FDBusiness.com

The European Commission has cleared the proposed acquisition of Brakes, the largest UK food distributor, by Sysco, the largest US food distributor. The Commission found that the takeover would not adversely affect competition in Europe.

Both companies are full range distributors, delivering a broad variety of chilled, frozen and ambient food across all product categories and across all sectors of the foodservice industry. They focus their activities on “delivered wholesale” distribution which means that they purchase food from manufacturers, stock it in warehouses and sell it on to the foodservice customers.

Sysco’s activities in the European Economic Area (EEA) are carried out mainly through its subsidiary Pallas, which is active in the island of Ireland (Republic of Ireland and Northern Ireland). Brakes’ business is mainly focused in the United Kingdom (where it is the largest foodservice distributor), France and Sweden, but it also sells in the Republic of Ireland. The companies’ activities mainly overlap in the island of Ireland.

The Commission examined the effects of the merger on competition in the areas of “delivered wholesale” distribution by full range suppliers to national and independent customers in the island of Ireland. National customers are customers with numerous foodservice outlets spread around the island of Ireland whereas independent customers have a more limited number of foodservice outlets.

The Commission’s investigation showed that several full range distributors able to supply national and independent customers on the island of Ireland will remain active in the market after the takeover. These include BWG, Henderson, Lynas and Musgrave. Moreover, it is not difficult for competitors to expand to other geographic areas by opening new warehouses at relatively low cost. The Commission’s investigation also found that specialist distributors (focussing on particular food categories such as meat or dairy) can exert a competitive constraint on full range distributors in their areas of specialty.

Data submitted by the companies also showed that Sysco and Brakes are not particularly close competitors in terms of bidding for public and private contracts. National customers, who tend to award contracts through a bidding process (contracts have an average duration of three years) are able to switch once a new tender is launched. Independent customers, who tend to place ad hoc orders, confirmed that it was relatively easy to switch to other distributors.

Finally, the Commission investigated complaints raised during the course of the market investigation that the merged entity could shut out competitors by forcing certain specialist food manufacturers to enter into exclusive arrangements. The Commission concluded that these concerns were unlikely to materialise, because the proposed acquisition will not increase Sysco’s spending power on food purchasing to the extent that it would change Sysco’s ability or incentives to shut out other players.

The transaction was notified to the Commission on 29 April 2016.