OFT closed case: Anticipated acquisition by Moët Hennessy S.N.C. of Glenmorangie plc.
Affected market: Whisky
The OFT's decision on reference under section 23 given on 17 December 2004
On 5 November 2004 Moët Hennessy S.N.C. (MH) notified the Office of Fair Trading (OFT) of its intention to acquire Glenmorangie plc (Glenmorangie). The notification was made by way of a statutory merger notice. The deadline for consideration by the OFT expires on 17 December 2004 (see [note 1]).
MH intends to acquire the entire issued and to be issued share capital of Glenmorangie by way of public offer.
MH is a joint venture company owned as to 66 per cent by LVMH Moët Hennessy Louis Vuitton SA (LVMH), and as to 34 per cent by Diageo plc (Diageo) through its wholly-owned French subsidiary Guinness France Holdings SA. MH is governed by French law.
In addition to its shareholding in MH, Diageo also has the right to appoint two members of a six member supervisory council (the Supervisory Council) which oversees the operation of MH. At first sight these factors would seem to suggest that Diageo may have the ability materially to influence the policy of MH. However, in carrying out this assessment, the OFT has regard to all the circumstances of the case. In this instance, the factors set out below have led the OFT to conclude that Diageo does not have this ability.
LVMH has a controlling share interest and appoints four out of six members of the Supervisory Council. Most of the decisions of the Supervisory Council are taken by a simple majority and therefore can be taken without the consent of the Diageo representatives.
MH is run on a day-to-day basis by a manager (the Manager). The Manager is appointed by a simple majority of the shareholders and is currently a wholly owned subsidiary of LVMH, MH Management SARL. The Manager has operational control of MH and has the discretion to manage MH as it sees fit. Diageo cannot appoint or remove the Manager without LVMH's consent.
The powers of management of MH have largely been vested in the Manager. Where matters have not been vested in the Manager we are told that this has been prompted by overriding provisions of French law requiring shareholder resolutions in relation to certain matters. We understand that the residual matters which are reserved to shareholders relate essentially to the protection of minority shareholder interests rather than to the commercial operation of MH.
In addition, under the Articles of MH, a limited number of commercial matters require the prior approval of the Supervisory Council. In all but one case, such approval is given by way of a simple majority and can therefore be given without reference to Diageo's representatives. All members of the Supervisory Council have expertise in the spirits sector, such that there appears to be no likelihood of Diageo's minority representatives exercising material influence.
The one exception concerns substantial acquisitions representing more than 10 per cent of MH's turnover, where Diageo's consent is required. This can be regarded as another provision which simply serves to protect the investment of the minority shareholder.
In the light of these factors, the OFT believes that the rights that Diageo has in MH as a result of its shareholding relate only to the protection of its underlying investment rather than the determination of MH's commercial policy.
The turnover test
In the financial year to 31 December 2003 Glenmorangie had turnover in the UK of £44.35 million. The turnover test in section 23 of the Enterprise Act 2002 (the Act) is therefore not met.
The share of supply test
On the basis that Diageo is not able to exercise material influence over the policy of MH, the anticipated acquisition does not give rise to any overlaps since LVMH has no existing interests in the whisky sector in which Glenmorangie operates. Accordingly the share of supply test is not satisfied.
On the basis of the information available to it, the OFT has decided that the anticipated acquisition does not qualify for investigation under the mergers provisions of the Act, because neither the UK turnover test nor the share of supply test in section 23 of the Act is met. A relevant merger situation has, therefore, not been created.
1. On 17 November 2004 the OFT extended the initial period for consideration by ten working days, in accordance with section 97(2) of the Enterprise Act 2002.