bushmills' Distillery Company Limited

Affected market: Spirits

No. ME/1825/05

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 given on 11 August 2005. Full text of decision published 18 August 2005.

PARTIES

Diageo plc (Diageo) has a global presence in the production, distribution, marketing, exporting and importing of spirits and wine. Diageo is the owner of a number of leading spirits brands such as 'Smirnoff' vodka, 'Johnnie Walker' Scotch whisky, 'Baileys' liqueur and 'Captain Morgan' rum. Diageo does not produce or supply Irish whiskey. Diageo also brews, markets and distributes beer on a worldwide basis, including 'Guinness' stout, 'Kilkenny Irish Beer' and 'Harp' larger.

The 'Old Bushmills' Distillery Company Limited (Old Bushmills) is owned by Pernod Ricard SA and is the second largest Irish whiskey brand. Old Bushmills produces Irish whiskey at its distillery in County Antrim, Northern Ireland, under the brands 'Old Bushmills Malt', 'Old Bushmills Original' and 'Black Bush', and has recently launched a new product, 'Bushmills Irish Cream'. Old Bushmills' UK turnover in 2004 was £2.7 million.

TRANSACTION

The agreement between Pernod Ricard and Diageo for the acquisition of Old Bushmills (the Acquisition) was exchanged in 6 June 2005. Diageo agreed to pay a consideration of €295.5 million. The Acquisition is conditional on the completion of Pernod Ricard's proposed acquisition of Allied Domecq plc (Allied).

A pre-notification submission was received on 6 July 2005. The statutory deadline was extended by ten working days and expires on 17 August.

JURISDICTION

The acquisition has resulted in two enterprises ceasing to be distinct within the meaning of section 26(1) of the Enterprise Act 2002 (the Act). The turnover test is not met.

Diageo argues that the share of supply test is not met due to the fact that it has no interest in the Irish whiskey market – in which Old Bushmills is active - in the UK or elsewhere. However, Old Bushmills has recently launched a liqueur product (Bushmills Irish Cream), and, if the OFT considers this new brand as part of a separate market, the merger qualifies under the Act since Diageo has a share of supply in excess of 25 per cent in any of the candidate markets (flavoured spirits, liqueurs or cream/coffee liqueurs).

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

The majority of third parties did not express any concerns about the transaction. A few raised concerns that the merger would increase the size of Diageo's portfolio and remove a competitor from the cream liqueur segment – these concerns are addressed above.

ASSESSMENT

The transaction qualifies on the share of supply test under the Act. For the purposes of this analysis the appropriate frames of reference are taken to be the UK production and supply of Irish whiskey, of all whiskies, as well as of cream liqueurs.

The parties do not overlap in the production and supply of Irish whiskey. Taking the whisky segment as a whole, the merger creates a combined share of [15-20 per cent] (increment [<1 per cent]). A number of competitors remain in the sector, and the shares of supply, as well as the accretions to those shares, are not significant. In the cream liqueurs segment, although the merger creates a combined share of [60-70 per cent] and Diageo holds a strong position with its Baileys brand, the accretion to share of supply is very small ([<1 per cent]).

There appears to be some barriers to entry in the Irish whiskey segment but the parties do not overlap in that segment. Barriers in other segments may exist, but the issue of how significant they are can be left open due to the lack of competition concerns arising from this merger.

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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