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.
The appeal was the first to the court against a refusal of an acquisition or merger.
In a lengthy judgment today, 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 plc.
The proposed acqusition 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, and the intellectual property rights of its business and assets, including some 225 trade marks.
The trade marks 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 also erred materially in finding the merger would mean 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 compeling 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 Finance Ltd, a wholly owned subsidiary of Reox Holdings.
