Anticipated acquisition by Geest Foods Limited of New Primebake Limited

Affected market: Manufacture of Bread

No. ME/2407/05

Please note that the full text of the decision can be downloaded by using the link on the right of this page. What follows are extracts regarding the parties, the transaction, jurisdiction, third party comments, assessment and decision.

The OFT's decision on reference under section 33 given on 27 June 2006. Full text published 10 July 2006.

Please note that square brackets indicate figures or text which have been omitted or replaced with a range for reasons of commercial confidentiality.

PARTIES

Geest Foods Limited (Geest) is a wholly owned subsidiary of the Icelandic Bakkavor Group hf. Geest is active in the preparation of convenience foods and meal accompaniments and  produces own label food items for supermarkets in the UK.

New Primebake Limited (New Primebake) is a wholly owned subsidiary of Primebake Limited. New Primebake is a producer and supplier of own-label speciality breads for national multiples. It is also a supplier of fresh prepared foods in the UK.

TRANSACTION

Geest is proposing to acquire the entire issued share capital of New Primebake. The parties notified the transaction on 28 April 2006 and therefore an administrative deadline of 27 June 2006 applies.

JURISDICTION

As a result of this transaction Geest and New Primebake will cease to be distinct. Post-merger the parties will have a combined share of supply of [70-80] per cent in chilled speciality breads in the UK. Therefore 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 contemplation which, if carried into effect, will result in the creation of a relevant merger situation.

THIRD PARTY COMMENTS

Customers were generally unconcerned. Certain smaller customers were concerned that post merger the merged entity would focus on placating its larger clients at the expense of service quality for smaller customers. One larger customer was concerned about the ability of the merged entity to raise prices post-merger. However most stated that the merger would provide beneficial synergies and economies of scale, the benefits of which would be passed down to them. They also considered that should the merged entity fail to deliver the adequate quality of service or should it raise prices, there would be sufficient alternative suppliers for them to switch to. Some customers emphasized that the merger would lead to increased investment in technical capacity and product innovation and increased supply capacity in the market.

One competitor to the parties (currently only active in frozen speciality breads) voiced strong concerns that the merger would significantly harm its chances of entering the chilled speciality breads sector as it would create a very dominant supplier of chilled speciality breads. However, in general competitors were not concerned and in fact viewed the merger as an opportunity to open up opportunities to supply the national multiples who prefer to have a number of different suppliers at any one time.

ASSESSMENT

The parties overlap in supply of chilled speciality breads. Post-merger they will have a combined share of supply of [70-80] per cent (increment [30-40] per cent) in the UK. There are a number of other suppliers of chilled speciality breads, many of which have spare capacity and face low barriers to expansion. Barriers to entry by existing bakeries also appear to be low. This, in addition to customers' willingness to switch and the presence of countervailing buyer power, would appear to pose sufficient constraints on the merged entity to prevent it raising prices or reducing service quality. The majority of customers did not have any competition concerns and considered sufficient alternative suppliers (or potential suppliers) remained post-merger.

Consequently, the OFT does not consider 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 not be referred to the Competition Commission under section 33(1) of the Act.

Back to top