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NMa fails in the competition-law assessment of a takeover in the slaughtering sector

NMa fails in the competition-law assessment of a takeover in the slaughtering sector

The District Court of Rotterdam found in a recently published decision that the NMa had been too rash in deciding that the takeover of Alpuro Holding B.V. by Van Drie Holding B.V. did not present any competition concerns. The District Court of Rotterdam sent the NMa back to the proverbial drawing board by applying an administrative loop.

Van Drie Holding B.V. plans to acquire control of Alpuro Holding B.V. On 15 February 2010 Van Drie reported this intention to the Netherlands Competition Authority (NMa). Since the threshold values from Section 29 of the Competition Act were exceeded, Van Drie was required to report the intention to acquire Alpuro to the NMa so that the NMa could be given the opportunity to assess whether there were reasons for it to assume that the takeover would represent a significant restriction of competition. Only if such reasons exist will the NMa decide that a licence is required, after which the NMa can carry out more extensive investigation into the consequences for competition.

Van Drie and Alpuro are both veal producers and therefore active on (in summary) the market for the purchase of (slaughter) calves in the Netherlands and the market for the sale of veal in Europe. The NMa found that the market for the sale of veal is European in nature because:

– a large part of the veal from Van Drie and Alpuro is sold in Europe;
– 7% of the veal sold in the Netherlands is imported;
– both Dutch and foreign providers of veal are eligible for a quality mark;
– the origin of the veal is not important to the consumer;
– the transport costs for veal are low;
– retailers and wholesalers buy both domestic and foreign meat.

As a result of the takeover, just one purchaser of (slaughter) calves will remain in the Netherlands (Van Drie) and will have a market share (on the purchasing market) of virtually 100%, which creates purchasing power for it with respect to the sellers of slaughter calves (livestock farmers). After all, after the takeover, livestock farmers will only be able to sell their calves to Van Drie. The NMa came to the opinion that despite this, there were no competition concerns. The NMa decided specifically that the lower prices that Van Drie can demand at livestock farmers as a result of its purchasing power will be passed on to the consumer. The reason for this, the NMa claims, is Van Drie’s low market share on the European market for the sale of veal. On the European market for the sale of veal delineated by the NMa, Van Drie has a market share of just 17%. If Van Drie does not pass on these lower prices to its customers after the takeover, the NMa claims these customers will switch to the available foreign sellers of veal (being Van Drie’s competitors). Thus the NMa found in its decision of 4 May 2010 that the takeover gave no reason to suspect that it would present a significant restriction of competition.

Two special interest groups for livestock farmers (who supply calves to Van Drie and Alpuro) disagree with the NMa’s decision and have lodged an appeal with the District Court of Rotterdam. There the special interest groups have argued as follows, in summary:

1. the fact that purchasing power is created by the concentration should have been enough reason for the NMa to withhold its green light for the takeover since the competitive structure (on any market whatsoever) must be the priority;

2. it is unlikely that the advantages for Van Drie on the purchasing market will be passed on to consumers. The NMa did not sufficiently investigate the relationship between purchasing prices and sales prices. The NMa also wrongly delineated the relevant market for the sale of veal. It is not European, but in fact national in character. Contrary to what the NMa states, Van Drie’s customers do not have any foreign alternatives at hand.

Firstly the District Court of Rotterdam came to the conclusion that the NMa rightly found that the creation of purchasing power as the result of the takeover does not present objections as long as this purchasing power is not at the consumer’s expense. According to the District Court of Rotterdam, this finding is in line with the policy adopted by the NMa (following on from the European Commission) in its Vision document on Purchasing power. In addition to this, this approach is in line with the legislative history of the Competition Act, which states that in assessing a takeover, the NMa must not only take into account the competitive structure, but also the options open to customers and their access to (alternative) sources of supply.

The NMa has stumbled on the second hurdle however. According to the District Court of Rotterdam, it did not provide sufficient substantiation for its assertion that the advantages arising from the purchasing power would be passed on to the customers who buy veal. The NMa’s decision did not adequately demonstrate that the sales market for veal is European in character. In other words, it is not at all clear that customers who buy veal would be able to switch to foreign suppliers if Van Drie does not pass on the purchasing advantage after the takeover. The District Court of Rotterdam arrived at this opinion on the basis of investigation by the German competition authority (the Bundeskartellamt) in the same case. This investigation indicated specifically that there are so-called deficit markets in many European countries, which means that the national production of veal fails to meet the national demand. If deficit markets were to exist in the neighbouring countries, there is an indication that they will not be willing or able to export to the Netherlands if Van Drie does not pass on the advantages it enjoys on the purchasing market to Dutch consumers. This reportedly means that the sales market (too) should be delineated as a national one, and not a European one (which means that Van Drie would also secure a dominant position on the market for the sale of veal as a result of the takeover).

Since the NMa did not carry out any investigation in its decision into the existence of possible deficit markets in surrounding countries, the NMa’s decision does not provide adequate substantiation. The District Court of Rotterdam gave the NMa the opportunity to remedy this defect by means of an administrative loop. The question is whether the NMa will take this opportunity. It does not seem possible to remedy the lack of substantiation without further investigation. It can be concluded from the Bundeskartellamt’s decision that there may be competition concerns. Investigation into these concerns is part of the second phase. The NMa will therefore probably inform the District Court that it will not make use of the second chance it has been given. In that case the District Court will annul the NMa’s decision. The NMa will then have to take a new decision and at that point find that further investigation into the consequences for actual competition is required. This means that a licence will be required for the takeover. To be continued therefore!

Sjaak van der Heul

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