Anticipated acquisition of Illovo Sugar Ltd by ABF Overseas Ltd

Affected market: Sugar

No. ME/2462/06

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 31 July 2006. Full text published 4 August 2006.

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

PARTIES

ABF Overseas Limited (ABF Overseas) is ultimately controlled by Associated British Foods plc (ABF). ABF is the sole shareholder of British Sugar. British Sugar processes sugar beet to produce various different types of sugar which it sells to the retail and industrial channels.

Illovo Sugar Limited (Illovo) is a South African company that operates in all areas of sugar production from growing sugar cane to milling, refining, and packaging sugar. Its business is focused in the African continent, but it sells limited quantities of processed sugar and of cane raw sugar into the European Union (EU). Illovo's UK turnover in the financial year ending 31 March 2006 was [ ].

TRANSACTION

ABF Overseas announced on 19 May 2006 that it will acquire shares in Illovo entitling it to exercise 51 per cent of the voting rights in Illovo. British Sugar offered minority shareholder protection, which, inter alia, means that dealings between British Sugar and Illovo will be conducted on an arm's length commercial basis.

The OFT's administrative deadline for deciding whether to refer the merger to the Competition Commission is 1 August 2006.

JURISDICTION

As a result of this transaction ABF Overseas and Illovo will cease to be distinct. The parties overlap in the supply of granulated sugar in the UK. Although Illovo's sales to the UK represent [0-5 per cent] of the total market, British Sugar is a major supplier of granulated sugar with over 50 per cent of the sales to retail customers, and as a result 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 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 parties' customers contacted by the OFT were not concerned about the merger. Although one customer did mention vertical concerns, it did not respond to invitations to expand on these. Competitors' concerns about vertical issues created by the merger have been dealt with above.

One third party that currently trades with Illovo was concerned that information passed to Illovo in the course of its previous trading relationship would be passed to British Sugar. However, the third party did not supply any evidence or internal documents that this is a genuine concern and nothing in the documents the parties presented to the OFT suggested this formed a rationale for the transaction. In addition, the parties stated that Illovo has no knowledge of operations in relation to that third party which either British Sugar would not already be aware of, or which Illovo anticipates British Sugar could in any way use to its advantage. Furthermore and in any event it is not clear that this constitutes a competition concern.

ASSESSMENT

The parties overlap in the supply of direct consumption sugar to sugar merchants. In the future, in absence of the merger, it is possible that the parties would also compete for the supply of direct consumption sugar to UK end customers in view of the regulatory changes affecting the EU sugar market.

The OFT does not believe that the merger will result in a substantial lessening of competition for a number of reasons. First, there are currently a number of alternative suppliers of direct consumption sugar to serve sugar merchants, and in the future many of these alternative suppliers - and possibly many more - will be competing for final customers and sugar merchants in the UK and the EU. Even though Illovo may be expected to be in a better position to take advantage of the increasing LDC quotas than other LDC players, this expectation is speculative. In addition, its current share of LDC direct consumption sugar supply is low, and its share on a global basis will be even lower.

Second, the vertical issues raised by third parties were largely notional. There was no evidence in internal documents or otherwise to suggest that the proposition that British Sugar could foreclose the access of other UK sugar producers and merchants to sugar supplies in such a way that they would not have a reasonable alternative supply source was more than fanciful.

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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