In context

How the cookie crumbled: court upholds blocked bakery merger

April 9, 2014
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In context

The District Court of Rotterdam recently upheld the decision by the Dutch Authority for Consumers & Markets to prohibit the transaction between two rival baking companies due to a high combined market share on the Dutch rusk market. The Court agreed with the Authority that, contrary to earlier Commission decisions, the upstream rusk market included both branded and private label products. This means that parties shouldn’t count on the Authority to take earlier precedents to heart when defining relevant markets. The court also considered that the Authority was right to reject the remedy offered by the parties without prior market testing.

The Authority for Consumers & Markets (ACM) was concerned that the acquisition of Dutch baking company A.A. Ter Beek by rival baking company Continental Bakeries would result in a very strong player in the production and sales of rusks, with a combined market share of 70-80%. The ACM defined the relevant product market as consisting of rusks only, excluding other bread substitutes such as crackers and biscuits. It considered this market to include branded as well as private label rusks due to:

  • the substitution between private label and branded rusks downstream
  • the fact that producers of private label rusks and/or branded rusks and retailers in their upstream negotiations take into account the downstream competition between private label and branded rusks.

 

On appeal, the parties claimed that private label rusks and branded rusks constituted separate markets. But the Court found that it had no reason to doubt the ACM’s market delimitation, as outlined above. The parties had not substantiated their claim with a private investigation. Additionally, the Commission decisions they had mentioned as precedents were too specious to apply to this case.

 

The Court also felt that the ACM had rightly rejected the parties’ remedy to sell a rusk product line to a new competitor without conducting further market tests. The Court, like the ACM, found that the remedy did not provide the requisite degree of certainty that it would resolve the antitrust issues raised. The purchaser of the production line would need to have the incentive and ability to maintain the production and sale of rusks on the market. According to the Court, it was insufficiently certain that either purchaser proposed by the parties would indeed make the necessary investments and, even if they did, would remain active on the market. Since the investments could be recouped within a year and market exit costs are low, there was no guarantee that the purchaser would remain active on the market on a long-term basis. As to the required market testing, the Court deemed this necessary only in regard to the proposed remedies which the ACM considers adequate. It was therefore neither useful nor necessary to market test the proposed remedy.

 

The parties can still appeal the Court’s ruling before the Trade and Industry Appeals Tribunal.

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