CMA accepts Scotch whisky business sale
The Competition and Markets Authority (CMA) has today approved Diageo’s sale of the Whyte & Mackay business to Emperador.
As a result of approving the purchaser, the CMA has now accepted undertakings in lieu of a reference (UILs – see notes to editors) from Diageo plc (Diageo) in order to remedy competition concerns arising from its shareholding in United Spirits Limited (USL), a company based in India.
The Office of Fair Trading (OFT), the CMA’s predecessor, found competition issues arose as a result of Diageo’s blended Scotch whisky brand, Bell’s, being brought into the same ownership as Whyte & Mackay’s blended Scotch whisky products. Whyte & Mackay Limited is a subsidiary of USL.
To resolve the competition concerns Diageo offered to divest the Whyte & Mackay business apart from 2 malt distilleries, Dalmore and Tamnavulin, and their associated brands. The OFT accepted this offer subject to it approving the identity of the buyer.
Given the findings of its own approval process and the public consultation exercise, the CMA is satisfied that the UILs will resolve the competition concerns identified and that Emperador as purchaser will operate the Whyte & Mackay business in competition to Diageo.
The CMA did not receive any adverse comments about the UILs or about Emperador during the consultation.
The sale of the Whyte & Mackay business was subject to a regulatory review by the Reserve Bank of India and the approval of USL’s shareholders in line with Indian law. The CMA did not accept the UILs until all other third party steps had been completed.
Chris Walters, a CMA Director of Economics and Decision Maker in the case, said:
This is a significant phase 1 divestment. I am pleased that UK consumers will benefit from the preservation of competition in the supply of bottled blended Scotch whisky as a result of Emperador acquiring Whyte & Mackay.
Notes to editors
The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law. From 1 April 2014 it took over the functions of the Competition Commission and the competition and certain consumer functions of the OFT, as amended by the Enterprise and Regulatory Reform Act 2013 (ERRA). This case and the remedies process was investigated by the OFT under the Enterprise Act 2002 before amendment by the ERRA.
Undertakings in lieu of a reference - Section 73 of the Enterprise Act 2002 provides for the option of accepting undertakings, instead of making a reference, for the purpose of remedying, mitigating or preventing the substantial lessening of competition concerned, or any adverse effect which has or may have resulted from it or may be expected to result from it. The Act provides that for such a purpose, the CMA may accept from such of the parties concerned as it considers appropriate undertakings to take such action as it considers appropriate. In doing so, the CMA will have regard in particular to the need to achieve as comprehensive a solution as is reasonable and practicable to the substantial lessening of competition and any adverse effects resulting from it. The CMA is required to consult publicly before accepting any such undertakings.
On 25 November 2013 the OFT announced that it was suspending its duty to refer the merger on the basis that it was considering UILs. The OFT found that the merger raised a realistic prospect of a substantial lessening of competition in the supply of bottled blended Scotch whisky to the off-trade in the UK. In particular, the OFT found that the merger raised concerns in combining Diageo’s Bell’s whisky brand to Whyte & Mackay’s brands and its private label sales.
Following the OFT’s phase 1 merger investigation decision, a monitoring trustee has been in place reporting on Diageo’s compliance with its undertakings to hold separate its business and the USL business and the sales process itself. The CMA consulted on the UILs and on Emperador as an effective buyer from 17 July 2014 to 1 August 2014. The CMA considers that Emperador is independent of Diageo and USL, has the necessary resources to compete and a divestment to Emperador does not create new competition concerns.
Although the UILs that Diageo offered and that the CMA has accepted did not include 2 malt distilleries, Dalmore and Tamnavulin and their associated brands, the sale to Emperador has in fact been of Whyte & Mackay in its entirety.
Upfront buyer requirement - the OFT considered in this case that a necessary precursor to accepting undertakings in lieu was that the divestiture should be agreed upfront to a suitable buyer approved by the OFT. This meant that the OFT has consulted publicly on the suitability of the proposed buyer, as well as all other aspects of the draft undertakings, during the public consultation period.
Emperador is a Philippines-based company and is one of the world’s largest suppliers of brandy.
Details of the undertakings will be posted on the case page.