Affected market: Industrial surface / equipment testing
The OFT’s decision on reference under section 33(1) given on 27
November 2006. Full text of decision published 20 December 2006.
Please note that 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.
3M Company (3M) the ultimate parent company of 3M UK Holdings Plc,
is a diversified technology company with a worldwide presence in the
following product and service sectors: consumer and office; display and
graphics; electro and communications; health care; industrial and
transportation; and safety, security and protection. In the UK, it is
principally active through its subsidiary, 3M United Kingdom plc.
Biotrace International plc (Biotrace), a public company listed on
the London Stock Exchange, is a manufacturer and supplier of industrial
microbiology products, specialising in the development and manufacture
and supply of rapid tests and laboratory consumables for environmental
monitoring and quality control in a wide range of industrial and defence
applications. For the financial year ending 31 December 2005,
Biotrace’s UK turnover was £[ ]million.
3M UK Holdings plc is proposing to acquire the entire issued and to be
issued share capital of Biotrace by way of a recommended public cash
offer. The parties notified the transaction to the Office of Fair
Trading (OFT) by merger notice on 16 October 2006. The OFT’s extended
statutory deadline is 27 November 2006.
As a result of this transaction 3M and Biotrace will cease to be
distinct. The parties overlap in the supply of industrial surface and
equipment testing products for the food and beverage sector (combined
shares more than [ ] per cent) and 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.
FRAMES OF REFERENCE
Product frame of reference
Both parties are manufacturers and suppliers (to end users and to
distributors) of industrial microbiological testing products.
Industrial microbiological testing products are used to monitor and
detect unwanted bacteria in manufacturing processes. They are primarily
used in three broad sectors: (i) food and beverage processing, (ii)
pharmaceutical, personal care and cosmetics, and (iii) defence and life
3M is only active in the food and beverage processing sector. Within
this sector, there are three product segments:
- indicator testing, which provides an overview of the microbiological
‘quality’ of food products by analysing the presence and amount of
bacteria, contaminants, yeasts and moulds
- pathogen testing, which tests for three specific pathogens:
salmonella, listeria and e-coli O157
- surface/equipment testing, which detects the presence of cellular
debris and other non-specific bacterial residue on equipment and on
food preparation surfaces after cleaning.
Products tend to be specifically tailored to the relevant segments.
Despite a technical possibility of substitution in some cases,
customers’ have submitted that testing products specifically tailored
for the three different sectors are not substitutable on the demand side
and that the different segments within each have unique end-uses and (in
some cases) product-specific regulatory approvals. As such they are
considered complements rather than substitutes by both manufacturers and
In relation to supply side substitution, due to different underlying
technologies there does not appear to be much scope for supply side
substitution between the different types of testing segments within the
food and beverage processing sector. According to a competitor,
switching production from one type of testing segment to another would
take at least one year due to the development of new production methods
and protocols, regulatory validation of the new product, and persuading
customers to accept the product. No examples of actual supply-side
substitution were provided by third parties
Geographic frame of reference
The parties submit that the relevant geographic frame of reference is at
least EEA-wide, possibly world-wide. This view is supported by third
parties. The parties and their competitors have an international
customer base, manufacturing and shipping worldwide. Customers have a
definite preference for suppliers with a national presence, so that
service support is readily available and delivery problems are
minimised. However, this can be provided via a distributor, with
manufacturing outside the UK. National branding is not important as
customers are able to objectively test products by obtaining trial
samples from new suppliers to test and compare effectiveness with
existing supplier’s products.
From the supply-side, there are no significant trade barriers or
regulatory barriers specific to non-UK firms, transport costs are low
relative to the value of the products, and entry or expansion in the UK
by a non-UK firm only requires a local sales agent or distributor (in
addition to the parties, two competitors confirmed the use of an
established UK distributor is one way of gaining access to UK customers
by a non-UK supplier). There are a number of non-UK firms supplying
microbiological testing products to UK customers.
The relevant markets appear to be those for surface and equipment
testing products, pathogen testing products and indicator testing
products for the food and beverage sectors on a global basis. There is,
however, no need to conclude on the geographic scope, since the
competition assessment does not change whether the frame of reference is
EEA or world-wide.
The parties overlap in all three segments of the supply of industrial
microbiological testing products for the food and beverage processing
sector. On a worldwide basis, the parties’ combined market share for
surface /equipment testing products is about 20 - 30 per cent and about
30 - 40 per cent on an EEA-wide basis (with increments less than five
per cent). There is no overlap within the EEA for the other two segments
and the increment is less than one per cent on a global basis.
Customers were not concerned, suggesting switching suppliers is easy and
identifying a number of alternatives on a worldwide basis. This
indicates that the competitive constraints facing the merged entity will
continue to remain strong post-merger.
This transaction does not raise any vertical issues.
Third parties who were contacted by the Office raised no concerns or
complaints about the proposed transaction.
The parties to this transaction overlap in the supply of industrial
microbiological testing products for the food and beverage processing
sector. The merger would only cause a significant [Note 1] degree of
overlap in the surface/equipment testing products segment with
joint shares at around 30 - 40 per cent at an EEA-wide level. However,
the increment to the parties’ combined share of supply is low (less
than five percent). Third parties raised no concerns and a number of
competitors will remain post-merger to whom they feel they can easily
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.
This merger will therefore not be referred to the Competition Commission
under section 33(1) of the Act.
- Given the small increment to the parties' combined share of supply
in the surface/equipment testing products segment, 3M considers that the
description of the overlap as 'significant' is inaccurate.