OFT probes Deans-Stonegate merger
www.theranger.co.uk
The Office of Fair Trading has launched an investigation into the merger of Deans Foods and Stonegate, the two biggest names in British egg marketing.
The new giant created by the merger, Noble Foods Ltd, has a turnover of £445 million and controls 46 per cent of the egg supply in the UK. In terms of retail sales Noble Foods now has a 72 per cent share of the market.
A spokesman for the OFT told the Ranger: "We are looking into this merger. Initially we shall be approaching people in the industry to examine how the market works and how this development might influence that. We will also be looking at how consumers may be affected."
Comments on the merger have been invited and anyone wishing to make representations had until July 19 to react.
Officials are expected to take up to four months to complete their work. If the OFT then concludes that the merger could have a detrimental impact on the egg market or on consumer interests it will trigger a full investigation by the Competition Commission.
The CC has powers to demand detailed information from the merged companies and to take evidence from competitors, customers and suppliers.
As already reported by the Ranger the new company will be owned jointly by Peter Dean, formerly head of Deans, who will be chairman of Noble Foods, and Michael Kent, formerly in charge at Stonegate, who will become the new chief executive.
The two men have already explained that the merger offers an opportunity for increased efficiencies particularly in collecting, packing and distribution of eggs.
This, they argue, will bring benefits to both egg producers and consumers.
"If the UK industry is to continue to provide consumers with the type of eggs they want at an affordable price it must be organised to optimise the supply chain process," they said in a joint statement.
Mr Kent has also acknowledged that producer returns have fallen to a point where there is little new investment in the sector.
"We have to get money back to producers and to do it quickly," he said. "That money will come from operating efficiencies."
But Noble Foods will have massive dominance of the egg industry. In terms of share of production it handles 10 times more than its nearest competitor. In fact second place in this table is shared by three firms who each hold 5 per cent. They are Fridays, the family owned business based in Kent, Oakland Farm, based in Shropshire, and the Scottish based Glenrath Farms, currently at the centre of a controversy over its plans to develop the biggest free range farm in the world.
According to market analysts Mintel the dominance of the new giant will be even more extreme in the retail sector. While Noble will command 72 per cent, second place goes to Glenrath with just 7 per cent. Fridays and Oakland each hold 6 per cent and the remainder is split between a number of smaller operators.
Critical to how the egg market develops from now is the attitude of the big supermarkets and if they decide that their interests are best served by dealing with one major player or whether they seek to 'equalise' their supplier base.
Some producers are already said to have been approached by smaller packers who are anticipating that the supermarkets will want to offer them the opportunity to increase sales.
