Dairy merger faces in-depth investigation unless undertakings offered
Müller’s proposed acquisition of Dairy Crest’s dairy operations will be referred for an in-depth investigation unless acceptable undertakings are offered.
Muller UK & Ireland Group LLP (Müller) and Dairy Crest Group plc (Dairy Crest) are 2 of the 3 main dairy processors in the UK. Together they process around 3.5 billion litres of milk per year and account for nearly half of the fresh milk consumed in the UK.
The Competition and Markets Authority (CMA) has found that the proposed acquisition gives rise to a realistic prospect of a substantial lessening of competition in the supply of fresh milk to major grocery retailers with national scope (national multiples) in certain regions in Great Britain.
In reaching its decision, the CMA took into account the significant financial challenges facing the dairy sector in the UK. The CMA has found that Dairy Crest and Müller would be the 2 main suppliers of fresh milk to national multiples in some regions. The CMA considers that the merger may lead to higher prices in the supply of fresh milk to national multiples and, in turn, for consumers. The constraint provided by other dairy processors may not be sufficient to mitigate the competition concerns arising from the merger.
Sheldon Mills, CMA Senior Director of Mergers and decision-maker in this case, said:
The CMA is aware of the very significant challenges the UK dairy sector is currently facing. These challenges are recognised in the framework which we used to assess the merger. However, the CMA found that the transaction may nevertheless give rise to competition concerns, since it removes the rivalry between the 2 main suppliers of fresh milk to major grocery retailers in certain parts of Great Britain.
Unless the businesses offer undertakings that resolve the competition concerns, this transaction will face an in-depth investigation to ensure that the merger of 2 of the largest UK dairy companies will not result in higher prices for national grocery retailers and, ultimately, for consumers, for whom milk is an important everyday purchase.
Notes for 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 Office of Fair Trading, as amended by the Enterprise and Regulatory Reform Act 2013.
- This merger has a community dimension within the meaning of Article 1(2) of the EC Merger Regulation and, therefore, was within the jurisdiction of the European Commission. On 20 March 2015, pursuant to a request from the merging parties, the European Commission has decided to refer the merger in its entirety to be examined by the CMA, under Article 4(4) of the EC Merger Regulation.
- The Reference Test – under the Enterprise Act 2002 (the Act) the CMA has a duty to make a reference to phase 2 if the CMA believes that it is or may be the case that a relevant merger situation has been created, or arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation; and the creation of that situation has resulted, or may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.
- Under the Act a relevant merger situation is created if 2 or more enterprises have ceased to be distinct enterprises; and the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million (‘the turnover test’) or as a result of the transaction, in relation to the supply of goods or services of any description, a 25% share of supply in the United Kingdom (or a substantial part thereof) is created or enhanced (‘the share of supply test’).
- The CMA’s duty to refer the merger for a phase 2 investigation under section 33(1) of the Act is not exercised whilst the CMA is considering whether to accept undertakings in lieu of a reference. Under section 73A of the Act, Müller and Dairy Crest have until 19 June 2015 to offer an undertaking to the CMA that might be accepted by the CMA if no undertaking is offered or accepted, then the CMA will refer the merger by 26 June 2015.
- All the CMA’s functions in phase 2 merger inquiries are performed by inquiry groups chosen from the CMA’s panel members. The appointed inquiry group are the decision makers on phase 2 inquiries.
- The CMA’s panel members come from a variety of backgrounds, including economics, law, accountancy and/or business. The membership of an inquiry group usually reflects a mix of expertise and experience (including industry experience).
- The full text of this decision will be placed on the case page as soon as is reasonably practicable.
- Enquiries should be directed to Siobhan Allen (siobhan.allen@cma.gsi.gov.uk, 020 3738 6798).
- For information on the CMA see our homepage, or follow us on Twitter @CMAgovuk, Flickr and LinkedIn. Sign up to our email alerts to receive updates on merger cases.