Did supermarkets sway competition watchdog?

By Michael Stones contact

- Last updated on GMT

Did the supermarkets exert undue influence on the CMA, asked Shore Capital?
Did the supermarkets exert undue influence on the CMA, asked Shore Capital?

Related tags: Dairy crest, Milk

Big supermarkets may have influenced the Competition and Markets Authority’s (CMA’s) decision to deepen its probe into the proposed merger of Dairy Crest Group’s Dairies Division with Müller-Wiseman, according to leading City analyst Shore Capital.

The CMA announced on Friday (June 12) its plan to refer Müller’s proposed acquisition of Dairy Crest’s processing, trading and distribution activities – relating to liquid milk, packaged cream, flavoured milk and bulk commodity ingredients – to a phase two assessment.

The proposed acquisition included Dairy Crest’s dairy facilities at Severnside, Chadwell Heath, Foston and Hanworth together with about 70 depots.

Shore Capital analysts Clive Black and Darren Shirley asked today (June 15): “Did supermarkets stop this? ​[phase one approval]” The issues raised by the CMA appeared “modest”​ and revolved “only around certain regional aspects of the liquid milk market with national multiples”.

‘Substantial lessening of competition’

But the CMA had found that the proposed acquisition gives rise to “a realistic prospect of a substantial lessening of competition in the supply of fresh milk to major grocery retailers in certain regions of the UK​”.

The regions of concern were likely to be the south-west of England and south Wales and the fact that Dairy Crest’s Severnside unit and Müller-Wiseman’s Bridgwater and Droitwich factories were the main milk providers in these regions.

“The major British supermarket groups have adopted national pricing for many years, a preference of the previous Competition Commission, and apply national and regional distribution patterns,”​ said Black and Shirley. “So, what is the big issue? To our minds there are none.”

The big issue?

“The major British supermarket groups have adopted national pricing for many years, a preference of the previous Competition Commission, and apply national and regional distribution patterns. So, what is the big issue? To our minds there are none.”

  • Shore Capital

But a solution to the CMA’s concerns may involve distribution agreements or co-packing arrangements in the south-west, they added,

The move to a phase two investigation came as no surprise to Dairy Crest chief executive Mark Allen. “We always anticipated that the sale would be referred to phase two,”​ said Allen.

‘A great deal for our customers and farmers’

“We remain convinced that this is a great deal for our customers and farmers which will help create a more sustainable UK dairy sector at a time when it faces significant challenges.  We remain confident of receiving approval at the end of phase two.”

Müller Group boss Ronald Kers said: “It was our expectation that the CMA might wish to examine our proposed acquisition in detail and we look forward to working with them to supply the information required and to achieving a positive outcome.

“The rationale for this transaction is perhaps even stronger now given the mounting challenges facing the UK fresh milk sector and we remain convinced of the need to increase our competitiveness, ensuring that customers continue to receive a quality product at a low price, whilst continuing to pay farmers fairly.

Bringing Müller-Wiseman Dairies and Dairy Crest’s dairy operation together will unlock efficiencies and enable badly needed investment, category insight and product development, he added.

Dairy Crest announced on December 14 2014 it had agreed to sell the assets of its dairies operations to Müller and the sale had already been approved by Dairy Crest shareholders.

The phase two investigation is likely to take a minimum of 24 weeks.

The CMA said it took its decision based on all the evidence available, including submissions from third parties. “No inferences should be drawn from the timing of the announcement regarding the substance of the decision,”​ a spokesman told this site. 

Related topics: Dairy, Dairy-based ingredients

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