Breeo ruling gives serious food for thought
Unless Kerry successfully challenges the Competition Authority’s decision, then it loses its non-refundable €20 million deposit agreed when it entered negotiations to buy the company.
Both sides were confident the deal was a near certainty and it was expected the takeover would have been sanctioned after the authority had completed its review.
The authority said in its ruling that the deal would “substantially lessen” competition for rashers, cooked meats and processed cheese, segments of the market served by both companies.
Clearly the authority stuck firmly to its mandate of ensuring that commercial deals do not fundamentally undermine competition.
However, there is a bigger picture the ruling appears to have ignored. It was highlighted by Reox Holding’s boss Jerry Henchy, before Breeo became a target.
He concluded Breeo needed the backing of a big consumer group, strong enough to stand up to the big multiple retailers, if it was to become a real force in the retail sector on these islands.
It was his initial ambition to make Breeo a force in both markets, after he hived off the non-dairy business of Dairygold into Reox Holdings focusing on property, DIY and consumer foods.
But after a short time, he decided that Breeo, due to its lack of scale, could not withstand the pressure on margins it would face when trading with the big multiple stores active in the Irish and British markets.
In Ireland they account for well over 60% of the retail market, and with Lidl and Aldi becoming serious competitors here, the pressure on food suppliers to deliver low cost produce is increasing.
That analysis effectively put Breeo into play as a takeover target. And soon after that the group, in its own words, received “an unsolicited approach” from Ion Equity that led to the Kerry bid and looked to be the answer to Henchy’s prayers.
Last week’s decision has left Henchy and Breeo out on a limb with the group again insisting it is not for sale. Both parties said they were disappointed with the decision, because they saw the deal as in the best interests of Breeo because of the clout Kerry would bring to the table.
But in a market as wide open as ours, that question weighed less heavily on the authority than perhaps it should have. And if Henchy’s analysis still holds, then there is an argument which says the authority failed to see the bigger picture and Breeo is left with a mountain to climb.
Kerry must decide whether it will mount a challenge to the ruling. or cut its losses and wave its €20m deposit goodbye.
Last week’s shock decision looks like bad news for Heineken, whose purchase of Beamish & Crawford in Cork is being assessed by the authority, as part of the Scottish & Newcastle deal.
If it makes competition the key focus of its assessment, then it looks as if the Heineken bid could be blocked.
Heineken can only hope that it has produced enough positives to justify the takeover, when the target of the acquisition, B&C, is the only price maker in the market.
If there is a bigger picture to be taken into consideration, it is harder to see in this instance, and for that reason Heineken may be forced to sell off the Cork brewery.
Overall Heineken has to argue its entry to the Irish market, through the acquisition of Murphys Brewery in Cork has been good for Heineken and for the consumer.
If it can do that success-fully, then it may well be allowed to add the second Cork brewer to its Irish portfolio.
