Whatever happened to the idea of competition?

THE Competition Authority is currently deliberating on two takeovers in the food and drinks sector.

Its first decision will be delivered at the end of this month and involves Kerry Group’s €165 million bid for Breeo, the consumer foods division of Dairygold spin-off Reox Holdings.

Breeo includes well-known brands like Galtee, Calvita and Shaws, and it is likely that the deal will go through, even if it diminishes competition.

Whatever way you look at it, taking a supplier out of the market reduces competition and is bad for the consumer.

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With Breeo going head-to-head with Kerry in the Irish market with some of its brands, it is hard to see how clearing the deal will benefit consumers.

On the other hand this was not a hostile bid and we have to live in the real world.

Reox boss Jerry Henchy decided to sell the business for strategic reasons, having realised that his ambition to create an international consumer group serving both Britain and Ireland was not on for a small player in markets dominated by big multiples where margins are getting increasingly tight.

Henchy decided to sell out following an initial approach from a private equity house.

Rumour had it Henchy was initially looking for €200m for the business, but the €165m relative to the size of the operation and the competitive nature of the markets, suggests Reox did well to get the price it did.

A decision on the takeover is due by the end of the month.

The Authority has cleared 15 of the 17 takeover proposals it has reviewed, so precedent suggests the deal will go through.

Consolidation is part of the modern commercial world, and Kerry is better placed to promote the Breeo range in Britain than Reox, due to its well-established distribution network. It also should help secure the future of the brands and protect jobs. Those considerations cannot be ignored in today’s tough trading environment.

The second review announced recently was into Heineken’s proposed takeover of Beamish & Crawford (B&C) following the buyout of Scottish & Newcastle.

Here the authority faces a much tougher decision.

If it clears the Cork brewer sale then the country is looking at a beer industry duopoly in this market.

When Heineken took over the other Cork brewery, Murphy’s, it took on the might of Guinness, — mainly with its lager — and ended the dominance of the group in Ireland.

It made little impact on the stout situation, which is still dominated by Guinness, although B&C has made some effort to take the fight to Guinness, with some success in recent years.

Heineken has presumably argued that two strong players will keep manners on each other with benefits for the consumer. But it cannot get away from the fact that if it is cleared to take over the B&C business that we are left with a near duopoly in terms of the beer market.

Against that over the past decade or more Beamish is the one player in this market that has been competitive on price whereas Heineken and Guinness, now part of Diageo, have been happy to pass on higher prices.

That point was well made in the analysis of the proposed deal made by the EU Commission.

However, if the odds historically favour Heineken, the markers laid down by the commission in their report suggest this is far from a done deal.

The report made clear that B&C was the one player trying to give the consumer a better deal.

Heineken will find it hard to argue that taking a third player out of this market will be good for competition and the consumer.

What ever happened to the idea of “vigorous competition?”