Kerry Group take home the bacon
A look at a recent successful High Court Appeal against a decision of the Competition Authority
The Irish High Court recently heard the first appeal against a decision by the Irish Competition Authority to prohibit a merger.
The proposed merger the subject of the appeal was the acquisition by the Kerry Group of Breeo, the consumer food company formed following the restructuring of Dairygold. The proposed acquisition involved the transfer of a number of well known brands in the cheese, cooked meats and rashers market to the Kerry Group, producer of other well known brands in these markets.
Under the Competition Act 2002, parties are required to notify a merger or acquisition to the Competition Authority for approval where certain turnover thresholds are exceeded. Given the size and value of the operations of Kerry Group and Breeo Foods, the proposed acquisition had to be notified to the Authority.
The Competition Authority prohibited the acquisition in March 2008 on the grounds that it would substantially lessen competition in the market for rashers, non poultry cooked meats and processed cheese. The High Court, on appeal, found however that the Authority made material errors in how it reached its conclusions in two significant respects.
Firstly, the Judge overturned the cheese merger aspect of the prohibition on the grounds of unsound market definition. The Judge found that the Authority had erred significantly in how it reached its conclusion that the cheese product market is divided between natural and processed cheese. The Competition Authority’s conclusion that competition would be substantially lessened in the processed cheese market as a result of the merger was fundamentally flawed.
Secondly, the Judge overturned the rashers and cooked meat market merger bans on the basis that the Competition Authority had seriously under-estimated the potential for supermarket chains to constrain the post merger brands by use of the countervailing purchasing power of retailers. The Judge found that there was direct evidence of supermarkets threatening to delist brands if they did not like the brands consumer pricing proposals. He also reviewed the history of supplier ability to enter the market in the Republic of Ireland to compete with main existing brands in markets (and so to keep their prices down) mainly at the invitation of the supermarkets.
This appeal was the first of its kind against a decision of the Competition Authority not to approve an acquisition or a merger. This Judgment, as the first, indicates the scope for and opportunity to review decisions of the Competition Authority under the Competition Act 2002. The aspect of the decision recognising the market power of major grocery retailers is particularly interesting.
This decision is now being appealed by the Competition Authority to the Supreme Court.