Food cans supplier merger may give rise to competition concerns
The CMA has found that Sonoco Products Company’s acquisition of Weidenhammer Packaging Group GmbH gives rise to a realistic prospect of a substantial lessening of competition and will be referred for an in-depth phase 2 investigation unless acceptable undertakings are offered.
Sonoco and Weidenhammer both manufacture and supply composite cans for food products. Typical uses include packaging food products such as gravy granules, chocolate powder, crisps, crackers and coffee.
The Competition and Markets Authority (CMA) found that, as a result of the transaction which completed on 31 October 2014, the merged company will be the largest manufacturer and supplier of composite cans for food products in the UK.
The merged company would be the only credible supplier of this type of packaging for some customers and the CMA found that it would only continue to face competition from 2 other significantly smaller producers of composite cans for food products in the UK. The CMA is concerned that a lessening of competition may result in higher prices or a reduction in choice or quality for customers.
The transaction will be referred for an in-depth phase 2 investigation unless Sonoco offers acceptable undertakings to address the CMA’s competition concerns in a clear-cut manner.
Sheldon Mills, CMA Senior Director of Mergers and decision maker in this case, said:
The transaction combines the number one and two players for the supply of composite cans for food products in the UK and will reduce the choice of suppliers available to brand owners, licensees and retailers.
End customers and retailers prefer composite cans over a range of other packaging formats for certain types of products. As such, the evidence available at this stage does not show that the parties face a significant threat from other producers of composite cans for food or other types of packaging such as flexible plastics or cartons.
This loss of competition may give the newly-merged company the ability to raise prices to customers and ultimately this could feed into higher retail prices for a range of everyday food products. Unless Sonoco offers undertakings that resolve these concerns, it will be necessary to investigate the transaction in greater detail.
This merger was called in for review as a result of the CMA’s merger intelligence function.
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.
- 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 22(1) of the Act is not exercised pursuant to section 22(3)(b) whilst the CMA is considering whether to accept undertakings (if offered) under section 73 of the Act in lieu of a reference. Pursuant to section 73A(1) of the Act, Sonoco has until 20 January to offer an undertaking to the CMA that might be accepted by the CMA under section 73(2) of the Act. If no undertaking is offered or accepted, then the CMA will refer the merger pursuant to sections 22(1) and 34ZA(2) of the Act.
- 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 inquiry group may extend the 24-week period within which it is required to publish its report by no more than 8 weeks if it considers that there are special reasons why the report cannot be published within that period.
- 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) or by ringing 020 3738 6460.
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