Ready meals merger referred to the Competition Commission
The Office of Fair Trding (OFT) has referred the completed acquisition of the frozen ready meals business of Headland Foods by Kerry Foods to the Competition Commission for further investigation. Before the merger in January 2011, Headland and Kerry were by far the two largest suppliers of frozen ready meals to UK retail customers such as supermarkets. During its investigation, the OFT considered whether sales of refrigerated ready meals acted as a significant competitive constraint on sales of frozen ready meals but the evidence was insufficient for the OFT to conclude that they were.
Almost all of the merged parties’ main customers expressed strong concerns about the merger to the OFT. They were, in particular, concerned about the significant price rise that followed the merger and the lack of alternative manufacturers capable of supplying large volumes and wide ranges of frozen ready meals. The evidence available to the OFT indicated that part of the price rise after the merger could be explained by substantial increases in raw material costs. The OFT nevertheless concluded that the balance of evidence supported the concerns expressed by customers. The acquisition was completed in January 2011. Although Headland’s financial performance had been consistently poor over previous years, the OFT did not receive sufficient evidence to conclude that it would inevitably have exited from the market in the near future had the acquisition not taken place.
As such, the merger was assessed on the basis that competition would have continued at the same level absent the acquisition. Amelia Fletcher, Chief Economist at the OFT and Decision Maker in this case, said: “Significant price rises after any completed acquisition give the OFT cause for concern. In this case, the merged company’s large share in the frozen ready meals market compared with that of its competitors corroborated that concern, as did the strength of complaints from retail customers.
“Though increases in raw material costs may justify part of the increase, this did not fully allay our concerns. The merger will therefore be referred to the Competition Commission for an in-depth investigation.” Story provided by StockMarketWire.com
