Affected market: Whisky
The OFT's decision on reference under section 23 given on 17 December
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
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
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.