On 20 January 2023, the UK Competition and Markets Authority (“CMA”) published its final report on the acquisition by Cerelia Group Holdings SAS (“Cerelia”) of the Jus-Rol business of General Mills, Inc (“Jus-Rol” and together “the Parties”) (the “Merger”). The Merger was completed without obtaining prior approval from the CMA.
The CMA found that the Merger would substantially lessen competition, and that the only effective remedy would be for Cerelia to sell all the assets of the Jus-Rol business to an independent buyer, even though the transaction had completed almost exactly a year earlier. Cerelia has stated that it intends to appeal the CMA’s decision.
Cerelia, a French-headquartered company which trades in the UK through its subsidiary “BakeAway”, agreed to purchase certain assets of the Jus-Rol business in November 2021.
Both Cerelia and Jus-Rol supply dough-to-bake (“DTB”) products – also known as “ready to bake” products – to grocery retailers.
DTB products are supplied via two “channels”: the branded channel (sold under the supplier’s brand) and the private-label channel (sold under the grocery retailer’s brand).
Cerelia is the largest supplier in the private-label channel to grocery retailers in the UK, whereas Jus-Rol is the largest branded-channel supplier. According to the CMA, Jus-Rol is the largest supplier of DTB products to grocery retailers in the UK, and Cerelia is “by far” the second-largest supplier.
The acquisition completed in January 2022, without receiving prior approval from the CMA.
In February 2022, the CMA imposed an initial enforcement order, preventing the Parties from taking further steps to integrate their businesses, or that might otherwise prejudice a CMA inquiry (for more on these orders, see a previous alert here). The CMA launched its Phase 1 merger inquiry in March 2022 and, on 15 June 2022, it referred the transaction for a Phase 2 (in-depth) review. On 4 November 2022, the CMA provisionally found that there were competition concerns and invited comment on them. The CMA published its final report on 20 January 2023.
The CMA found that the post-transaction entity would be the largest supplier of DTB products to UK grocery retailers by a “considerable margin”, with a “very high” combined share in the wholesale supply of DTB products to grocery retailers in the UK, resulting in a substantial lessening of competition (“SLC”).
The factors that the CMA took into account in reaching its decision underline the importance of market feedback, particularly from customers:
- High combined market shares, and limited competition from alternative suppliers:
- As a merger of the first and second largest suppliers of DTB products, the CMA considered that the Parties have a combined share of supply of 60–70% on “the wholesale supply of DTB products to grocery retailers in the UK”.
- Rival suppliers’ shares of supply were regarded as being “substantially lower” than either of the Parties’ existing shares, and competitive pressure from outside the defined market was considered to be limited due to retailers’ packaging and specification requirements.
- The CMA also concluded that it was unlikely that any rival supplier could enter the market and achieve the same product range as Jus-Rol in a timely manner, and that no other branded suppliers were planning to enter the market.
- Cross-channel competition: Based on evidence from grocery retailers, the CMA concluded that grocery retailers have limited shelf space for DTB products, and that the Parties compete for that limited space, even though they are competing through different channels. Grocery retailers also told the CMA that the availability of a branded supplier exerts competitive pressure on their private-label supplier and vice-versa.
- Buyer power: Evidence from grocery retailers was that they only have countervailing buyer power where there is an alternative supplier. In this case, the CMA concluded that grocery retailers would have only limited buyer power if Cerelia and Jus-Rol did not exist as alternatives.
CMA’s remedies and next steps
The CMA’s remedies
The CMA considered two remedies put forward by Cerelia:
- Distribution Remedy: Cerelia would engage an independent third party as an exclusive distributor of Jus-Rol products. Grocery retailers would negotiate with this distributor to purchase Jus-Rol products, thus maintaining competitive tension with Cerelia as a separate, independent supplier of DTB products.
- Production Line Remedy: Cerelia would divest one of its DTB production lines to an independent third party, providing an additional supplier of private-label DTB services.
However, the CMA ultimately concluded that an unwinding of the Merger (requiring Cerelia to divest the purchased assets) was the only effective remedy and that this was proportionate.
The CMA has 12 weeks to impose a final order to implement Cerelia’s divestment of the entire Jus-Rol business (or agree final undertakings), although it may extend this to 18 weeks. A public consultation will inform the CMA’s approach.
Cerelia has said it is “deeply disappointed” with the decision and intends to appeal. This would involve a challenge before the Competition Appeal Tribunal (the “CAT”). The CAT could dismiss the appeal, quash the CMA’s decision (or part of it) or require the CMA to make a new decision.
The UK has a voluntary notification merger control regime, meaning that the parties to a transaction have no obligation to notify the CMA and can complete the transaction without CMA approval. Despite the voluntary nature of the UK regime, the CMA may still decide – as it did in this case – to scrutinise a transaction (including a completed transaction) if it considers that there is a relevant merger situation and that the merger gives rise to a risk of an SLC.
This decision illustrates the risk of closing transactions without first notifying and receiving CMA clearance. Indeed, despite the voluntary nature of the UK regime, there will always be material risk in proceeding without notifying the CMA – particularly where the merging parties are competitors on UK markets, and/or where the transaction would result in the parties having a high combined market share.
This unwinding follows a series of CMA decisions requiring the unwinding of a merger/acquisition. The CMA’s ability – and willingness – to investigate, and ultimately unwind, an already completed merger highlights the need for merging parties to carefully consider merger control issues at the outset of a transaction. In particular, this should include an assessment of the risk of completing a merger without approval from the CMA, and how the parties can manage and allocate this risk.
More broadly, this case sits within the wider context of the ongoing cost-of-living crisis. Margot Daly, chair of the independent panel of experts conducting the Phase 2 investigation, stated: “As living costs continue to rise, it's our responsibility to make sure that competition can play its part in delivering the best possible deals for customers”. Parties may wish to consider the potential for wider scrutiny in consumer-facing sectors when deciding whether to seek merger control clearance in the UK.
Authored by Alex Nicol, Mez Azizi, Matt Giles, and Christopher Hutton.