The big egg merger between Deans Foods and Stonegate is to be probed by the Competition Commission.
The two companies, which were ranked first and second in the UK egg packer league table, announced in July that they were to merge into a new company called Noble Foods with a turnover of £445 million and controlling seven out of every ten eggs sold by retailers.
As revealed in the Ranger the Office of Fair Trading immediately launched an investigation into the deal. As a result is has became concerned enough about the impact on competition in the egg market to trigger a full CC inquiry.
John Fingleton, OFT Chief Executive said: "UK consumers spend over £500 million on over five billion eggs each year. Processors use a further 2.5 billion eggs. This merger has given Noble Foods around 60-70 per cent of supply to retailers and over half of the supply of liquid eggs to processors and the OFT is concerned about the reduction in competition as a result."
Officials revealed that Noble had offered "undertakings" in order to avoid a CC probe. "But the OFT did not regard these as being sufficiently clear cut to address the competition concerns raised by the merger," said Mr Fingleton.
The Competition Commission's role when asked to investigate mergers is to decide whether the new arrangement may be expected to result in a substantial lessening of competition (SLC).
To establish this it will appoint a group of four or five Commission members to carry out the investigation which is normally completed in six months but can be extended for a further two if necessary. The Commission has already announced that it expects to report on Noble Foods by February 27 next year.
The investigating group can invite evidence not just from the company but from a range of other parties including competitors, customers and suppliers. It is even possible that BFREPA could be called to give a view on the impact of the merger on producers. Some have already expressed concerns over the fact that it has led to greatly reduced options for marketing their eggs.
The Commission can issue notices requiring individuals to attend its hearings to give evidence or to produce documents or supply any information required. Hearings are normally held with one party at a time, in private. But it is possible to hold public sessions.
For the executives of Noble Foods, who are focused on creating efficiencies in the new company, the inquiry is sure to make heavy demands. In its guidance notes to merger investigations the CC itself admits "The provision of evidence can be very time consuming for the parties concerned".
If evidence of an SLC emerges then the Commission states that it is "unlikely" it would ever conclude that there was no case for remedial action.
Its "remedies" include:
Ordering the completed deal to be dismantled either completely or in part. The new company could be ordered to sell off part of its operations.
Demanding that the company takes action to increase the competition it faces by moves such as dismantling exclusive distribution arrangements or removing no-competition clauses in contracts.
Obliging the company to be more transparent about its prices or to refrain from certain types of behaviour.
A finding against Noble Foods could prove extraordinarily embarrassing and expensive. By next February Michael Kent, formerly head of Stonegate, will have been in charge at the new company for seven months. Important changes in personnel have taken place and the closure of three packing stations involving major redundancies have already been announced.
