By Tim Cox, Partner
Two of Australia’s largest ‘chilled ready meals’ manufacturers recently attempted to merge without informing the ACCC – B&J City Kitchen (B&J) and Jewel Fine Foods (Jewel) (in Administration) – but the regulator caught wind of the deal and publicly announced their opposition.
In the opposition letter, the ACCC identified their opposition on the basis that ‘chilled ready meals’ are a market separate to even ‘frozen ready meals’ and other ready meal markets, and that the merger would reduce competition in the market.
This line of regulation by the regulator shows that ‘niche market’ competitors may attract the attention of the ACCC when those competitors propose to merge.
The opposition to the proposed merger of the ‘chilled ready meal’ market leaders highlights key factors which any business should take in to account when considering a merger or acquisition.
1. Involve the regulators early
In any proposed merger between a niche market dominator and a perceived competitor there is a likelihood that the ACCC will at some point become aware of the deal and intervene – possibly throwing negotiations, contracts and completion timelines up into the air.
The ACCC has the power to seek injunctions and freeze deals until their investigations are complete.
While it’s obvious that the ACCC must be notified when two market dominators and competitors intend to merge, it can be less obvious when there is a sub-market that the two businesses operate in.
In this instance, the B&J and Jewel may have assumed that there were plenty of competitors in the market of ‘ready made foods’ – they perhaps did not realise that their market was ‘chilled ready made foods’.
By involving the regulator early, you can save costs by maintaining an accurate completion timeline, and preserve any likelihood of receiving an early indication as to whether the deal will be approved at all.
2. Know what to look for
Section 50 of the Competition and Consumer Act 2010 (Cth) “prohibits an acquisition that would result in a substantial lessening of competition.”
Under this section, and depending on the type of business being acquired or merged, a Court will need to have regard to various factors which may lead to a lessening of competition if they are to prohibit an acquisition.
They are predominantly broad considerations, such as “the level of concentration in the market” and “the degree of countervailing power in the market”. It may be difficult to know how these might apply to an acquisition in practice. So, it is helpful to look to recent opposed mergers, such as the B&J and Jewel merger, for practical guidance.
3. Be aware of business-specific competition concerns
In opposing the proposed merger between B&J and Jewel, the ACCC outlined business-specific concerns in their market enquiry letter. Specifically, the concerns addressed whether the businesses operated as leaders in a market separate to other closely related markets. These were:
- the extent of competition between B&J and Jewel and the degree to which other companies compete with B&K [sic] and Jewel;
- the extent to which consumers consider chilled and frozen ready meals to be substitutable;
- the extent to which ready meals are substitutable with other prepared meals from grocery retailers (such as pizzas, quiches and soups) or with other options (such as ready meals offered online, takeaway meals, home delivered meals and meal kits) as Woolworths owns 23 per cent of B&J; and
- the extent to which the proposed acquisition may limit the supply of ready meals to other grocery retailers or other customers and therefore impact on competition in the supply of ready meals to consumers.
What this shows is that businesses should consider whether they may operate in a separate niche market to their broader competitors, and whether the business they are acquiring operates in that same market.
By asking similar specific questions and being aware of key regulatory considerations a business can maximise the prospect that an acquisition can proceed without costly intervention, which could lead to prevention, at the late stages of the deal.