Affected market: Wholesale supply of wine
The OFT's decision on reference under section 33 given on 23 March 2005. Full text of decision published 6 April 2005
Please note square brackets indicate information replaced by a range or excised at the request of the parties for reasons of commercial confidentiality.
Foster's Group Limited (Foster's) is an Australian-based international beverage company whose shares are quoted on the Australian Stock Exchange. Its product portfolio covers beer, wine, spirits, cider and non-alcoholic beverages. Foster's wine subsidiary, Beringer Blass Wine Estates Limited, markets brands such as Wolf Blass and Yellow Glen.
Southcorp Limited (Southcorp) is an Australian-based wine producer whose shares are listed on the Australian Stock Exchange. Its four main brands are Penfolds, Rosemount Estate, Lindemans and Wynns Coonawarra Estate. In the last financial year Southcorp's UK turnover was approximately £81 million.
Foster's proposes to acquire the shares of Southcorp pursuant to a successful offer to Southcorp's shareholders.
The parties notified the transaction by merger notice on 9 February 2005; the statutory deadline, as extended, expires on 23 March 2005.
As a result of this transaction Foster's and Southcorp will cease to be distinct. The UK turnover of Southcorp exceeds £70 million, so the turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is satisfied. 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.
Both parties produce wine in Australia and elsewhere. In the UK the activities of the parties overlap in the importation and sale of wine to wholesalers and retailers.
Wine is a medium alcohol drink (containing less than 15 per cent alcohol/volume) and is usually labelled by country of production, grape variety, maturity or age. It is usually sold in 0.75 litre bottles and, less often, in wine boxes.
On the demand-side, other beverages are unlikely to be a realistic substitute for wine. Similarly, there is no realistic supply side substitution for wine production owing, inter alia, to the fact that wine production has a lead time of several years.
Wine can be categorised by a number of different criteria, such as: (i) colour (red, white, rosé); (ii) grape or blend of grapes; (iii) year of vintage; (iv) country of origin; (v) brand or estate; and (vi) price. There is a matrix of issues which determines which wine a consumer will buy and the evidence in this case has not suggested any compelling reasons to adopt a frame of reference limited to Australian wine or to the brands produced by the parties.
The frame of reference in this case is the wholesale supply of wine to both the 'on trade' (licensed premises such as pubs) and to the 'off trade' (sales to off licences and supermarkets).
The geographic frame of reference is the UK.
The presence of the parties in the UK is limited to some marketing and warehousing facilities for wine. The estimated shares of supply of the parties and their competitors in the UK are set out in Table 1 (pdf 55 kb). Southcorp supplies around [0-5] per cent of wine in the UK, and Fosters supplies [0-5] per cent. No wine wholesaler supplies more than 10 per cent of wine in the UK and the top five wholesalers account for less than 26 per cent of UK sales. The parties' combined share of supply does not give rise to competition concerns.
Southcorp's 'Rosemount Estate' brand features in the top ten of wine brands sold in the UK. The share of supply attributable to this brand is estimated to be around [0-5] per cent. The product portfolio of the parties in the UK is not such as to give rise to competition concerns.
Customers of the parties are mostly pub chains, supermarkets and off licence chains. These customers have a considerable degree of countervailing buyer power.
This case does not raise any vertical competition issues.
THIRD PARTY VIEWS
Third parties contacted by the OFT in this inquiry were generally unconcerned by this merger.
The parties overlap in wholesale supply of wine in the UK. This sector is highly fragmented and the parties' combined share of supply is very low. In addition, the parties' customers have considerable buyer power.
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.