CELEX: 31995M0554
Language: en
Date: 1995-03-13 00:00:00
Title: COMMISSION DECISION of 13/03/1995 declaring a concentration to be compatible with the common market (Case No IV/M.554 - Dalgety PLC / The Quaker Oats Company) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31995M0554

COMMISSION DECISION of 13/03/1995 declaring a concentration to be compatible with the common market (Case No IV/M.554 - Dalgety PLC / The Quaker Oats Company) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 082 , 04/04/1995 P. 0004

 COMMISSION  DECISION of 13/03/1995 declaring a concentration to be compatible with the common market (Case No IV/M.554  - Dalgety  PLC / The Quaker Oats Company) according to Council Regulation (EEC) No 4064/89  (Only the English text is authentic).  The  paper version of the decision is available through  the sales offices of the Office of Official Publications of  the European Communities PUBLIC VERSION MERGER PROCEDURE ARTICLE 6(1)(b) DECISION To the notifying parties Dear Sirs, Subject :<ind> Case No IV/M.554  DALGETY PLC/THE QUAKER OATS COMPANY <ind>  <ind>  Notification of  10 February 1995 pursuant  to Article 4 of Council Regulation No 4064/89 1.<ind>  On  10 February 1995 the UK company,  Dalgety  PLC, notified a proposed concentration by which Dalgety PLC  will acquire  the  European petfood business of the  US  company, Quaker Oats.  2.<ind>   After   examination  of  the   notification,   the Commission has concluded that the operation falls within the scope of application of Council Regulation (EEC) No. 4064/89 and  does  not  raise serious doubts as to its compatibility with the common market. I.<ind>  THE PARTIES 3.<ind> Dalgety PLC is a UK company, active in the following sectors  :  agribusiness,  food  (human  food  and  petfood) manufacture and ingredients. Its worldwide turnover amounted to 6,482.7 million ECU in 1994. 4.<ind>  Quaker  Oats  is  a  US company,  involved  in  the manufacture and sale of food, beverages and petfood, but the operation  proposed  concerns  only  its  European   petfood business  ("Quaker EPF"). The Quaker EPF worldwide  turnover was  682.5 million ECU in 1994.  II.<ind>  THE OPERATION 5.<ind>  The  proposed operation consists of the acquisition by  Dalgety PLC of the European petfood business of  Quaker. The  acquisition  comprises  all the  European  subsidiaries involved  in the manufacture and marketing of petfood  which Quaker EFP [Read Quaker EPF] has in the UK, France, Germany, the Netherlands, Italy and Scandinavia (Sweden and Norway). III.<ind> COMMUNITY DIMENSION 6.<ind>  The combined aggregate turnover of the undertakings concerned  is  more than ECU 5,000 million (in 1994  Dalgety PLC  had  a total worldwide turnover of ECU 6,482.7 million, and   Quaker   EPF   ECU  682.5  million).   The   aggregate Communitywide turnover of each of them is more than ECU  250 million  (in 1994 for Dalgety PLC it was ECU 2,546.6 million and  for Quaker EPF ECU 677.5 million).  The parties did not achieve more than two thirds of their Communitywide turnover in one and same Member State. Consequently the concentration has  a  Community dimension. The operation  is  not  an  EEA "cooperation" case. IV.<ind> COMPATIBILITY WITH THE COMMON MARKET <ind> (a)<ind> Relevant product markets 7.<ind>  The  proposed  concentration concerns the  European petfood  sector.  It  should be noted that  the  Quaker  EPF business  encompasses  manufacture of  products  related  to petfoods  (such  as cat litter). Dalgety  has  very  limited involvement  in  the cat litter sector with sales  of  about [Deleted,  business secret: below £ 5 million.]  per  annum, primarily  in [Deleted, business secret.]. Quaker EPF  makes some sales of cat litter in [Deleted, business secret.]  and none  in  [Deleted, business secret.]. Because of this  very limited overlap, the Commission does not consider that  this market is affected. 8.<ind> There are four types of prepared petfoods : dry  cat food, wet cat food, dry dog food and wet dog food. 9.<ind> On the demand side, the notifying party argues  that dry and wet cat foods are substitutable and that dry and wet dog foods are substitutable. <tab> It justifies such a substitutability for the following reasons : <tab>   <ind>  wet  and dry formulations  are  nutritionally equivalent  and equally palatable. (Whilst a completely  dry diet requires the provision of adequate water alongside  the food, from a nutritionalpoint of view dry food is equivalent to wet.)  <ind>   <ind>  In  addition many  of  the  major  brands  of petfoods  are  available in both wet and  dry  formats.  For example,  the  Mars'  leading  cat  and  dog  food   brands, respectively   Whiskas   and   Pedigree,   are   represented throughout  Europe  in both wet and dry  formats.  Similarly Nestlé's Friskies and Friskies Gourmet brands comprise  both wet   and  dry  cat/dog  foods.  This  common  branding   is reinforced by the usage of consistent pack design across the range. 10.<ind>  Of  the  six  main  customers  who  answered   the Commission's request for information two consider that  each specific  petfood product (i.e. dry cat food, wet cat  food, dry  dog  food  and  wet  dog food) constitutes  a  separate relevant product market, three agree with the parties'  view that dry and wet cat food are substitutable and dry and  wet dog  food  are  substitutable, and one  considers  that  all petfood products constitute a single market.  11.<ind>  On  the  supply side, according to  the  notifying party,  these  products constitute a single petfood  product market.  First, it argues that wet cat and dog petfoods  are substitutable  and  also,  dry  cat  and  dog  petfoods  are substitutable, because : <ind>   <ind>  the basic ingredients, methods of production, canning  materials and technology and the means and channels of distribution are the same for each of these categories; <tab>  <ind> most of producers of wet dog food (Mars, Nestlé Royal Canin, IAMS, Dalgety and Quaker) also produce wet  cat food and similarly for dry cat and food;  <ind>  <tab>   <ind>  manufacturing lines can  be  shifted  quickly (within 20 minutes), easily and at minimal cost between  the production <ind> Second, it says that wet petfoods and dry petfoods are substitutable for the following reasons : <ind>   <ind>  Petfood  plants are designed,   equipped  and managed  to  produce either dry food or  wet  food,  without regard for whether the food will be for dogs or cats; <ind>   <ind>  the production process  recipe,  ingredients, blending, cooking, packaging  is identical for dog  and  cat foods. There are only minor differences in formula and (only for  dry foods) only minor differences in shape and/or  size of machine parts. <ind> The two main competitors who answered the Commission's request for information confirmed this view.   12.<ind>  In  addition, the notifying party,  the  two  main competitors and four of the six retailers questioned by  the Commission  state that prepared petfood competes with  fresh food.  <ind>  The  Commission decision does  not  share  this  view (BSN/Euralim  Case  N   IV/M  7 June  1994).  First,  prices between  prepared  foods and fresh foods  are  significantly different;  second the products have different manufacturing technologies, methods of preservation and directions for use by pet owners. <ind>  For this reasons mentioned,  the Commission considers that  prepared petfoods and fresh food do not belong to  the same relevant product market . 13.<ind>  Lastly the notifying party argues that  retailers' own  branded petfood products compete strongly with  branded petfood  products. Nowadays the share of the retailers'  own brand  petfoods represent approximately 16% of  the  overall European  petfood market. For instance in the UK,  a  steady increase can be observed  for the share of wet dog  food  in 1991 it was 7.9%, in 1994 9.4%. Moreover the notifying party argues  that  retailers'  own  brands  nowadays  are  of   a comparable  quality  to  branded products  and  are  clearly perceived by customers as such. The two main competitors and the six retailers questioned by the Commission answered that branded  and  ownbrand petfoods belong to the  same  market. Thus  the Commission considers that branded and own  branded petfoods compete with each other. 14.<ind>  It is unnecessary to decide whether each  type  of petfood  products  belongs to a separate market, since  even on  a  narrow market definition (a separate market for  each type  of  petfood), the operation does not give  rise  to  a single or collective dominant position. <ind> (b)<ind> Relevant geographic market 15.<ind>  The  notifying  party  states  that  the  relevant geographic  market is an EC market. The arguments supporting this view are as follows : <ind>  <ind>  1993  import/export data  reveal  a  level  of trading interpenetration between EC Member States in petfood whichindicates a wider than national geographic  market.  On the basis of the data the parties consider that the relevant geographic  market  is  at least UK /  France  /  Germany  / Benelux / Italy. <ind> The  trade data  between three of these countries, are as follows :  Trade in petfood ('000 tonnes, 1993)  <tab> Domestic consumption <tab> Imports <tab> Exports <tab> Domestic production UK <tab> 1357 <tab> 293 <tab> 166 <tab> 1230 France <tab> 1047 <tab> 163 <tab> 663 <tab> 1547 Germany <tab> 648 <tab> 254 <tab> 263 <tab> 657 <ind>  The  above imports / experts figures  demonstrate  an interpenetration between these three countries.  <ind>  Furthermore,  import and export data  show  that  the origin  of  imports  for  instance into  France  is  Germany Ireland  and  other  countries and that the  destination  of exports for instance from France is the UK, Germany,  Italy, Belgium and other countries. 16.<ind>  Moreover  the following table  shows  that   major petfood  suppliers sell their petfood products under  brands which are well established all over Europe. For example, the leader  of the overall petfood market, Mars, sells  its  dog petfood  under  two  major brands, i.e.  Pedigree  which  is present in Germany, Spain, France, Netherlands, Scandinavia, Belgium  and Italy, and Chappi, which is sold in  all  these countries plus the UK. It is similar for its cat food brands Whiskas and Kitekat.   <ind>  As regards Nestlé, which will be the largest European supplier  after  the new entity, its major dog  food  brand, Friskies, is sold in six European countries (Nestlé  is  not active  in dog food in the Netherlands). Its major cat  food brand,   Friskies  Gourmet,  is  present  in  six   European countries. Major petfood brands sold in Europe Brands   <tab>  Germany  <tab>  Spain  <tab>  France   <tab> Netherlands <tab> Belgium <tab> Italy <tab> UK <tab> Scand Cat foods MARS   Whiskas <tab> +  <tab> +  <tab> +  <tab> +  <tab> +  <tab> +  <tab> +  <tab> +    Kitekat <tab> +  <tab> +  <tab> +  <tab> +  <tab> +  <tab> +  <tab> +  <tab> +  NESTLE  Friskies <tab> +  <tab> +  <tab> +  <tab> +  <tab> +  <tab> +  <tab> +  ROYAL  Felino <tab> +  <tab> +  <tab> +  <tab> +  <tab> +  <tab> + <tab> +  IAMS   Iams <tab> +  <tab> +  <tab> +  <tab> +  <tab> +  <tab>  + <tab> +  <tab> +  QUAKER   Dokat  [Material error, read Felix under QUAKER and  Dokat under DALGETY. DALGETY acquires Felix brand from QUAKER  EPF by the operation.] <tab> +  <tab>  <tab> +  <tab> +  <tab> + <tab> +  DALGETY   Felix  (Material error, read Felix under QUAKER and  Dokat under DALGETY. DALGETY acquires Felix brand from QUAKER  EPF by the operation.) <tab> +  <tab> +  <tab> +  <tab> +  <tab> +  <tab> +  <tab> +  Dog foods MARS  Pedigree <tab> +  <tab> +  <tab> +  <tab> +  <tab> +  <tab> +  <tab>  <tab> +   Chappi <tab> +  <tab> +  <tab> +  <tab> +  <tab> +  <tab> + <tab> +  <tab> +  NESTLE  Friskies <tab> +  <tab> +  <tab> +  <tab>  <tab> +  <tab> + <tab> +  ROYAL   Canin <tab> +  <tab> +  <tab> +  <tab> +  <tab> +  <tab> + <tab> +  <tab> +  IAMS  Eukanuba <tab> +  <tab> +  <tab> +  <tab> +  <tab> +  <tab> +  <tab> +  <tab> +  QUAKER  Bonzo <tab>  <tab> +  <tab> +  <tab> +  <tab>  <tab> +  DALGETY  Prime <tab> +  <tab>  <tab>  <tab>  <tab> +  <tab>  <tab> +   17.<ind> The two main competitors also consider that petfood markets  are European. The six retailers questioned  by  the Commission say that : <ind>  <ind>  first,  they  stock  a  very  large  range  of different    branded   petfood   products   from   different producers; <ind>  <ind> second, they source these products  from  other countries  than  those  where they  operate.  For  instance, German  retailers source from Denmark, the Netherlands,  the UK, Liechtenstein and Belgium; French retailers from the  UK and  Liechtenstein; and UK retailers from  France,  Thailand and other overseas suppliers; <ind>  <ind> finally, they do not encounter any  problem  in importing  these  products,  and  transport  costs  do   not constitute a barrier for the imports.  18.<ind>  For all the above reasons the Commission concludes that the relevant geographic market is EEAwide. <ind> c)<ind> Competitive assessment <ind> Market shares 19.<ind>  The notifying party has provided data for Belgium, France,  Germany,  Italy, the Netherlands,  Spain   and  the United  Kingdom (Dalgety Europe). Approximately 90%  of  the total  European  petfood  market is  accounted  for  by  the markets in these countries. Dalgety has only limited petfood sales  in the other EC Member States and in the EFTA States. Total  European market shares would thus be lower than those for  Dalgety Europe. These figures are sourced from  Nielsen whose  audits cover sales through the grocery channel  only. However,  estimates suggest that the market  shares  of  the parties through non grocery channels are similar. 20.<ind>  After the completion of the proposed concentration the  new entity will be the second largest European operator in  the markets of cat food and dog food. With regard to the narrowest  petfood market, it will be the third in  the  dry cat food segment and the second in the three other segments. Mars will remain the leader in each market.  European  Cat Food and Dog Food (by value) 1994, year  ended January [Figures in table deleted, business secrets.] <tab> <tab> Cat Food <tab> <tab> <tab> Dog Food <tab> Wet % <tab> Dry % <tab> Total % <tab> Wet % <tab>  Dry % <tab> Total % MARS  <tab>  [5060] <tab> [3040] <tab> [5060]  <tab>  [6070] <tab> [3040] <tab> [5060] NESTLE  <tab>  [010] <tab> [3040] <tab> [1020]  <tab>  [010] <tab> [010] <tab> [010] QUAKER  <tab> [1020] <tab> [1020] <tab> [1020]  <tab>  [010] <tab> [010] <tab> [010] DALGETY  <tab>  [010] <tab> [010] <tab>  [010]  <tab>  [010] <tab> [010] <tab> [010] DALGETY  +  QUAKER  <tab> [2030] <tab> [1020]  <tab>  [1020] <tab> [1020] <tab> [1020] <tab> [1020] OWN  BRANDS  <tab>  [1020] <tab> [1020] <tab>  [1020]  <tab> [1020] <tab> [1020] <tab> [1020] OTHERS <tab> [010] <tab> [010] <tab> [010] <tab> [010] <tab> [2030] <tab> [1020] <tab>  Accordingly  the operation does  not  result  in  the creation of a dominant position. V.<ind> ANCILLARY RESTRAINTS 21.<ind>  The  notifying  party has requested  that  certain restrictions be considered ancillary to the concentration. <ind>  Each party accepts restrictions as to the conduct  of its   business  during  the  period  between  contract   and completion. <ind>  In addition Quaker Oats agrees to discharge specified debts,  liabilities  and obligations between  the  companies acquired  by Dalgety and those retained by Quaker Oats,  and the parties agree arrangements relating to the employees  of the  business  transferred. The agreement provides  for  the exchange of information necessary for the operation to  take effect   and  contains  concomitant  restrictions   on   the disclosure of such information.  <ind>  It also makes arrangements for the transfer to  other Quaker  Oats  companies  of assets  held  by  the  companies transferred but not connected with the business acquired  by Dalgety.  <ind>  Also  by the agreement Dalgety and Quaker  Oats  will each  supplyspecified services which the other requires  for the recovery of specified liabilities. <ind>  These provisions contain no restrictions except those relating  to the conduct of business pending completion  and disclosure of information. Those restrictions are  necessary to  ensure  the  complete  and  effective  transfer  of  the business. 22.<ind>  The parties accept restrictions as to the  use  of names, trade marks and similar rights  Dalgety that it  will not  use specified Quaker names in the acquired business and Quaker  Oats  that it will not use names and  marks  of  the acquired  business in an area which includes the EEA.  These provisions  preserve for Quaker Oats the full value  of  the business which it retains and for Dalgety the full value  of the business which it acquires. 23.<ind>  Quaker  Oats  accepts restrictions  (of  differing duration,   but  non  exceeding  two  years)  on  soliciting employees  of the business acquired by Dalgety. Quaker  Oats also  agrees  that for [Deleted, business secret:  not  more than five years.] from completion it will not compete in the manufacture  or  sale of, or accept business  from  existing Quaker  Oats customers for, cat or dog food products or  cat litter.  These restrictions ensure that Dalgety obtains  the full value of the business which it acquires. 24.<ind>   Quaker   Oats   grants   to   Dalgety   exclusive intellectual  property licences relating to the  manufacture and  distribution of the products of the acquired  business. In  the case of one patent which relates both to products of the  acquired  business  and  to nonpetfood  products  which Quaker Oats will continue to produce Quaker Oats assign  the patent  to Dalgety and Dalgety confer back upon Quaker  Oats an  exclusive  licence.  These restrictions too  ensure  for Quaker  Oats the full value of the business which it retains and  for  Dalgety  the full value of the business  which  it acquires 25.<ind>  These  restrictions can  therefore  be  considered ancillary to the concentration. VI.<ind> CONCLUSION 26.<ind>  For the above reasons, The Commission has  decided not to oppose the notified operation <ind> and to declare it compatible  with the common market and with the  functioning of  <ind>  the EEA agreement.  This decision is  adopted  in application  of  Article 6(1)(b) of  Council  Regulation  No 4064/89. For the Commission,