The Irish High Court overturns a decision of the Competition Authority to prohibit a Merger
The Irish High Court recently heard the first appeal against a decision by the Irish Competition Authority to prohibit a merger.
The proposed merger which was the subject of the appeal was the acquisition by the Kerry Group of Breeo, the consumer foods’ 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, who already owns 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 therefore of a substantially lessening of competition in the market for processed cheese 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, including the retailers ability to delist even major brands by reducing their shelf space and by ultimately setting the prices at which products could be sold if the brand owner tried to raise prices unduly. The Judge found that there was direct evidence of supermarkets threatening to delist brands if they did not like the brand’s consumer pricing proposals. He also reviewed the history of supplier ability to enter the market in the Republic 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 prohibition of an acquisition or a merger by the Competition Authority. This Judgment, as the first, indicates the scope and standard of review appropriate to merger appeals 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.
For further information please contact David Phelan, dphelan@hayes-solicitors.ie or Laura Fannin at lfannin@hayes-solicitors.ie