Lubricants merger faces phase 2 investigation unless undertakings offered
The CMA has announced that Reckitt Benckiser’s anticipated acquisition of Johnson & Johnson’s K-Y brand will be referred for an in-depth phase 2 investigation unless acceptable undertakings are offered.
Following its initial phase 1 investigation, the Competition and Markets Authority (CMA) has found that the transaction gives rise to a realistic prospect of a substantial lessening of competition in the supply of personal lubricants to grocery retailers and national retail pharmacy chains.
Reckitt Benckiser (RB) and Johnson & Johnson (J&J) supply personal lubricants to a number of retailers, including grocery retailers and national pharmacy chains under the Durex and K-Y brands respectively. RB agreed to purchase the K-Y brand from J&J on 10 March 2014.
The CMA found that, as a result of the transaction, the merged entity would become the largest supplier of personal lubricants to grocery retailers and national pharmacy chains in the UK. Other brands of personal lubricants are not generally available in grocery retailers in the UK and have only a limited presence in some national pharmacy chains’ stores.
The CMA found the parties hold very high combined shares of supply and after concerns raised by some grocery retailers, the CMA considers that the transaction may lead to higher prices or a reduction in choice or quality for customers. The CMA also found that constraints from own label products were not sufficiently strong to mitigate the competition concerns arising from the transaction.
The transaction will therefore be referred for an in-depth phase 2 investigation unless RB and J&J offer 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:
Durex and K-Y are two very well-known personal lubricant brands. While these personal lubricants are differentiated to an extent, we found that retailers and consumers perceive them as competitors and, in a significant number of instances, they are the only brands offered by grocery retailers or national pharmacy chains.The transaction will further reduce the choice available to retailers and ultimately consumers and may give the merged company the ability to raise prices or reduce the quality or range of these products. Unless Reckitt Benckiser and Johnson & Johnson offer undertakings that resolve these concerns, it is necessary to investigate the transaction in greater detail.
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, RB and J&J have until 30 December 2014 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 merger 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.