The OFT has referred the acquisition by Kerry Foods Limited of the frozen ready meals business of Headland Food Limited to the CC under the Enterprise Act 2002.

The OFT found that before the merger in January 2011, Headland and Kerry were by far the two largest suppliers of frozen ready meals to UK retail customers such as supermarkets, a market valued at £435m in 2009.  In addition, there was insufficient evidence that sales of refrigerated ready meals act as a significant competitive constraint on sales of frozen ready meals.  The OFT further relied on the fact that customers of the merged parties expressed strong concerns about the merger to the OFT, including:

  • The significant price rise (of up to 30%) that followed the merger; and
  • The lack of alternative manufacturers capable of supplying large volumes and wide ranges of frozen ready meals.

The OFT stated that post-merger price rises could (in part) be explained by substantial increases in raw material costs, however it was decided that the balance of evidence supported the concerns expressed by customers. The OFT also rejected the contention that due to Headland's deteriorating financial performance in previous years, they would have inevitably exited the market in the near future had the acquisition not taken place. The merger was therefore assessed on the basis that, without an acquisition, competition would have continued at the same level.

It was therefore concluded by the OFT that the merger has resulted in a substantial lessening of competition within UK markets.  Amelia Fletcher, Chief Economist at the OFT, highlighted the post merger price rises and Kerry Food's large share in the frozen ready meals market as the bases for the decision. Accordingly, the merger has been referred to the CC for further investigation.

The Kerry Group replied stating they were "surprised" by the decision and refuted the OFT concerns over a lack of alternatives, due to the existence of other UK and European based manufacturers in the industry.

This is the seventh merger referred by the OFT to the CC so far in 2011. The CC now has 24 weeks to investigate the case with powers that stretch to reversing the merger, selling off specific assets and/or price controls. The CC is expected to report by late December 2011.

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