CELEX: 32014M7178
Language: en
Date: 2014-04-16 00:00:00
Title: Commission Decision of 16/04/2014 declaring a concentration to be compatible with the common market (Case No COMP/M.7178 - SUNTORY / BEAM) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

|[pic]                             |EUROPEAN COMMISSION                                                                                      |

                                        Brussels, 16.4.2014
                                        C(2014) 2711 final

                                        |To the Notifying Party:                                          |                                                                 |
|                                                                 |                                                                 |

Dear Sir,

Subject:    Case M.7178-SUNTORY/BEAM
         Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/2004[1]

 1) On 17 March 2014, the European Commission ("Commission") received a notification of a  proposed  concentration  pursuant  to  Article  4  of
    Council Regulation (EC) No 139/2004 by which Suntory Holdings Limited ("Suntory", Japan) acquires within the meaning of Article  3(1)(b)  of
    the Merger Regulation sole control of the whole of Beam Inc.  ("Beam",  USA)  by  way  of  purchase  of  shares.[2]  Suntory  and  Beam  are
    collectively referred to as "the Parties". Suntory is hereinafter referred to as the "Notifying Party".

THE PARTIES AND THE OPERATION

 2) Suntory is active in various businesses worldwide, including the manufacture and distribution of alcoholic and non-alcoholic  beverages.  As
    regards spirits in the EEA, Suntory sells Scotch and Japanese whiskey, liqueurs and cognac. Suntory's main brands sold in  the  EEA  include
    the Japanese whiskies Yamazaki, Hakushu and Hibiki, the Scotch whiskies  Bowmore,  Glen  Garioch,  McClelland's,  Morrison's  Islay  Legend,
    Auchentoshan; the melon-flavoured liqueur Midori and the chocolate-flavoured liqueur Mozart.

 3) Beam is active in the production and sale of spirits. In the EEA, Beam sells whiskies  (including  U.S.  whiskey,  Canadian  whisky,  Scotch
    whisky, and Irish whisky), brandy (including cognac and Armagnac), gin, liqueurs, tequila,  long  drinks/ready-to-drinks  (“RTDs”),  aniseed
    spirits, vodka and rum. Beam’s main brands sold in the EEA include Jim Beam and Maker’s Mark bourbon whisky, Teacher’s and Laphroaig  Scotch
    whisky, Canadian Club whisky, Courvoisier cognac and Sauza tequila. Beam is also  active  in  the  sale  of  non-branded  bulk  spirits  for
    Canadian, Scotch, Irish and Spanish whisky, cognac and other brandies.

 4) Pursuant to an Agreement and Plan of Merger of 12 January 2014, Beam will merge with a special-purpose vehicle owned by Suntory,  with  Beam
    surviving as a wholly owned subsidiary of Suntory. The transaction is valued at about EUR 12 billion.  Following  the  Transaction,  Suntory
    will therefore own 100% of Beam’s outstanding share capital and, thus, will exercise sole control over Beam.

EU DIMENSION

 5) The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 000 million[3] [Suntory: EUR […] million;  Beam:
    EUR 1 889 million]. Each of them has an EU-wide turnover in excess of EUR 250 million [Suntory: EUR […] million; Beam: EUR […] million], but
    they do not achieve more than two-thirds of their aggregate EU-wide turnover within one and the same Member State.  The  notified  operation
    therefore has an EU dimension under Article 1(2) of the Merger Regulation.

COMPETITIVE ASSESMENT

 6) The Parties are active in the distribution and sale of a range of spirits across the  European  Economic  Area  ("EEA").  However,  affected
    markets arise only on the basis of narrow market definitions in the following areas: (i) single malt Scotch whisky, both in the on-trade and
    off-trade distribution channels, in the Czech Republic, Estonia, Italy, Slovakia, Spain and Sweden; and (ii) melon and  chocolate  flavoured
    liqueurs in Germany and the United Kingdom.[4]

    3.1.   Relevant product markets

 7) In previous decisions, the Commission has considered that the production and wholesale distribution of each main internationally  recognized
    spirit type constitutes a separate product market  (i.e., whisky,  brandy,  rum,  gin,  vodka,  etc.).[5]  The  respondents  to  the  market
    investigation continue to be broadly of this view, both from a supply and a demand-side perspective.[6]

           3.1.1.           Whisky

         Segmentation by country of origin

 8) The Commission has previously found that a narrower segmentation by country of origin may be appropriate  for  whisky,  and  identified  the
    following markets: Scotch whisky, Irish whisky, U.S.  whiskey,  Canadian  whisky  and  others[7].  In  Guinness/Grand  Metropolitan[8],  the
    Commission concluded that Spanish whisky and Scotch whisky are two distinct markets,  and  that  Scotch  whisky  and  Irish  whisky  can  be
    differentiated on the basis of taste and consumption patterns. In addition, for  Scotch  whisky,  national  legislation  lays  down  certain
    requirements, in that it must be wholly distilled in Scotland and matured there for at least three years before it can be sold as Scotch.

 9) The Notifying Party submits that whereas the segmentation of the whisky market by country of origin might  be  appropriate,  ultimately  the
    exact product market definition can be left open for the purposes of this case.

10) The majority of respondents to the Commission's market investigation considered that whiskies from  different  origins  belong  to  separate
    markets both from a supply and a demand-side perspective.[9]

11) The Commission considers in light of the above and of the other available evidence that the issue whether the market  for  whisky  shall  be
    further segmented on the basis of the country of origin can be left open, since the notified operation does not raise serious  doubts  under
    any possible approach.

    Segmentation by type of whisky

12) The Commission has not previously made a distinction between blended and malt whisky[10]. However, the UK Office of Fair Trading ("OFT") has
    identified separate markets for malted and blended whisky based on differences in the taste and end-consumer preferences.[11]

13) The Notifying Party submits that whereas the segmentation by  type  of  whisky  (blended  versus  malt  whisky)  might  be  appropriate,[12]
    ultimately the exact product market definition can be left open for the purposes of this case.

14) The results of the market investigation suggest that a segmentation by type of whisky might be appropriate. From a production point of view,
    the majority of respondents to the market investigation considered that malt whisky and blended whisky belong to  separate  markets,  mainly
    because the equipment, the costs[13] and the scale of production are different.[14]

15) From a demand-side perspective, malted and blended whisky are perceived as different products in terms of taste (malt whisky has  a  greater
    depth flavour compared to blended whisky), image (malt whisky is generally perceived as more premium due to the nature  of  its  production)
    and price (malt whisky is more expensive per litre than blended whisky).[15]

16) The Commission considers in light of the above and of the other available evidence that the issue whether the market  for  whisky  shall  be
    further segmented on the basis of the whisky type can be left open, since the notified operation does not raise  serious  doubts  under  any
    possible approach.

    Segmentation by quality/price

17) The Commission has previously examined whether segmentation by price or  quality  may  be  relevant,  but  it  ultimately  left  the  market
    definition open.[16] In Guinness/Grand Metropolitan, the market investigation suggested that there are separate  markets  for  each  quality
    level, because, for example, a consumer who habitually drinks a premium brand would not consider a cheaper one as an adequate substitute  in
    terms of taste, quality, image, etc.[17] The Commission has also noted that it may be possible "to identify separate segments for  different
    quality levels within each spirit category such as premium, secondary brands, private labels, low price"  and  has  also  acknowledged  that
    "there is a continuous price spectrum ranging from the most expensive to the cheapest".[18]

18) The Parties used the product segmentations tracked by the industry research organization International Wine & Spirit Research  (IWSR)  as  a
    proxy for identifying quality-based segments in the Scotch whisky market. All the IWSR quality segments are defined on the basis  of  retail
    price ranges. The price ranges identified for each quality segment are the following: over €150 (prestige), €50-€149.99 (ultra-premium), €30-
    €40.99 (super-premium), €20-€29.99 (premium), €10-€19.99 (standard), €3-€9.99 (value), and under  €2.99  (low-price).  The  Parties  however
    submit that IWSR's quality-based categories are only approximate, in particular because the price ranges used  to  define  these  categories
    apply to all spirits (rather than being unique to whisky).[19] Ultimately, the  Notifying  Party  submits  that  the  exact  product  market
    definition can be left open for the purposes of this case.

19) The market investigation showed that a number of manufacturers and distributors do rely on the IWSR  data  to  categorize  whisky  in  their
    internal business reporting and market analysis. However, the market investigation also indicated that the price ranges  used  by  IWSR  are
    only indicative as they may vary depending on the country.[20]

20) Moreover, the majority of respondents  indicated  that,  both  from  a  supply  and  demand-side  perspective,  prestige  Scotch  whisky  is
    substitutable with ultra-premium, super-premium with ultra-premium or premium, premium with super-premium or standard, standard with premium
    or value, and value with standard or low-price.[21] Therefore, even if Scotch whisky quality categories at each end  of  the  range  do  not
    compete directly with one another, it is arguable that a certain constraining effect exists through a chain of substitution.  In any  event,
    even if the effects of the proposed transaction are considered under narrow quality/price segments, no competition concerns arise.

21) The Commission considers in light of the above and of the other available evidence that the issue whether the market  for  whisky  shall  be
    further segmented by quality/price can be left open, since the notified operation does not raise serious doubts under any possible approach.

    3.1.2.       Liqueurs

22) With regard to liqueurs, the Commission found in Guinness/Grand Metropolitan[22], that in general each liqueur constitutes a separate, niche
    product market given that there are many different liqueurs, each with a highly distinctive taste  and  other  characteristics.  In  a  more
    recent decision[23], the Commission did not conclude on whether each flavour of liqueur constitutes a market in itself or whether all  types
    of liqueur should be considered as forming part of the same product market.

23) The Parties submitted information about the overall liqueur market, as well as on segments defined by flavour, such as  chocolate  flavoured
    liqueurs and crème de cacao liqueurs, where the Parties' activities overlap. Ultimately, the Notifying Party submits that the exact  product
    market definition can be left open for the purposes of this case.

24) From a supply-side perspective, the majority of the respondents indicated that different flavoured liqueurs can be regarded as  substitutes.
    Production of liqueurs consists mainly on mixing different ingredients and although there can be significant differences with regard to  the
    initial raw material, the basic production process is similar between different flavoured liqueurs.[24]

25) From a demand-side perspective, an overwhelming majority of respondents indicated that there are significant differences  between  different
    flavoured liqueurs in terms of consumption patterns (drunk neat, on ice,  as  an  ingredient  in  long  drinks),  taste  (including  between
    chocolate flavoured and crème de cacao liqueurs), brand image, targeted consumer groups (e.g. young, female) and price.[25]

26) The Commission considers in light of the above and of the other available evidence that the precise delineation of the market  for  liqueurs
    can be left open, since the notified operation does not raise serious doubts under any possible approach.

    3.1.3.       Segmentation by distribution channel

27) The Commission has previously held that a distinction  should  be  made  between  on-trade  distribution  (sales  to  hotels,  bars,  clubs,
    restaurants, etc.) and off-trade distribution (sales to retailers) of spirits[26], based on the different characteristics  of  each  channel
    (such as differences in volumes purchased or consumer price sensitivity) and the existence of dedicated sales forces for each channel.[27]

28) The Parties submitted information about the Scotch whisky and liqueur markets separately for  each  distribution  channel.  Ultimately,  the
    Notifying Party submits that the exact product market definition can be left open for the purposes of this case.

29) The majority of respondents considered that on-trade and off-trade distribution channels belong to separate markets, in  particular  because
    the on-trade channel entails specialised sales forces and lower volumes than the off-trade channel.[28]

30) The Commission considers in light of the above and of the other available evidence that  the  issue  whether  the  markets  for  whisky  and
    liqueurs shall be further segmented by distribution channel can be left open, since the notified operation does  not  raise  serious  doubts
    under any possible approach.

    3.2.   Relevant geographic markets

31) As regards the production and distribution of spirits, previous Commission decisions  concluded  that  the  market  is  national  in  scope,
    reflecting differences in consumption patterns, logistics  and  distribution  networks,  marketing  strategies,  taxation  and  duties,  and
    legislation.[29]

32) The replies to the market investigation indicated that Scotch whisky, liqueurs and more generally spirits are not priced homogenously across
    the EEA.[30] Whereas distributors source spirits from manufacturers on a worldwide basis, they usually sell spirits (to retailers  and  off-
    trade customers), including liqueurs and Scotch whisky, at national level. Within the EEA, manufacturers appoint third-party distributors to
    supply their products on a country by county basis.[31]

33) The Commission considers in light of the above and of the other available evidence that the exact delineation  of  the  relevant  geographic
    markets can be left open since the notified operation does not raise serious doubts under any possible approach.

      3.4.  Competitive assessment

         3.4.1    General market characteristics

34) In the spirits industry, most manufacturers are vertically integrated (spanning from production to wholesale  distribution  and  marketing),
    but some of them rely on third-party distributors to sell their products in all or certain territories. Third-party distributors  are  often
    also brand owners or manufacturers themselves.

35) According to the Parties, the arrangements with third-party distributors are generally [description of geographic  coverage  and  length  of
    distribution agreements] .The Parties maintain that independent distributors are generally in charge of […]. Therefore, the Parties maintain
    that the sales of so-called "agency brands" (i.e. brands not owned by the distributor) must be attributed to distributors rather than to the
    brand manufacturers. Nevertheless, the Parties provided market shares also on the basis  of  the  sales  of  their  own  brands  (even  when
    distributed by third parties).

36) The respondents to the market investigation also considered that distribution agreements vary between one and five years and usually cover a
    country's domestic market. The agreements tend to cover the manufacturers' whole portfolio, but can sometimes be limited to specific  brands
    only. On a case-by-case basis, the agreements may include exclusivity (for distributor and geographic coverage) and non-compete clauses. The
    manufacturers fix the export price (which is subject to periodical review) and third-party distributors are free to fix the resale/wholesale
    price. Advertising and promotional activities are funded,  monitored,  and  approved  by  manufacturers  and  executed  by  the  third-party
    distributors. Agreements between suppliers of spirits and retailers or on-trade customers are non-exclusive and are of  a  shorter  duration
    (generally one year).[32]

37) The Parties rely almost entirely on third-party distributors for the sale of their products in the EEA.[33] Beam distributes its own  brands
    and limited amounts of agency brands in Austria and Germany[34]. In Spain and the United Kingdom, Beam is active as  distributor  through  a
    joint venture with The Edrington Group (Maxxium Spain and Maxxium U.K.), which distribute the Parties’ own  brands  as  well  as  relatively
    small quantities of third-party agency brands.

38) For the purpose of assessing the present transaction, in line with the most conservative approach, the  Commissions  considers  that  Beam's
    market shares in the countries where Beam is directly or indirectly active as a third-party distributor include not only Beam's  own  brands
    but also third-party agency brands distributed by Beam or the Maxxium joint ventures.

         3.4.2.   Scotch whisky

39) In the EEA, Suntory is active in the distribution of the following Scotch whisky brands: (i) single malt whisky sold within the premium  and
    super-premium categories (Bowmore, Auchentoshan, Glen Garioch), (ii) single malt whisky sold within  the  standard  and  premium  categories
    (McClelland's), and (iii) blended whisky sold within the standard category (Morrison's Islay Legend).

40) Beam sells the following Scotch whisky brands[35]: (i) single malt whisky sold within the value and standard  categories  (Teacher's),  (ii)
    single malt whisky sold within the premium and super-premium categories (Laphroaig, Ardmore).

41) Overall, at an EEA level, the merged entity would remain a relatively small operator in Scotch whisky with a combined market  share  of  [5-
    10]%, especially when compared to leading competitors such as Diageo ([20-30]%) and Pernod Ricard ([10-20]%).

42) The positioning of the Parties in the Scotch whisky market at the EEA level  broadly  reflects  their  positioning  in  the  individual  EEA
    countries. Specifically, the transaction would not give rise to any affected market in the overall product market for Scotch whisky  in  any
    of the EEA countries.

43) When considering narrower segmentations by type (i.e. single malt/blended whisky), quality and distribution channel, the  transaction  gives
    rise to a number of horizontally affected markets in Spain, Czech Republic, Italy, Estonia, Slovakia and Sweden.

    Spain

44) In Spain, the Parties' combined market shares[36] exceed [50-60]% in the following segments: (i)  super-premium  Scotch  whisky  ([50-60]%),
    (ii) super-premium single malt Scotch whisky ([60-70]%) and (iii) super-premium single malt Scotch whisky both in  the  on-trade  ([60-70]%)
    and the off-trade ([60-70]%) channels. However, in each of these hypothetical markets, the market  share  increment  remains  below  [0-5]%.
    Moreover, the Parties argue that Beams' high market shares result from the sales made by the Maxxium joint  venture  of  the  Scotch  whisky
    brands owned by The Edrington Group and other third-parties. Were those sales to be excluded, Beam's market shares in the hypothetical  sub-
    segments for Scotch whisky defined on the basis of quality or price levels would not be higher than [0-5]%.

    Table 1. Suntory's and Beam's market shares (by volume) for Scotch whisky by price/quality  range,  including  sales  of  agency  brands  in
    Spain.[37]

|                                                        |Suntory             |Beam[38]            |Combined            |
|Scotch whisky super-premium                             |[0-5]%              |[50-60]%            |[60-70]%            |
|Single malt Scotch whisky super-premium                 |[0-5]%              |[60-70]%            |[60-70]%            |
|Single malt Scotch whisky super-premium on-trade        |[0-5]%              |[60-70]%            |[60-70]%            |
|Single malt Scotch whisky super-premium off-trade       |[0-5]%              |[60-70]%            |[60-70]%            |

45) According to the Parties, even on these narrow hypothetical sub-segments for Scotch whisky, Suntory and Beam will be constrained  by  Diageo
    (market shares up to [20-30]%), followed by smaller suppliers such as William Grant ([5-10]%), J & G Grant ([0-5]%) or  Pernod  Ricard  ([0-
    5]%). In the course of the market investigation, customers considered that post-transaction there will continue  to  be  enough  alternative
    suppliers of Scotch whisky in Spain such as Diageo, Pernod Ricard, Bacardi-Martini and  others,[39]  including  single  malt  Scotch  whisky
    brands such as Talisker, Lagavuling, Dalwhinnie and Balvenie, which are considered to compete closely with the Parties' brands in Spain[40].

46) The Commission notes that none of the on-trade and off-trade customers approached have raised concerns regarding the impact of the  proposed
    transaction on the price and availability of Scotch whisky (including single malt super-premium) in the Spanish market.[41]  One  competitor
    raised some concerns, but only in relation to possible portfolio effects (see section 3.5).[42]

47) In addition, in light of the replies to the market investigation, the Commission notes that Suntory's brands and Beam's  brands  for  Scotch
    whisky are not each other's closest competitors, except for Bowmore and Laphoraig single malt  whisky  which  both  come  from  Islay,  have
    similar peat taste profiles and both fall within the super-premium to premium segments[43]. However, Beam does not currently sell  Laphoraig
    in Spain and Suntory's sales of Bowmore are limited.[44]

48) Therefore, the Commission concludes that in light of the presence of several competitors in  Scotch  whisky,  the  small  increment  in  the
    combined market shares and in the absence of concerns voiced during the market investigation, the  proposed  concentration  does  not  raise
    serious doubts as to its compatibility with the internal market  with  respect  to  Scotch  whisky  in  Spain  under  any  plausible  market
    definition.

    Other countries

49) In the Czech Republic, Italy, Estonia, Slovakia and Sweden, a number of affected markets arise on the basis  of  narrow  market  definitions
    relating to single malt Scotch whisky. However, the Parties' combined market shares do not exceed [30-40]% on any hypothetical quality-based
    segments for single malt Scotch whisky, further broken down by on-trade and off-trade channel.

    Table 2. Suntory's and Beam's market shares (by volume) for Scotch whisky, including sales of agency brands in  Czech  Republic,  Italy  and
    Sweden.[45]

|Czech Republic                                                       |Suntory       |Beam          |Combined            |
|Single malt Scotch whisky-premium quality                            |[10-20]%      |[5-10]%       |[20-30]%            |
|Single malt Scotch whisky-premium quality on-trade                   |[10-20]%      |[10-20]%      |[20-30]%            |
|Italy                                                                |Suntory       |Beam          |Combined            |
|Single malt Scotch whisky-premium quality off-trade                  |[0-5]%        |[10-20]%      |[20-30]%            |
|Sweden                                                               |Suntory       |Beam          |Combined            |
|Single malt Scotch whisky-premium quality                            |[5-10]%       |[10-20]%      |[20-30]%            |
|Single malt Scotch whisky-premium quality on-trade                   |[5-10]%       |[10-20]%      |[20-30]%            |

50) In Estonia and Slovakia, the Parties submit that their sales are trivial, amounting to no more than […] cases per year, and  that  generally
    single malt whisky represents an insignificant segment. As regards Slovakia, the Parties submit that […] in the country. The  market  shares
    reflect sales of products that […].

    Table 3. Suntory's and Beam's market shares (by volume) for Scotch whisky, including sales of agency brands in Estonia and Slovakia.[46]
|Estonia                                                              |Suntory       |Beam          |Combined            |
|Single malt Scotch whisky                                            |[10-20]%      |[5-10]%       |[20-30]%            |
|Single malt Scotch whisky on- trade                                  |[10-20]%      |[10-20]%      |[20-30]%            |
|Slovakia                                                             |Suntory       |Beam          |Combined            |
|Single malt Scotch whisky premium quality                            |[20-30]%      |[0-5]%        |[20-30]%            |
|Single malt Scotch whisky on- trade                                  |[20-30]%      |[0-5]%        |[20-30]%            |
|Single malt Scotch whisky premium quality on-trade                   |[20-30]%      |[5-10]%       |[20-30]%            |
|Single malt Scotch whisky premium quality off-trade                  |[20-30]%      |[0-5]%        |[20-30]%            |

51) The Parties generally remark that their Scotch whisky products focus on different quality/price segments and in any case they do not compete
    closely with each other. In particular, the Parties' internal documents[47] confirm that when analysing  its  competitive  position  in  the
    Scotch market, Beam benchmarks the performance of its Scotch brands vis-à-vis the performance of [competitors' brands].

52) The Commission notes, in light of the Parties'  submissions,  that  post-transaction  the  merged  entity  would  continue  to  face  strong
    competition from global players, such as Diageo and Pernod Ricard, each accounting for more than [20-30]% of the Scotch whisky sales in most
    EEA countries.

53) In particular, in the Czech Republic, Estonia, Italy, Slovakia and Sweden, the Parties' main competitors in Scotch whisky are  Pernod-Ricard
    (with shares between [20-30]% and [40-50]% in those countries), Diageo (with shares between [10-20]% and [30-40]%) and William  Grant  (with
    shares between [5-10]% and [10-20]%).[48] Moreover, a number of additional players exert competitive pressure on the Parties  in  the  Czech
    Republic (United Brands with [30-40]%), Italy (Campari [10-20]%), Slovakia (Sodiko [10-20]%) and Sweden (The Edrington Group [10-20]%).

54) The Commission notes that none of the competitors and customers approached raised concerns regarding the price and  availability  of  Scotch
    whisky in the Czech Republic, Estonia, Italy, Slovakia or Sweden. As mentioned in relation to Spain, the Commission considers that in  light
    of the replies to the market investigation the Parties' brands are not each other's closest competitors, with the exception of  Bowmore  and
    Laphoraig [49]single malt whiskies which are both present in each of the countries mentioned above. However, the Commission notes  that  the
    market participants also indicated that there are other close brands to Bowmore and Laphoraig, such as Highland Park (Edrington),  Talisker,
    Lagavulin, Caol Ila, Cardhu (Diageo),  Ardbeg  (LVMH),  Glenmorangie  (Moet-Henessy),  Bruichladdich  (Remy  Cointreau),  Bunnahabain  (Burn
    Stewart/Distell).[50]

55) Therefore the Commission concludes that in light of the presence of other strong competitors in Scotch whisky and  in  the  absence  of  any
    concerns voiced during the market investigation, the proposed transaction does not raise serious doubts as to  its  compatibility  with  the
    internal market with respect to Scotch whisky in Czech Republic, Estonia, Italy, Slovakia and Sweden under any plausible market definition.

            3.4.2.     Liqueurs

56) Suntory's liqueur offering in the EEA is limited to two liqueurs, namely a chocolate-flavoured liqueur (Mozart) and a melon-flavored liqueur
    (Midori). Beam sells a variety of different flavored liqueurs in the EEA (apple, berry, blackcurrant, cinnamon, cherry,  citrus,  cranberry,
    orange, mandarin, mango, pineapple, raspberry, summer berry, toffee, and tropical). Beam also acts as a third-party distributor  in  Germany
    for the Lucas Bols liqueur range (which includes chocolate- and melon-flavored liqueurs), as well as Galliano  and  Pisang  Ambon  liqueurs,
    while the Maxxium distribution joint ventures purchase and re-sell the Lucas Bols  liqueur  range  in  Spain  and  the  United  Kingdom.  In
    addition, Maxxium U.K. distributes Grand Marnier (an orange-flavored liqueur) and Drambuie (a whisky-flavored liqueur) on a limited scale in
    the United Kingdom.

57) The wider liqueur market in the EEA is fragmented. Overall, at the EEA level, the merged entity would remain a relatively small operator  in
    the market for liqueurs with a combined share of [0-5]%, especially when compared to leading competitors such  as  Diageo  ([5-10]%),  Stock
    Spirits ([5-10]%) and Pernod Ricard ([5-10]%).

58) The positioning of the Parties in an overall liqueur market at the EEA level broadly  reflects  their  positioning  in  the  individual  EEA
    countries. Specifically the transaction would not give rise to any affected market in any of the EEA countries.

59) When considering narrower segmentations by flavour, a direct overlap arises only if Beam’s and the Maxxium joint ventures’ sales  as  third-
    party distributors of the Lucas Bols “agency brands” are attributed to Beam. In that case, the hypothetical markets for chocolate- and melon-
    flavoured liqueurs in Germany and the United Kingdom sold to on-trade customers are affected.

    Table 4. Suntory's and Beam's market shares (by volume) for liqueurs, including sales of agency brands in Germany and the UK.[51]
|Germany                                               |Suntory             |Beam              |Combined                |
|Chocolate liqueurs on-trade                           |[40-50]%            |[10-20]%          |[60-70]%                |
|Melon liqueurs on-trade                               |[40-50]%            |[40-50]%          |[90-100]%               |
|Melon liqueurs (on-trade + off-trade)                 |[20-30]%            |[20-30]%          |[50-60]%                |
|United Kingdom                                        |Suntory             |Beam              |Combined                |
|Melon liqueurs on-trade                               |[90-100]%           |[0-5]%            |[90-100]%               |

60) The Parties submit that Suntory's liqueurs are significantly different from Lucas Bols' liqueurs  and  that  their  products  are  not  each
    other's closest competitors.

61) The Commission notes that, according to the Parties, Midori is the only liqueur that contains Japanese Yubari and Musk melons, which  convey
    a unique flavour. By contrast, the Bols' melon flavor comes from the more common  honeydew  melon.  Similarly,  according  to  the  Parties,
    Suntory’s Mozart line is not a close competitor of the Bols’ chocolate-flavored offerings. Suntory focuses on the “chocolate cream liqueurs”
    and “chocolate liqueurs” categories, while the chocolate-flavored liqueurs in the Lucas Bols range fall into the “crème de cacao” category.

62) The Commission notes that in light of the replies to the market investigation Suntory's and Beam's liqueurs are not close  substitutes,  but
    rather complementary products.[52] In particular, the Midori liqueur belongs to  the  premium  range  category,  "almost  exclusive  in  its
    category due to high quality and use of natural fruit into its production"[53], whereas Beam's Aftershock  and  Sourz  (non-melon  flavoured
    liqueurs) belong to the value category competing with other fruit flavoured liqueurs.

63) The Commission considers that in light of the market investigation, the closest competitors to Midori liqueur are Bols  (Lucas  Bols'  brand
    distributed by Beam), Passoa (Remy Cointreau), DeKuyper (De Kuyper Distilleries),  Marie  Brizard  (Groupe  Belvédère)  and  Malibu  (Pernod
    Ricard).[54] The closest competitor to Suntory's chocolate flavoured liqueur (Mozart) is Baileys (Diageo), followed by other brands such  as
    Godiva (Godiva Liqueur Co's) and Chocovine (Chocovine LLLP).

64) The Commission notes that post-transaction the Parties would continue to face strong competition from large and often vertically  integrated
    players. Moreover, even if in certain segments the Parties' combined market shares appear significant, it  should  be  considered  that  the
    overall value of these hypothetical segments and consequently the value of the Parties' combined sales  in  these  segments  are  relatively
    small (see table 5 below).

    Table 5. Suntory's and Beam's sales of chocolate and melon liqueurs in Germany and the UK.[55]
|Parties’ Sales of Chocolate and Melon Liqueurs in 2012 (Euros)                                                         |
|Country/ Region                 |Chocolate liqueurs                  |Melon Liqueurs                                    |
|                                |Suntory              |Beam          |Suntory              |Beam                        |
|Germany                         |€[…]                 |€[…]          |€[…]                 |€[…]                        |
|The United Kingdom              |€[…]                 |€[…]          |€[…]                 |€[…]                        |

65) The Commission notes that none of the competitors and on-trade customers approached raised concerns regarding the price and availability  of
    liqueurs in Germany and the UK.[56] The Commission considers that in light of the replies to market investigation given by  customers  there
    are enough alternative suppliers in Germany and the UK to Suntory's melon liqueur, including Borco (which  distributes  DeKuyper),  Beveland
    (spirits and liqueur producer and export company based in  Spain),  Giffard,  and  Monin  (manufacturer  of  liqueurs  with  two  production
    facilities in Europe), as well as alternative suppliers for chocolate flavoured liqueur such as Campari, Diageo,  Giffard,  Henkell,  Pernod
    Ricard,Waldemar Behn, and Schwarze und Schlichte.[57]

66) Therefore the Commission concludes that in light of the Parties' limited sales of chocolate and melon liqueurs, the presence of  alternative
    suppliers and in the absence of any concerns raised during the market investigation, the proposed transaction does not raise serious  doubts
    as to its compatibility with the internal market with respect to chocolate and melon flavoured liqueurs in Germany and the UK.

    3.5.   Portfolio effects

67) The Transaction will essentially further broaden Beam’s spirits product portfolio (which includes various whiskies,  brandy,  gin,  tequila,
    rum, vodka, RTDs, and liqueurs) by adding Japanese whisky to its offering and further widening the  range  of  Scotch  whisky  and  liqueurs
    offered in the EEA.

68) The Commission notes that the leading spirits suppliers, including Bacardi-Martini, Campari, Diageo, Pernod Ricard, and Remy Cointreau, many
    of which have much more significant EEA-wide spirits businesses and a  much  stronger  presence  in  the  segments  in  which  the  Parties’
    activities overlap (e.g. Scotch) and in which they do not (e.g., gin/genever, aniseeds), have similar or broader portfolios and could easily
    counter any attempted tying or bundling strategy with a bundled offering of their own. In some internal documents, the  Parties  acknowledge
    that further to the transaction, the combined entity will have only […] of the worldwide top 100 spirit brands, whereas competitors such  as
    Diageo and Pernod Ricard will still have […] and […] respectively.[58] Furthermore, the Commission  considers,  in  light  of  the  Parties'
    submissions, that customers appear to enjoy strong buying power and are likely to continue to multisource brands and  extract  cost  savings
    from all suppliers.

69) The Commission notes that post-transaction the Parties' main competitors will continue to have stronger product portfolios than  the  merged
    entity. Therefore, the combined entity is unlikely to be able to foreclose effective competition in any spirits category in the EEA  through
    a tying strategy.

70) One competitor raised concerns about the possibility of Suntory's Scotch whisky brands being diverted  from  a  third-party  distributor  to
    Beam's Maxxium joint venture in Spain. Consequently, this would give a "competitive advantage  to  Maxxium  into  the  negotiation  of  this
    products category and a high concentration of brands, limiting the possibilities of other brands to develop in this  product  category".[59]
    However, the Commission considers that Suntory's sales of Scotch whisky in Spain amount to less than [0-5]% of the market for Scotch  whisky
    and its sub-segments in Spain. Even if Suntory's brands in future were to be distributed through the  Maxxium  joint  venture,  the  limited
    competitive presence of Suntory's brands in Spain make it very unlikely that the merged entity would be able to foreclose rivals.

IV.   CONCLUSION

71) For the above reasons, the European Commission has decided not to oppose the notified operation  and  to  declare  it  compatible  with  the
    internal market and with the EEA Agreement. This decision is adopted in application of Article 6(1)(b) of the Merger Regulation.

                                        For the Commission

                                        signed
                                        Joaquin Almunia
                                        Vice-President

    -----------------------
[1]   OJ L 24, 29.1.2004, p. 1 ("the Merger Regulation"). With effect from 1 December 2009, the Treaty on the Functioning of the  European  Union
   ("TFEU") has introduced certain changes, such as the replacement of "Community" by "Union" and  "common  market"  by  "internal  market".  The
   terminology of the TFEU will be used throughout this decision.
[2]     Publication in the Official Journal of the European Union No C 87, 26.03.2014, p. 14.

[3]   Turnover calculated in accordance with Article 5(1) of the Merger Regulation and the  Commission  Consolidated  Jurisdictional  Notice  (OJ
    C95, 16.04.2008, p. 1).
[4]        Both Parties are also active in the sale of cognac. However, Suntory's  market  shares  are  negligible  (under  [0-5]%  in  each  EEA
    country) and the Parties' combined market shares remain below [50-60]%, with an HHI increment well below Ù[5][& ] points, in  all  countries
    where the Parties' activities over˙[…] points, in all countries where the Parties' activities overlap. In view of the  negligible  increment
    brought about by the transaction, the overlap in cognac will not be further analysed in this decision.
[6]   Case/M.938 - Guinness/Grand Metropolitan, decision of 15 October 1997, Case/M.2268 - Pernod Ricard/Diageo/Seagram Spirits,  decision  of  8
    May 2001, Case/M.3183 - Fortune Brands/Allied Domecq, decision of 10 June  2005, Case/M.3779 -  Pernod  Ricard/Allied  Domecq,  decision  of
    24 June 2005, Case/M.5114 - Pernod Ricard/V&S, decision of 17 July 2008.
[7]   Replies to question 8 of the Commission’s request for information pursuant to Article 11 of Council Regulation (EC) No  139/2004  addressed
    to competitors and distributors (Q3) and to on-trade and off-trade customers of whisky (Q2) and replies to question 7 addressed to  on-trade
    customers of liqueurs in Germany and the UK (Q1), dated 18 March 2014.
[8]   Case/M.938 - Guinness/Grand Metropolitan, decision of 15 October 1997, Case/M.3779 - Pernod Ricard/Allied Domecq.
[9]   Case/M.938 - Guinness/Grand Metropolitan, decision of 15 October 1997.
[10]  Replies to questions 10 and 11 of the Commission’s request for information pursuant to Article 11 of Council Regulation  (EC)  No  139/2004
    addressed to on-trade and off-trade customers of whisky (Q2) and to competitors and distributors (Q3), dated 18 March 2014.
[11]  Malt whisky largely consists of single malts sourced from one distillery and to a lesser extent blended malt whiskies sourced from a  range
    of distilleries. Blended Scotch whisky largely consists of blended products which may be blended  from  a  combination  of  different  grain
    products and a malt whisky product.
[12]  ME/6130/13 - Completed acquisition by Diageo plc of United Spirits Limited, OFT Decision of 25 November 2013.
[13]  With the exception of Sweden, Suntory does not sell blended Scotch whisky in the EEA.  However,  the  Parties'  combined  market  share  in
    Sweden for blended Scotch whisky is only [0-5]% (with an increment of[0-5] % from Suntory).
[14]       The different distillation process (grain whisky is cheaper to produce than malt whisky) and  maturation  period  (blended  whisky  is
    typically sold at younger ages than malt whisky) results in different production costs.
[15]       Replies to question 14 of the Commission’s request for information pursuant to Article 11  of  Council  Regulation  (EC)  No  139/2004
    addressed to competitors and distributors (Q3), dated 18 March 2014.
[16]  Replies to questions 11 and 15 of the Commission’s request for information pursuant to Article 11 of Council Regulation  (EC)  No  139/2004
    addressed to on-trade and off-trade customers of whisky (Q2) and to competitors and distributors (Q3), dated 18 March 2014.
[17]  Case/M.5114 - Pernod Ricard/V&S, decision of 17 July 2008.
[18]  Case/M.938 - Guinness/Grand Metropolitan, decision of 15 October 1997.
[19]  Case/M.2268 - Pernod Ricard/Diageo/Seagram Spirits, decision of 8 May 2001.
[20]  The Parties also point out that each of Beam's and Suntory's Scotch whisky brands sold in the EEA falls within more than one category.
[21]       Replies to question 16 of the Commission’s request for information pursuant to Article 11  of  Council  Regulation  (EC)  No  139/2004
    addressed to competitors and distributors (Q3), dated 18 March 2014.
[22]  Replies to question 14 of the Commission’s request for information pursuant to Article 11 of Council Regulation (EC) No 139/2004  addressed
    to competitors and distributors (Q3), dated 18 March 2014.
[23]  Case/M.938 - Guinness/Grand Metropolitan, decision of 15 October 1997.
[24]  Case/M.5114 - Pernod Ricard/V&S, decision of 17 July 2008.
[25]  Replies to question 21 of the Commission’s request for information pursuant to Article 11 of Council Regulation (EC) No 139/2004  addressed
    to competitors and distributors (Q3), dated 18 March 2014.
[26]  Replies to questions 9, 10 and 22 of the Commission’s request for information  pursuant  to  Article  11  of  Council  Regulation  (EC)  No
    139/2004 addressed to on-trade customers of liqueurs in Germany and the UK (Q1) and to competitors and distributors  (Q3),  dated  18  March
    2014.
[27]  Case/M.938 - Guinness/Grand Metropolitan, decision of 15 October 1997, Case/M.2268 - Pernod Ricard/Diageo/Seagram Spirits,  decision  of  8
    May 2001, Case/M.3183 - Fortune Brands/Allied Domecq, decision of 10 June  2005, Case/M.3779 -  Pernod  Ricard/Allied  Domecq,  decision  of
    24 June 2005, Case/M.5114 - Pernod Ricard/V&S, decision of 17 July 2008.
[28]  In Case/M.5114-Pernod Ricard/V&S, the Commission has defined a separate market for travel retail distribution although it did not  consider
    it necessary to conclude whether distinct product markets exist in respect of each of wine and spiritis sold in the travel  retail  channel.
    The transaction does not give rise to any affected market in relation to this distribution channel.
[29]      Replies to question 9 of the Commission’s request for information pursuant to  Article  11  of  Council  Regulation  (EC)  No  139/2004
    addressed to competitors and distributors (Q3), dated 18 March 2014.  Replies  to  questions  8  and  9  of  the  Commission’s  request  for
    information pursuant to Article 11 of Council Regulation (EC) No 139/2004 addressed to on-trade customers of liqueurs in Germany and the  UK
    (Q1) and to on-trade and off-trade customers of whisky (Q2), dated 18 March 2014.
[30]  Case/M.3779 - Pernod Ricard/Allied Domecq, decision of 24 June 2005, Case/M.5114 - Pernod Ricard/V&S, decision of 17 July 2008.
[31]  Replies to question 24 of the Commission’s request for information pursuant to Article 11 of Council Regulation (EC) No 139/2004  addressed
    to competitors and distributors (Q3), dated 18 March 2014.
[32]       Replies to questions 25, 26 and 27 of the Commission’s request for information pursuant to Article 11 of Council  Regulation  (EC)  No
    139/2004 addressed to competitors and distributors (Q3), dated 18 March 2014. Replies to questions 11 and 16 of the Commission’s request for
    information pursuant to Article 11 of Council Regulation (EC) No 139/2004 addressed to on-trade customers of liqueurs in Germany and the  UK
    (Q1) and to on-trade and off-trade customers of whisky (Q2), dated 18 March 2014.
[33]       Replies to questions 28 and 29 of the Commission’s request for information pursuant to  Article  11  of  Council  Regulation  (EC)  No
    139/2004 addressed to competitors and distributors (Q3), dated 18 March 2014. Replies to questions 12 and 17 of the Commission’s request for
    information pursuant to Article 11 of Council Regulation (EC) No 139/2004 addressed to on-trade customers of liqueurs in Germany and the  UK
    (Q1) and to on-trade and off-trade customers of whisky (Q2), dated 18 March 2014.
[34]  Suntory has some limited activities as a third-party distributor of liqueur, gin and vodka in Austria, where it sells  through  its  Mozart
    Distillerie (sales for EUR […] in 2012). In France, Suntory distributes bottled cognac through its controlled subsidiary Louis  Saveur,  […]
    such sales are [..] (in 2012, […] cases, amounting to approximately €[…]).
[35]  In Austria, Beam did not distribute any third-party products in 2012 and in 2013 only  sold  one  third-party  product,  namely  Glenrothes
    Scotch whisky for an amount of €[…]. In Germany, Beam sold and distributed […] 9-liter cases of its own spirits, and  distributed  [...]  9-
    liter cases on third parties’ behalf, accounting for [0-5]% of spirits sales in Germany.
[36]  […].
[37]        In line with the Commission's precedents in this industry, sales and shares of sales data are provided on the basis  of  volume  data
    (in thousands of nine-liter cases) and have been drawn from IWSR, a well-established third-party research organization covering the  spirits
    industry. See e.g. Case/M.3779 - Pernod Ricard/Allied Domecq, decision of 24 June 2005.
[38]  Source: IWSR data.
[39]  Including sales by the Maxxium joint venture of The Edrington Group and other third party products.
[40]  When considering the overall market for Scotch whisky (all price/quality categories), the market shares of the main competitors in  Spanish
    are even higher (Diageo: [30-40]%, Pernod Ricard: [20-30]% and Bacardi-Martini: [10-20]%).
[41]  Replies to question 20 of the Commission’s request for information pursuant to Article 11 of Council Regulation (EC) No 139/2004  addressed
    to on-trade and off-trade customers of whisky (Q2), dated 18 March 2014.
[42]  Replies to questions 23, 24 and 25 of the Commission’s request for information pursuant  to  Article  11  of  Council  Regulation  (EC)  No
    139/2004 addressed to on-trade and off-trade customers of whisky (Q2), dated 18 March 2014.
[43]  Replies to questions 34, 35 and 37 of the Commission’s request for information pursuant  to  Article  11  of  Council  Regulation  (EC)  No
    139/2004 addressed to competitors and distributors (Q3), dated 18 March 2014.
[44]       Replies to questions 30 and 18 of the Commission’s request for information pursuant to  Article  11  of  Council  Regulation  (EC)  No
    139/2004 addressed to on-trade and off-trade customers of whisky (Q2), dated 18 March 2014.
[45]  According to the Parties' own data, the market share (by value) of Bowmore in the market for single malt  Scotch  whisky  is  only  [0-5]%.
    Even considering IWSR retail value data, the market share of Bowmore in this sub-segment is only [0-5]%.
[46]  Source: IWSR data.
[47]  Source: IWSR data.
[48]  Annex 7.2.2 - Presentation from Beam dated November/December 2013, entitled "Laphroaig Brand Health Slides".
[49]  These competitors are leading Scotch whisky suppliers in the EEA: Diageo is market leader in 12 countries (with shares  ranging  from  [20-
    30]% to [50-60]% across those countries, and the leading global brand Johnnie Walker); Pernod Ricard in 5  countries  (with  shares  ranging
    from [10-20]% to [70-80]% and the leading global brands Ballantine’s and Chivas Regal), and William Grant in 2 countries  (with  a  [20-30]%
    share in each of them).
[50]  The Parties submit that Bowmore and Laphroaig are not each other's closest competitors  because  Bowmore  falls  under  the  premium  range
    category, while Laphroaig falls under the super-premium range category. In addition, the Parties indicate that the prices  at  which  Beam's
    products are sold in the single malt segment in Estonia and Slovakia are 41% and 89% above the prices at which Suntory's products are sold.
[51]       Replies to questions 32 and 20 of the Commission’s request for information pursuant to  Article  11  of  Council  Regulation  (EC)  No
    139/2004 addressed to competitors and distributors (Q3) and to on-trade and off-trade customers of whisky (Q2), dated 18 March 2014.
[52]  Source: IWSR data
[53]  Replies to question 31 of the Commission’s request for information pursuant to Article 11 of Council Regulation (EC) No 139/2004  addressed
    to competitors and distributors (Q3), dated 18 March 2014. Replies to question 14 20 of the Commission’s request for information pursuant to
    Article 11 of Council Regulation (EC) No 139/2004 addressed to on-trade customers of liqueurs in Germany and the UK  (Q1),  dated  18  March
    2014.
[54]       Replies to question 31 of the Commission’s request for information pursuant to Article 11  of  Council  Regulation  (EC)  No  139/2004
    addressed to Perelada Comercial S.A. (Questionnaire to competitors and distributors –Q3), dated 18 March 2014.
[55]  Replies to questions 32 and 15 of the Commission’s request for information pursuant to Article 11 of Council Regulation  (EC)  No  139/2004
    addressed to competitors and distributors (Q3) and to on-trade customers of liqueurs in Germany and the UK (Q1), dated 18 March 2014.
[56]      Source: Form CO.
[57]  Replies to questions 36 and 37 of the Commission’s request for information pursuant to Article 11 of Council Regulation  (EC)  No  139/2004
    addressed to competitors and distributors (Q3), dated 18 March 2014. Replies to  questions  19  and  20  of  the  Commission’s  request  for
    information pursuant to Article 11 of Council Regulation (EC) No 139/2004 addressed to on-trade customers of liqueurs in Germany and the  UK
    (Q1), dated 18 March 2014.
[58]       Replies to question 16 of the Commission’s request for information pursuant to Article 11  of  Council  Regulation  (EC)  No  139/2004
    addressed to on-trade customers of liqueurs in Germany and the UK (Q1), dated 18 March 2014.
[59]  Annex 5.5 - Presentation for Suntory’s Group Strategy Meeting, dated November 7,  2013,  entitled  “Beam  Inc.  Acquisition”  (English  and
    Japanese versions).
[60]       Replies to questions 34 and 37 of the Commission’s request for information pursuant to  Article  11  of  Council  Regulation  (EC)  No
    139/2004 addressed to competitors and distributors (Q3), dated 18 March 2014.

-----------------------
 In the published version of this decision, some information has been omitted pursuant to Article 17(2) of Council Regulation (EC)  No  139/2004
 concerning non-disclosure of business secrets and other confidential information.  The  omissions  are  shown  thus  […].  Where  possible  the
 information omitted has been replaced by ranges of figures or a general description.

                                                                  PUBLIC VERSION

                                                                 MERGER PROCEDURE