Concerns that Premier Foods will be able to leverage its scale and command significantly better terms from customers following its £1.2bn acquisition of rival RHM are largely unjustified, according to the Office of Fair Trading (OFT).
The OFT, which has just published the rationale behind its decision not to refer the acquisition to the Competition Commission, said: “The OFT does not consider that the parties' negotiating position with respect to retailers will be significantly enhanced post-merger and therefore does not consider that any portfolio power concerns arise.”
Its report also revealed an admission from Premier that Oxo, which it acquired last year from Campbell Soup, was struggling to make inroads into the gravy category: “The parties [RHM and Premier] submitted that Oxo’s share of supply has been declining in recent years … They submitted that this is evidence of Oxo’s failure to compete effectively with Bisto.”
They added: “The parties stated that despite promotional efforts, the Oxo brand is so heavily identified with stock, with its thin consistency and strong flavour, that it does not meet consumers' expectations of gravy.”
The areas where there were the biggest overlaps between the portfolios of Premier and RHM were prepared gravies, jams and ambient wet cooking sauces, said the OFT.
However, in each case, the “number and strength of brands and own-label products on the market … are considered to provide a competitive constraint that is sufficient to offset any potential loss of competition which might arise from the merger”.
Concerns were raised by some third parties over the supply of ambient wet cooking sauces to the Indian and Oriental segments, where RHM and Premier both had a strong presence, said the OFT. “The parties will have three of the leading brands within these segments so customers have argued that there will be less competition on innovation in terms of new products and less choice for final consumers.”
However, given the number of significant competitors (such as Masterfoods and Patak’s) in these segments, plus the fact that own-label represented 20-30% of the Indian sauces market and 15-25% of the Oriental sauces market, the OFT felt that competition concerns were unjustified.
Its decision was published as shareholders at both companies approved the acquisition at extraordinary general meetings last week.
Assuming the deal is ratified by the courts in mid March, shares in the new Premier Foods should commence trading on March 16. The combined business will have sales topping £2.6bn, making it the largest food manufacturing company in the UK with a large stable of iconic brands, from Batchelor’s to Oxo, Quorn, Branston, Mr Kipling, Hovis and Ambrosia.
While some factory closures were possible, the biggest savings from the tie up would come from shutting the RHM head office in Marlow, Buckinghamshire, the rationalisation of administrative functions, improved buying (but not selling) terms and more efficient distribution, predicted analysts.
However, RHM has separately confirmed reports that it plans to stop manufacturing at its British Bakeries factory in Plymouth and convert the site to a depot, with the loss of up to 150 jobs.
Company bosses declined to comment on the performance of the site or where production would be transferred to, but said that trades union officials had been “informed of the proposals and British Bakeries will commence collective consultations with all potentially affected employees with immediate effect”