The figures, based on Vion, 2 Sisters and third party estimates, were released in a recently published OFT report on its investigation into whether or not the agreement created unfair market competition.
A further revelation included the fact that a Sainsbury contract lost by Vion in March 2012, which made it vulnerable to takeover, was worth an estimated 30-40% of its business, meaning this development alone swung Vion in favour of a UK exit. The new contract was split between Moy Park and 2 Sisters, with a 12-month phase-in period.
The OFT calculated that Vion’s and 2 Sister’s combined share of chicken supply to other UK firms for further processing was 20-30%.
A big source of concern about the deal, which was disclosed in March 2013, was the parties’ combined value share of UK primary fresh chicken, according to the OFT.
“The OFT found that the merger will lead to the parties’ combined share of supply of primary fresh chicken being in excess of 40-50%,” its report states, based on Kantar retail data as at May 1, 2013.
‘A number of concerns’
“The OFT further received a number of concerns from third parties in relation to this area. As a consequence, the OFT considered whether the merger may give rise to unilateral effects in the supply of fresh primary UK-reared chicken to UK retailers.”
The main concerns raised by third parties were:
- that the merger was a “three to two” of major suppliers of fresh chickens in the UK (the other being Moy Park);
- other firms, such as Sun Valley and Faccenda, were not effective competitors to the merged parties;
- the acquisition had already lead to a removal of competitive quotes made by Vion in contract/tender processes.
However, the OFT sided with opposing third party evidence, which held that sufficient third party suppliers would remain post-merger to provide effective competition.
UK retailers tended to practise spreading supply over a variety of suppliers rather than focusing on one or two anyway, the OFT stated.
Five competitors
Vion’s own Information Memorandum identified 2 Sisters as one of five competitors, the others being Moy Park, Sun Valley, Faccenda and Banham, said the OFT.
“Of these 2 Sisters Food Group and Moy Park are the largest in sales in the primary retail segment. Sun Valley and Faccenda are about a third of the size of these two large players with Banham 10 times smaller.”
Analysis of contract wins from January 2012 to March 2013 also indicated Vion was not 2 Sisters’ most successful competitor. Moy Park won 40-50% of contracts in this period, Banham and Faccenda 10-20% each and Sun Valley and Vion 0-10% each.
Based on submissions, the OFT also claimed entry and expansion in the poultry market was easy. “For new entry, the parties estimated it could require a capital outlay of around £25M-£35M and take 12-18 months to complete including three to six months to secure planning permission.”
Accounting for all the evidence, the OFT ultimately concluded 2 Sister’s acquisition of most of Vion’s poultry and red meat processing facilities represented no threat to market competitiveness.