Premier announced the sale of its canned grocery operations to Princes for £182m in early February, which includes iconic brands Crosse & Blackwell, Fray Bentos and Smedley’s as well as own-label products.
But the sale was referred to the OFT under article 4.4 of the EU merger Regulation, and the body revealed today that after an investigation, it believed the merger would involve “competition concerns” with UK canned pie supply. However, the OFT welcomed the firms' proposal to find a new buyer for the Fray Bentos brand to avert a reference to the Competition Commission (CC).
Extremely limited choices
Amelia Fletcher, OFT chief economist said: “The evidence in this case suggests that post-merger the parties would have a near monopoly in the provision of canned pies.
“We are concerned that consumers will be left with extremely limited choices in relation to this product, as well as unwelcome price rises.
“The parties have offered to divest the Fray Bentos brand along with manufacturing assets. The OFT generally requires remedies to be clear-cut and capable of being readily implementable. The proposed remedy appears to achieve both these aims.”
One food industry mergers and acquisitions (M&A) expert told FoodManufacture.co.uk that Premier and Princes may have considered that the OFT might present monopoly concerns, despite the fact that raising prices in sector would be counter-productive, but said the body assesses such issues on narrow legalistic grounds.
Another M&A source said: "I have to say I'm a little surprised that the CC is bothered by Fray Bentos. It's not a particularly high-profile brand and it's operating in a fairly mature area. I also don't think it's going to be an easy one to sell."
The remedy was intended to avert a referral to the CC, the OFT said, but it warned that given a “restricted number of purchasers able to acquire the divestment package”, any further deal would be subject to an ‘upfront buyer requirement’ with the OFT vetting proposed buyers.
An OFT spokesman said that this requirement applied when the body wanted to assess the suitability of any buyer, due to a restricted number of potential candidates, before considering the parties' undertakings. If a suitable buyer is not found, the OFT will refer the case to the CC.
Short sale timetable
In its 'Mergers: Jurisdictional and Procedural Guidance', the OFT states that when an upfront buyer is required, after the suspension of the duty to refer any case to the CC, the parties are given a "relatively short, individually determined period ... in which to identify the upfront buyer, obtain provisional confirmation from the OFT that the buyer is likely to be acceptable, and enter into the sale agreement".
"This time period is likely to be a matter of weeks, rather than months, but will depend on the circumstances," the OFT stipulates, with the parties agreeing a private timetable towards signing an agreement with a suitable purchaser.
The body then publicly consults on the buyer's identity and the terms of any undertaking: a lack of "material concerns" will lead to its formal approval.
Premier Foods said that it noted the OFT’s decision, and a Princes spokesman said: “We acknowledge the OFT announcement and will consider its implications. Our expectation is that the acquisition of the canning operations of Premier Foods will be completed by the end of July.”