THE HIGH Court has overturned the Competition Authority’s refusal to permit the acquisition by the Kerry Group of Breeo, the consumer foods company formed following the restructuring of Dairygold. Kerry now expects to complete the acquisition next week for a price of €140 million, reduced from €165 million due to the downturn in the market.
The appeal was the first to the court against a refusal of an acquisition or merger.
Mr Justice John Cooke allowed the appeal by Rye Investments Ltd, a wholly-owned subsidiary of Kerry Group, against the authority’s determination of August 2008 prohibiting the proposed acquisition by Rye of Breeo Foods Ltd and Breeo Brands Ltd, two wholly-owned subsidiaries of international food company Reox Holdings.
The proposed acquisition involved transferring from Dairygold to Kerry the consumer foods division of Reox (the Breeo companies), a number of properties, including plants at Mitchelstown, Co Cork, and Tallaght, Co Dublin, and the intellectual property rights of its business and assets, including some 225 trademarks.
The trademarks comprise many well-known brands, including Dairygold, Galtee, Shaws, Roscrea, Mitchelstown and Calvita. Kerry owns other well-known trade marks, including Denny, Ballyfree, Clover, Low Low and EasiSingles.
The authority refused the takeover on grounds it would substantially lessen competition in the markets for rashers, non-poultry cooked meats and processed cheese, but the judge ruled the authority made material errors in how it reached its conclusions in two significant respects.
He found the authority had erred significantly in how it reached its conclusion that the cheese product market is divided between natural and processed cheese. The authority’s resulting conclusion of a substantial lessening of competition in the market for processed cheese as a result of the merger was fundamentally flawed, he held.
The authority also erred materially in finding the merger would mean a substantial lessening of competition in the markets for rashers and non-poultry cooked meats because, the judge found, it had failed to correctly assess the post-merger existence of sufficient countervailing buyer power by retailers to deter any price increase sought to be imposed.
The authority had argued the exercise of such buyer power would be insufficient to operate as a constraint but the judge said there was compelling evidence retailers, as a matter “of invariable policy”, resist and delay all attempts by suppliers to oppose price increases.
The evidence from the authority was insufficient to justify its conclusion retailers would have difficulty resisting a post-merger price increase, he found. The totality of the evidence was more supportive of the proposition that the main retail chains can, and do, exercise significant buyer power by resorting to a variety of tactics.
The case arose from a share purchase agreement of March 12th, 2008, under which Rye agreed to buy the two Breeo companies from Reox.
Rye is a wholly-owned subsidiary of the Kerry Group, a leading producer of foods and food ingredients in the State with a market capitalisation of €3.5 billion, the judge noted. Reox Holdings is an Irish unlisted plc with 26 per cent of its shares held by Dairygold Co-operative Society Ltd and the rest by 7,500 shareholders who are mainly members of Dairygold.
The two Breeo companies, which previously comprised the consumer foods division of Dairygold, were transferred to Reox as part of the Dairygold restructuring. Both Breeo companies had a turnover of €200 million, with €166 million of that generated in the State. Because of the size and value of the operations, the proposed acquisition had to be notified to the Competition Authority.
