This text is made available for information purposes only.
A summary of this decision is published in all Community languages in the Official Journal of the
European Union.
Case No
COMP/M.4980 - ABF/
GBI BUSINESS
Only the English text is authentic.
REGULATION (EC) No 139/2004
MERGER PROCEDURE
Article 8 (2)
Date: 23/09/2008
COMMISSION OF THE EUROPEAN COMMUNITIES
Brussels, 23/09/2008
C(2008) 5273
COMMISSION DECISION
of 23/09/2008
declaring a concentration to be compatible with the common market
and the EEA Agreement
(Case No COMP/M.4980 - ABF/ GBI BUSINESS)
PUBLIC VERSION
Commission Decision
of 23/09/2008
declaring a concentration to be compatible with the common market
and the EEA Agreement
(Case No COMP/M.4980 ABF / GBI BUSINESS)
(Only the English text is authentic)
(Text with EEA relevance)
THE COMMISSION OF THE EUROPEAN COMMUNITIES,
Having regard to the Treaty establishing the European Community,
Having regard to the Agreement on the European Economic Area, and in particular Article 57
thereof,
Having regard to Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of
concentrations between undertakings1, and in particular Article 8(2) thereof,
Having regard to the Commission's decision of 16 April 2008 to initiate proceedings in this
case,
Having regard to the opinion of the Advisory Committee on Concentrations2,
Having regard to the final report of the Hearing Officer in this case3,
WHEREAS:
1 INTRODUCTION
(1) On 22 February 2008, the Commission received a notification pursuant to Article 4 of
Council Regulation (EC) No 139/2004 ("Merger Regulation") concerning the
proposed acquisition of several subsidiaries engaged in the yeast business and owned
by GBI Holding B.V. ("GBI Holding") as well as a group of assets owned by GBI
Ingredients The Netherlands B.V. ("GBI Ingredients") and DSM Bakery Ingredients
BV ("DSM Bakery", the target assets together referred to as "the GBI Business"4), by
1 OJ L 24, 29.1.2004, p. 1
2 OJ C ...,...200. , p....
3 OJ C ...,...200. , p....
4 For The purpose of this decision, "GBI" will be used as synonym for the GBI Business, unless otherwise
indicated.
2
Associated British Foods plc ("ABF" or "the notifying party") (ABF and GBI
Business are hereinafter together referred to as "the parties").
(2) The Commission's competence in this case is based on the referral request of 7
November 2007 by the Spanish Competition Authority under Article 22(1) of the
Merger Regulation, which was joined on 28 and 29 November 2007 by the Portuguese
and French Competition Authorities, respectively. The Commission accepted the
requests by decision pursuant to Article 22 (3) of the Merger Regulation of 13
December 2007. Subsequently, ABF notified the operation to the Commission on 22
February 2008.
(3) During the initial proceedings ("Phase 1"), the notifying party offered initial
commitments with a view to rendering the concentration compatible with the common
market. Following several weaknesses highlighted in the market test conducted by the
Commission, it concluded that the concentration raised serious doubts as to its
compatibility with the common market and the EEA Agreement. Proceedings in
accordance with Article 6(1)(c) of the Merger Regulation were therefore initiated on
16 April 2008. The parties replied to the 6(1)(c) decision on 5 May 2008. On 10 July
2008, the Commission sent an Article 11 (3) decision to ABF and subsequently
suspended the time limits effective 26 June 2008. The suspension ended on 16 July
2008.
(4) During the in-depth investigation ("Phase II"), the notifying party offered revised
commitments, which removed any serious doubts as to the compatibility of the
notified operation with the common market. The concentration is therefore to be
declared compatible with the common market and the EEA Agreement pursuant to
Articles 8(2) and 10(2) of the Merger Regulation and Article 57 of the EEA
Agreement.
2 THE PARTIES
(5) ABF is an international food, ingredients and retail group with activities in Europe,
North America, Australia and New Zealand. ABF's activities include the production
and sale of yeast and are managed through the AB Mauri division, which has
production plants worldwide. At the time of notification, ABF had five plants in the
EU (UK, Ireland, Germany, Spain and Portugal). ABF's German yeast production
facility based in Nuremberg was sold on 31 March 2008 pursuant to the terms of the
clearance decision issued by the German competition Authority
("Bundeskartellamt")5, ABF also owns two bakery ingredients plants in the UK
(Cereform Ltd).
(6) The GBI Business' core activity is the production and sale of different types of yeast,
including fresh yeast (in liquid and compressed forms) and dry yeast for artisan,
industrial and home bakers.6 The GBI Business does not have any production plants in
5 See recital (13).
6 GBI Holding. divested all of its bakery ingredients business to Werhahn Muehlen KG on 1 August 2006
except for some activities through Uniferm and has since then only been active in the production and
supply of bakery yeast.
3
Spain, Portugal or France, and the total amount of yeast it commercializes in that
region comes from the GBI Business' Italian plant (Casteggio) or from a plant in
Germany operated by the JV Uniferm GmbH & Co KG ("Uniferm"), in which it holds
a 50% stake. The GBI Business is being sold by the Dutch private equity house Gilde
Buy-Out Partners ("Gilde") who ultimately controls it.
3 THE CONCENTRATION
(7) According to the Share and Purchase Agreement ("SPA") signed by ABF and Gilde
on 2 October 2007, the notified operation consists of the proposed acquisition by ABF
of GBI Holding's yeast operations in Belgium, The Netherlands, France, Spain,
Portugal, Germany and Italy, as well as a 50% share in Uniferm and 10% of the
capital of Somadir SA (Morocco). ABF will also acquire some assets from GBI
Ingredients and from DSM Bakery, including employees, customer contracts and
intellectual property rights in the Netherlands, as well as part of GBI Holding's export
business operated by the Bakery Export Group.
(8) As a result of the agreement, ABF will acquire sole control over the GBI Business7
and it therefore constitutes a concentration within the meaning of Article 3 of the
Merger Regulation.
(9) The acquisition of control by ABF over these assets constitutes a single
concentration. First, there is a single SPA agreement signed on 2 October 2007 in
which, after a single negotiation process, the seller agreed to sell the entire GBI
Business (consisting of a number of assets) to one purchaser, with one set of general
conditions and clauses and, notably, with one clear business rationale to transfer the
whole of the GBI Business to the purchaser ABF.
(10) This rationale is inter alia based in the strong economic link between the different
assets of the acquired business: for example, all of the GBI Business' yeast sales in
Spain stem from its plant in Italy. Furthermore, Uniferm supplies fixed amounts of
yeast to the GBI Business in France.
(11) The agreement itself comprises a number of elements which, taken together,
demonstrate that the various parts of the GBI Business are economically linked. The
SPA shows that the key assets (notably the German and Italian production facilities
and intellectual properties) to be acquired are interlinked with the acquisition of the
other assets (sales and distribution).8*
(12) These contractual elements underpin the business rationale of the deal, which is to
acquire the GBI Business, as specified in the single SPA, as a whole.
7 The remainder of GBI Holding's European yeast business, essentially its UK activities, has been acquired
by Lesaffre. That transaction was examined by the Commission following a referral from the British
Office of Fair Trading (OFT), cf. case COMP/M.5020 – Lesaffre/GBI UK, Commission decision of 11
July 2008, not yet published.
8 […]*.
* Parts of this text have been edited to ensure that confidential information is not disclosed; those parts
are enclosed in square brackets and marked with an asterisk
4
(13) The transaction has been implemented prior to referral in all Member States except
for Portugal, Spain and Germany, where it had to be notified to the Competition
Authorities. On 29 November 2007, the Bundeskartellamt cleared ABF's acquisitions
of the yeast operations of the GBI Business in Germany (a 50% stake in the German
company Uniferm conditional on the sale of ABF's existing German yeast operations
("the Nuremberg Business") to the Swiss company Indawisa (this divestiture was
offered by the parties as an up-front remedy). The two-staged9 implementation of the
concentration does not alter the unitary economic rationale of the deal. These different
implementing steps concern only the the closing of the transaction and not the
acquisition of the assets and were imposed by the different regulatory regimes
applying to the assets.
4 COMMISSION'S JURISDICTION
(14) The concentration does not have a Community dimension within the meaning of
Article 1 of the Merger Regulation, according to the information provided by the
competent authorities and ABF. However, on 13 December 2007, the Commission
decided, pursuant to Article 22(3) and (4) of the Merger Regulation, to examine the
concentration following the requests of the competition authorities of Spain, France and
Portugal, on behalf of these Member States10. The competent authorities of the Member
States and the undertakings concerned were subsequently informed of these decisions.
The Commission's jurisdiction has therefore been established by means of these Article
22 decisions.
5 RELEVANT MARKETS
5.1 RELEVANT PRODUCT MARKETS
(15) Yeast is an essential ingredient in the production of bread and other bakery products,
pizza, dough bases, beer, wine and other foodstuffs. It is a living micro-organism
belonging to the fungi family and in the baling process it acts as a raising agent, it
improves aroma and flavour and it also improves the elasticity of dough. The current
transaction only concerns yeast for the bakery sector11.
9 In the first step, ABF implemented the concentration in Member States where no national notifications
were required, and in the second step in those Member States where the concentration had to be notified.
10 Pursuant to paragraph 50 of the Commission Notice on Case Referral in respect of concentrations, O.J.
2005, C 56/02, of 5th
March 2005, where the Commission pursuant to Article 22 examines a concentration
on behalf of one or more Member States, the Commission is required to examine the impact of the
concentration within the territory of those Member States (in this case Portugal, Spain and France). The
Commission has not examined the effects of the concentration in the territory of the Member States which
have not joined the request.
11 For the purposes of this Decision, 'yeast' always means bakery yeast unless otherwise indicated.
5
(16) Yeast production consists of reproduction of yeast by cell duplication (from original
“mother yeast”) in sugar molasses.12 At the beginning, a strain of yeast is developed in
a laboratory. Different yeast strains may have different characteristics and therefore a
specific strain must be chosen according to the applications required in the end
product. A fermentor is filled with molasses and water, inoculated with a specific
strain of yeast and grown into a basic yeast product. Fermentation is an energy
consuming process in which the actual yeast is produced by duplication of the yeast
cells. After fermentation, yeast cells are separated from the fermentation liquid and
concentrated to the basic liquid yeast product. The fermentor is then cleaned and
sterilised. Each time the fermentor has been cleaned a completely new production
process can start. This allows many different batches to be made at the same facility,
each forming a different specification. The number of different kinds of yeast a
supplier will consider producing at a factory differs between suppliers.
(17) This basic product, essentially corresponding to liquid yeast, is cooled and stored
and can be put in containers or trucks as an end product, which is typically suited for
larger industrial customers. However, liquid yeast can also be fed into the next step of
the production process- filtration. After filtration and dehydration, the excess water is
removed from the yeast cream and the yeast is extruded and compressed to a further
end product, compressed yeast. Compressed yeast can either be cut to form blocks of
yeast (a standard yeast block weighs 0.5 kg and is usually packaged in paper), or
alternatively, pressed through a grid with small holes to form granular yeast, which is
packaged in larger bags. The end product is immediately transferred to refrigerated
storage to be later transported in refrigerated vehicles to refrigerated storage facilities
close to clients. Liquid yeast and compressed yeast are together referred to in the
industry as fresh yeast (or wet yeast). In order to obtain yeast with a much longer shelf
life, compressed yeast can also be further processed by being dried in large dryers to
obtain a high dry matter percentage.13 This creates so called dry yeast.
12 Molasses are the key feedstock used for the yeast reproduction process. Molasses is a liquid by-product of
sugar production (be it cane or beet) containing sugar (over 45% generally) vitamins, nutrients and
minerals.
13 On average, depending on the dry matter percentage, the production of 1 kg of dry yeast requires about
3.5 to 4 kg of compressed yeast equivalents (which is also referred to as fresh yeast equivalent). In turn, in
order to obtain 1 kg of compressed yeast, one has to use on average 1.5 liquid yeast. These conversion
ratios correspond to the dry matter percentage of the products.
6
Figure 1: Yeast production process
(18) The three basic yeast products are described as follows:
(19) Liquid yeast is a form of fresh yeast and is essentially the raw product from the
manufacturing process. It generally has yeast solids of approximately 20% - 25%. It
has a shelf life of around three weeks if refrigerated.
(20) Liquid yeast is mainly supplied to industrial bakers. They produce bakery products
and other products where yeast is needed in large industrial production sites and have
the equipment to use liquid yeast. Liquid yeast is typically distributed directly from
the manufacturing facility to the site of the customers by refrigerated trucks.
(21) However, in some instances, liquid yeast is also distributed in smaller containers
such as 1.5 litre Tetrapaks which do not require the customer to use such equipment.
This is used by artisan bakers. However, this is a niche product and the sales of this
liquid yeast sold in small containers are marginal.
(22) Compressed yeast usually has a dry matter content of approximately 30%-35%. It is
produced by filtering the liquid yeast and extruded into blocks, wrapped in wax paper
and refrigerated until distribution. These blocks are distributed in cartons by
refrigerated trucks. Customers need a cool room in which the compressed yeast is
stored. Compressed yeast has a shelf life of maximum 45 days.
(23) Compressed yeast in block form is typically used by small and medium sized artisan
bakeries. The most standard packaging of compressed yeast 0.5 kg blocks packaged
by 20. However, compressed yeast is also supplied in granulated form and used by
larger semi-industrial or industrial bakers..
Molasses
Yeast
Growth
Separation
Filtration /
Extrusion
Drying
Liquid yeast
Dry yeast
Fresh yeast
Compressed yeast
7
(24) Dry yeast is characterised by a dry matter percentage above 95%. It is produced by
drying the compressed yeast and has a shelf life of approximately 2 years. Producers
in less developed countries are more likely to use dry yeast given the need of
refrigerated transport and storage as well as less developed distribution system
required for fresh yeast, and, correspondingly, only relatively little dry yeast is sold
within the Community.
5.1.1 Demand Side Substitutability
(25) The notifying party takes the view that customers do not regard fresh yeast and dry
yeast as substitutable and that within fresh yeast, there is likely to be limited scope for
demand substitution between compressed yeast and liquid yeast.14
(26) Indeed, from a demand-side perspective, fresh and dry yeast cannot be regarded as
substitutable, due to their different features, dosing mode and shelf life which is
translated into the habits of European bakers (both industrial bakers and artisan
bakers) who typically do not use dry yeast for their baking process, but rather rely on
fresh yeast. The amount of dry yeast sold in the Community is limited.15 Some
quantities of dry yeast (in small sachets) are also sold in Europe in supermarkets for
household use. Competitors also point out that there is very limited customer
switching from fresh to dry yeast in Europe.16
(27) As regards liquid and compressed yeast, they are substitutable in their general
function, as is the case with dry yeast, but there are considerable differences between
the use of two yeast product types which mean that the mutual substitutability of
compressed and liquid yeast by customers is very limited.
(28) First, liquid yeast is supplied primarily in bulk quantities, designed for the use of
industrial bakers which have the equipment necessary to process and store it. For the
industrial baking process, which is to a large degree automated, liquid yeast offers a
functional superiority compared to compressed yeast as it achieves a more consistent
result and can be used to achieve a greater degree of automation in the baking process
than compressed yeast, namely as the product is not packaged.17
In order for industrial
customers to start using bulk liquid yeast, adjustments in the production process and
special equipment are necessary. Such an installation system comprises storage tanks,
refrigerated units, piping and related equipment. Installing this equipment requires
considerable financial investments for clients (approximately EUR 300 000 to EUR
350 000) 18
and can take up to a year to plan and install the handling equipment. It is
apparent that the advantages of using liquid yeast are only accessible to bakers of a
14 Form CO, paragraph 166.
15 Form CO, paragraph 166.
16 See, for example, response of Lesaffre of 7 April 2008 on Commission questionnaire of 29 February
2008, question 8. Response of Lallemand of 11 March 2008 on the same questionnaire, question 13.
Lallemand observes that except in Nordic countries, switches to dry yeast have not occurred in Europe.
17 See response of Lesaffre of 7 April 2008 on Commission questionnaire of 29 February 2008, question 8.
18 Liquid yeast producers also offer customers the option of leasing the necessary equipment, in return for
exclusivity for the duration of the leasing contract.
8
certain scale (and level of industrialisation), which would justify the investment into
the handling equipment. Switching from compressed to bulk liquid yeast is only
possible for bakers of a certain size. The economic limitations involved in such a
switch thus excludes a considerable part of the demand represented by artisan bakers,
the proportion of which is particularly high in the Member States concerned by the
investigation.
(29) Second, substitutability is considerably limited with regard to the larger industrial
clients who could possibly switch to bulk liquid yeast and enjoy the benefits. It has
been observed that larger industrial customers do indeed switch from compressed to
liquid yeast and this is also confirmed by competitors.19 It appears that, rather than a
mere reaction to price developments, such switching is a strategic choice for the
customer, as it involves considerable costs, requires advanced planning time and is
thus not immediate and involves a technical choice to be made on how the production
process is arranged. This also implies that once this strategic choice has been made, it
is unlikely that the customer would switch back to compressed yeast. This is
consistently put forward by market participants, including the notifying party.20
(30) Smaller industrial customers and artisan bakeries (supplied via distributors) typically
use compressed yeast. These customers would not be able to switch to bulk liquid
yeast as they do not have the scale to purchase the necessary equipment or the large
sourcing needs which would justify the use of bulk liquid yeast. In addition to liquid
yeast supplied in bulk quantities, GBI and Companie des Levures Lesaffre
("Lesaffre") introduced liquid yeast in small containers (GBI in 1.5 litre Tetrapaks and
Lesaffre in 20 litre containers called 'Kastalia') on the market some years ago,
targeted at small and medium sized customers. However, this is considered a niche
product and still does not represent considerable volumes. For example, GBI data on
Fermipan liquid Tetrapak confirms minute volumes sold and, regarding the Spanish
market, decreasing trend of sales. Market participants questioned during the
investigation pointed out that the commercial potential of these niche products is quite
limited and it is not expected to develop into large volumes or significantly affect the
sales volumes of compressed yeast.21 The quality of the Tetrapak product of GBI was
also questioned.22
(31) In reply to the market investigation, the large majority of distributors (who are
serving smaller industrial customers and the artisan bakers) confirmed that their
clients would not switch between different forms of yeast in case of a permanent
price increase of 5% to 10%.23
19 Over the last five years, it has been observed in Spain that in the consumption path of industrial
customers, the amount of liquid yeast purchased has increased and the amount of compressed yeast has
decreased, suggesting some degree of substitution. In France and Portugal, an increase in liquid yeast
purchased has been observed but not followed by a reduction in the consumption of compressed yeast.
20 Form CO, para 167.
21 See, for example, minutes of conference calls with Lallemand of 19 May 2008.
22 Due to the oxygen emerging from the liquid product, causing deformation to the Tetrapak, which can also
lead to "explosion".
23 Commission questionnaire of 28 February 2008 to distributors, question 12.
9
5.1.2 Supply Side Substitutability
(32) The notifying party argues that there is a large degree of supply-side substitutability
between the different forms of yeast and that it is easy for a supplier to switch
production from one type to another.
(33) Whilst it is true that there is degree of supply-side substitutability as the production
process of the yeast forms is interlinked, switching production processes also has
certain constraints. It was pointed out in the market investigation that if the particular
production facility already has all the necessary equipment installed for a particular
type of yeast, it would be relatively easy to switch production types. However, if the
plant is currently optimised for producing a certain output in terms of compressed, dry
and liquid yeast, it would become necessary to invest in particular equipment to allow
for an increased production of a particular type of yeast.
(34) Switching to the production of dry yeast involves considerable investment in the
necessary drying equipment (a drier can cost up to EUR 6 million) , which imposes a
constraint on the producer. In fact, not all production plants and not all suppliers
(especially the smaller ones) are producing dry yeast.
(35) Also, a change from liquid yeast to compressed yeast would require special filtration
machines, packaging equipment and cold storage facilities. This presupposes enough
space to install these facilities, which is not always available at all production sites.
This investment is estimated to take about 6 to12 months, which demonstrates that the
switch would not be immediate and would involve significant costs.
(36) The limitations involved with switching are clearly demonstrated by the answers of
smaller producers – Gebrueder Asmussen GmBH + Co. KG ("Asmussen"), a small
German producer, for example, only considers switching from liquid yeast to
compressed yeast easy (not the other way around), probably because of technical
bottlenecks and optimisation. Similarly, Zeus I.B.A. SPA ("Zeus"), a small Italian
producer, explains it would not be switching to dry yeast since its production plant
does not have any drying equipment installed.
(37) Furthermore, it appears that a mere 5% to10 % increase in price of a particular
product is not enough to make the sales of a particular yeast type attractive enough to
justify diverting the production of other types of yeast. In particular, if a producer is
supplying large industrial clients with liquid yeast, it would not want to lose those
clients just because the price level of compressed yeast increases. As one competitor
explains, it plans its plant utilisation well in advance in response to the anticipated
demand of particular yeast types and gives the example of increasing liquid yeast
production at the expense of compressed yeast only once the liquid yeast volumes
were secured through an agreement with customers. The security of continuing liquid
yeast sales is often enhanced by leasing contracts for liquid handling equipment
offered by the suppliers. Diverting supplies of liquid yeast from industrial customers
to compressed yeast largely sold by distributors to the artisan segment and where no
sales are guaranteed may therefore involve a commercial risk that the producer is
reluctant to take.
(38) Another consideration to take into account regarding the supply-side substitutability
between compressed and liquid yeast is the difference between the shipping distances
of the two products. Even if switching at the production level is possible at some cost,
10
producers supplying compressed yeast in a region at a greater distance would find it
very difficult, if not impossible to supply liquid yeast in that region. This is evidenced
by GBI who supplies compressed yeast into Spain and Portugal from Casteggio in
Italy, but is unable to supply bulk liquid (only small volumes of small Tetrapak
containers) into these markets. GBI lost all of its bulk liquid customers in Spain and
Portugal when it moved its yeast production from Portugal to Italy around 2001. The
shelf life and perishability of liquid and compressed yeast are different., Accordingly,
shipping distance is of key importance, as long-distance refrigerated transport may
also influence the quality of the yeast, which is particularly relevant for liquid yeast in
bulk quantities. Transport costs are much higher for liquid yeast (transporting water),
thus it is not economically viable to transport it from further away. Industrial
customers primarily seek stability of quality and of supplies and delivery times, so
there is a higher risk from further distances which they are generally not willing to
take.
(39) However, this does not mean that the possibility of switching capacities used for the
production of different forms of yeast is not to be taken into account in the
competitive assessment. The constraints of switching from different forms of yeast,
mainly from dry yeast to compressed yeast, is analysed in the relevant section of the
competitive assessment.
5.1.3 Conclusion on the relevant product markets
(40) Even if a degree of supply-side substitutability between different forms of yeast is
observed, it is considered, on balance, that the very limited demand-side
substitutability justifies separate product markets for dry, compressed and liquid yeast.
(41) Liquid yeast in small format (such as the 1.5 litre Tetrapack containers) constitutes
no alternative for industrial clients who source bulk liquid yeast. Moreover, this small
format can be shipped over wider distances. Therefore, it is appropriate to exclude
liquid yeast supplied in smaller containers from the market for bulk liquid yeast
(hereinafter in this decision, liquid yeast will be used as a synonym for bulk liquid
yeast). On the other hand, these products seem to compete, to some extent, with
compressed yeast. The issue as to whether liquid yeast sold in small containers
should be included within the compressed yeast product market may nonetheless be
left open. These products were developed for artisan bakers, are sold through
distributors, and therefore may be said to be substitutable for compressed yeast.
However, the minute quantity sold in Portugal, Spain and France, together with the
market investigation showing that these sales are not expected to grow by any
substantial amount, means that the competitive assessment will not differ should the
compressed yeast market include liquid yeast in small containers. Therefore, it can be
left open in this case whether compressed yeast and liquid yeast in small containers
belong to the same product markets, as the competitive assessment would not
change.24
24 Only GBI and, to a lesser extent, Lesaffre are supplying these products in the markets analysed, and the
changes in market shares would not be significant (not more than 1% on any possible market). Moreover,
GBI's and Lesaffre's share would increase if liquid yeast supplied in smaller containers was calculated
together with compressed yeast, which would raise concerns in the competitive assessment.
11
(42) It is thus concluded that liquid yeast (comprising bulk liquid yeast, but not liquid yeast
supplied in smaller containers), compressed yeast and dry yeast constitute three
separate relevant product markets for the purpose of this decision.
5.2 RELEVANT GEOGRAPHIC MARKETS
5.2.1 Compressed yeast
(43) The in-depth investigation which was carried out in this case provided several
elements supporting the conclusion that the markets for compressed yeast are national
in scope for the territories of France, Portugal, and Spain.
(44) According to the Commission's notice on the definition of the relevant market for the
purposes of Community competition law, “the relevant market comprises the area in
which the undertakings concerned are involved in the supply and demand of products
and services, in which the conditions of competition are sufficiently homogeneous,
and which can be distinguished from neighbouring areas because the conditions of
competition are appreciably different in those areas”.25 Indeed, the conditions for
competition differ significantly in France, Spain and Portugal.
5.2.1.1 Market shares and positions of suppliers vary considerably
(45) The market structure in France, Spain and Portugal varies considerably. With regard
to suppliers, it is observed that their market share varies widely from Member State to
Member State, which to a large extent reflects their historic presence and tradition on
the markets.
(46) Lesaffre is the clear market leader in its home-market of France ([60-70]% market
share for compressed yeast), with over 100 years history and three production plants.
Lesaffre is also very strong in Spain ([40-50] %) where it also has a production plant,
while in neighbouring Portugal Lesaffre has only [20-30]% market share and is
considered a relative newcomer, only entering the market in the nineties.
(47) GBI is the market leader in Portugal ([40-50] %) where it has a very strong foothold
and traditional position with 80 years history. GBI used to operate a production plant
in Portugal until 2001-2002 when production was re-located to northern Italy as part
of a consolidation process. In neighbouring Spain, GBI has only a [10-20]% market
share and only a [10-20]% share of the market in France (in France it is still
perceived as a ‘French’ player due to its historic presence and a former plant in
France).
(48) ABF is stronger in Spain and Portugal where it has its production plants ([20-30] %
market share in Portugal and [30-40] % market share in Spain) and much less strong
in France ([10-20] % market share) where it is considered a foreign producer.
25 OJ C 372, 9.12.1997, para. 8
12
(49) The presence of fringe players is also different: Puratos Group ("Puratos"), a Belgian
producer of yeast, is the largest fringe player in France with a [0-5]% market share,
while it is virtually inexistent in Spain and Portugal with regard to compressed yeast.26
(50) The large differences in market shares of the main suppliers reflect their different
positioning and different market leadership roles in a given Member State. The
respective market structures and positions naturally affect their behaviour on the
market and have an effect on the competitive interaction of the players.27
5.2.1.2 The structure of demand and distribution systems are considerably different on a
national basis
(51) The structure of demand is very different in France, Portugal, and Spain. First, there
is a striking difference between the proportion of the two customer groups – artisan
bakers (which are served by distributors) and direct customers ( mostly large
industrial bakeries, or in-store bakeries of supermarkets). In Portugal, the distribution
segment typically serving artisan bakers represents about [90-100] % of the
compressed demand, while direct clients represent only [0-5] % of that demand.
Portugal is a country of artisan bakers and industrial bakers have not developed. In
Spain, direct/industrial customers constitute [20-30] % of the compressed yeast
demand and in France, up to [50-60] of that demand..
(52) Such large differences in the composition of the market with regard to the two market
segments necessarily influence the conditions in which the players compete in a given
market.
(53) Second, the distribution system which serves mostly the artisan sector is completely
different in France from that of Spain and Portugal, while Spain and Portugal also
have specific features as regards distribution.
(54) As referred by the notifying party and confirmed by the market investigation, most
French distributors are attached to one of the three or four large
distribution/purchasing groups (groupement d'achat) which together cover a large
majority of the distribution for compressed yeast in France. These groups have
typically nationwide coverage and join independent distributors of yeast and a large
number of other products for bakers. The purchasing groups are internally divided
into exclusive local regions for each member. The group negotiates the supply
conditions (mainly discounts) on behalf of their members with the producers, who are
then referenced by the group (each group references two or sometimes three
suppliers). The distributors – who are members of the group - would then typically
source their yeast supplies from the producers which are referenced by their group, as
they benefit from discounts and other benefits negotiated at the group level.
(55) No such structures exist in Portugal and Spain where the market investigation has
clearly demonstrated that the distribution system operates in a completely different
26 The sales of other smaller players who are based in different areas (such as Zeus (Italy), Asmusen
(Germany), Lallemand (based in Germany and Austria), Pakmaya (Turkey)) represent only marginal
market shares in each of the three Member States.
27 The different competitive interaction is also evidenced by the different price evolutions in a given Member
State (see below, paragraph 5.2.1.5).
13
manner. Distributors in these two countries have either an exclusive relationship with
one supplier only or, in the absence of written contracts, they operate typically on a de
facto exclusive basis, meaning that apart from very small exceptions, one distributor
works only with one yeast producer. There is no nation-wide distribution group and
distributors are typically regional with a strong local focus.
(56) There are also differences between the distribution systems in Portugal and Spain.
(57) Indeed, at least with regard to the distributors of ABF and GBI, distributors in
Portugal have fixed margins and do not determine the final price for artisan bakers
themselves, which puts them in a position similar to that of mere agents and logistic
operators of their supplier, with no influence on the final price. This is different to the
situation in Spain, where distributors are free to determine the final price to end
consumers of yeast.
5.2.1.3 Importance of local presence in terms of sales force and local distribution network
(58) The market investigation has also shown that a local sales force is very important for
suppliers to support sales of yeast.
(59) In order to maintain a meaningful presence in a country, suppliers have to rely on a
dedicated sales force that keeps in touch with distributors and industrial customers. It
is not uncommon that dedicated sales personnel also visit artisan bakers. Sales people
do promotions and demonstrations of new products and in general establish and
maintain good relationships with distributors and clients who are considered very
important in the baker's business.
(60) Market participants explain how important it is for them to have a national dedicated
sales force to support yeast sales in a given country.
(61) For example, the Belgian producer Puratos who is present in the French market
considers that "it is vital in the yeast business to have a good local sales and
distribution network, at least in the French market, where there is a high proportion of
artisan bakers. Puratos (via Patisfrance) has own sales people visiting the artisan
bakers and ‘pushing’ for their brands."28
(62) Lallemand Inc ("Lallemand") similarly explains that "Local sales force is key in the
yeast business, the sales people of Lallemand also visit the artisan bakers and establish
relationships, this is very important."29
(63) In the same vain, the Swiss competitor Indawisa, who now runs the former ABF yeast
business in Germany, reports "having a local sales force in a given country is of key
importance. There is little chance a supplier would expand without sales people.
28 Minutes of conference call with Puratos, of 20 May 2008.
29 Minutes of telephone conference with Lallemand of 19 May 2008.
14
Indawisa even has sales force in the Netherlands, even if the volumes sold there are
relatively minor."30
(64) In Spain, Portugal and France, all players who have a significant presence on the
market (ABF, GBI, Lesaffre, and to a much less significant degree Puratos in France)
do have local sales forces on which they rely in their contact with the market. It is
observed that on the contrary fringe players in those countries (like Lallemand, Zeus,
Asmussesn) do not have any sales people on the ground and merely rely on rather
anecdotal sales to some individual distributors.
(65) Sales forces develop relationships with key industrial customers for which reliability
of supply and quality is essential and where quick reactions in case of any disruptions
is sought as a guarantee. .
(66) Local presence with sales people is also particularly important in countries where a
large proportion of sales is to the artisan segment and where suppliers must have a
steady contact with their distributors. It was reported that it is very difficult to enter a
foreign market without having contacts there, in particular as regards the development
of a distribution chain.31 In particular, traditional relationships of suppliers with
distributors are of key importance in the business in Spain and Portugal.
(67) Relationships with distributors in Spain and Portugal have been described by the local
GBI manager as "'intense relationship where loyalty is needed to be assured.32 This is
largely driven by the formal or de facto exclusive relationships with distributors which
are the norm in Spain and Portugal and where tradition plays a significant role. In
Spain, for example, the parties mostly do not have a written contract with their
distributors and a lot is built upon trust. In Portugal, sales employees of GBI and ABF
even negotiate discounts to individual artisan customers of the distributors, as the
latter are not entitled to set the final prices to their customers but rather act as the
'arms' of their suppliers.
(68) The distributors in Spain and in Portugal are indeed generally very loyal to their
supplier. The absence of a local presence, loyalty of distributors and the regional
focus of distributors makes it difficult for newcomers to establish a distribution
network of reasonable scale to supply the national territories from a distance.
5.2.1.4 Brands vary from Member State to Member State
(69) Local brand notoriety in a particular Member State is also important with artisan
bakers. Yeast is an essential product for the baking process of bakers and as such
quality and reliability play a big role. Brand in association with the image of the
producer gives an assurance on quality of the product. In the industrial segment,
brands are not important.
30 Minutes of telephone call with Indawisa of 16 May 2008
31 Minutes of conference call with Uniferm, Call on 19 May 2008.
32 Minutes of conference Call with GBI Spain and GBI Portugal of 22 May 2008.
15
(70) As one competitor observes (here specifically with regard to the French market where
he is active), "Artisan bakeries (…) care very much about brands and, even though
yeast is a commodity, they are willing to pay a premium for a known brand." Strong
local players use the quality image of their established brands to charge higher
prices.33
(71) It is observed that within the three countries examined, the brands of the main
suppliers vary a lot – some local traditional brands which are very popular in one
Member State are hardly known in another, indicating that the local notoriety of
particular brands is quite different and that brand portfolios of the producers are far
from homogenous across the region.
(72) For example, the leading brands of GBI in Portugal are Activa and Jacto, making up
[…]*of GBI's sales in that Member State, whereas they are not sold at all in Spain or
in France. Lesaffre's brand […]* has important sales in Spain whereas it is not sold in
France or Portugal and […]*, which is another important Lesaffre brand in Spain,
only has minor sales in France or Portugal. ABF makes most of its sales in France
with the brands Universal and Europa, whereas they are not sold in Spain or Portugal.
Even though some brands are to be found across Member States, like […]*brand, the
position of this brand is very different in France where it is the clear best-seller to its
position in Portugal for example, where its sales are much lower compared […]*.
5.2.1.5 Price levels and dynamics of price movements is different in France, Portugal, and
Spain
(73) Price levels also differ in France, Portugal and Spain. There is a clear gap between the
average price for compressed yeast in Portugal (where average prices are highest),
Spain and France (where average prices are lowest), which may, to a large extent,
reflect the different demand structure in each market.
(74) The notifying party submits that ABF's average price for compressed yeast sold in
France is EUR […]* per tonne, EUR […]* per tonne in Spain and EUR […]* per
tonne in Portugal. Based on these figures, the average selling price of ABF's
compressed yeast was […]*in Spain compared to France, whereas ABF's average
price in Portugal was […]*than in Spain and […]* than in France. The average price
of compressed yeast sold by GBI follows a similar pattern with a significant gap
between Spain, Portugal and France – EUR […]* per tonne in France, EUR […]* per
tonne in Spain and EUR[…]* per tonne in Portugal.34
(75) What is even more telling about the differences in competitive interaction in each
Member State is the dynamic evolution of price levels. Based on monthly transaction
data submitted by main suppliers in relation to their sales of compressed yeast in
France, Spain and Portugal, the average price movements were reconstructed in the
33 Minutes of conference call with Puratos, Call on 20 May 2008.
34 Annex 7.4 to Form CO, 2006 average prices for compressed yeast.
16
respective countries. They are shown in the graphics in Figure 2, Figure 3 and Figure
4.35
Figure 2 Average price for compressed yeast in Spain
35 In the Figures 2, 3 and 4, the actual figures were removed due to confidentiality reasons, but the scale on
all three figures is the same.
17
Figure 3 Average price for compressed yeast in Portugal
Figure 4 Average price for compressed yeast in France
18
(76) From the price movements as shown above, a striking difference is observed between
the dynamics of prices in Portugal in comparison with neighbouring Spain in
particular. Whereas the average prices in Portugal were in decline between 2003 and
mid-2005 and then rose sharply again at the end of 2005 and the beginning of 2006,
the evolution of prices in Spain shows a constant increasing trend since 2002. The
large price level drop which occurred in Portugal does not seem to have had any
influence on the Spanish prices. This indicates that the dynamics of the market are
indeed different in these two Member States and that the competitive interplay
between producers and demand is to a large degree independent.
(77) Moreover, correlations of average price movements reconstructed on regional levels
show that within all regions of Spain prices moved in a very homogenous manner,
whereas the correlation is not as strong when compared to regions in Portugal and
France. For example, the graph in Figure 5 depicts the price correlations with the base
region of Madrid, the intensity of the colour indicates the strength of the correlation.
The graph shows that prices across all regions of Spain are very much correlated with
the price in the region of Madrid and to a lower extent with the region outside Spain.
Figure 5 Price correlation between regions with Madrid as base region.
5.2.1.6 Supply-side considerations
(78) The notifying party puts forward the fact that compressed yeast is shipped from
production facilities over national borders, explaining that shelf life and transport
costs are not an obstacle to supply, even across long distances. Essentially, the fact
that compressed yeast travels is demonstrated by the supply patterns of the main
players. The notifying party also points at supplies to Spain, Portugal and France from
19
smaller producers located further away, arguing that it is profitable to supply over
large distance and that this would even be so in case of price rises36
(79) Compressed yeast is indeed transported over national borders and producers do not
necessarily have a production plant in the particular Member State where they are
present. This is best demonstrated by GBI, which supplies the Spanish, Portuguese
and a part of the French territory from its large plant in Casteggio (Italy). Some of
GBI's French customers are also served from Monheim (Germany) from the
production of Uniferm JV. ABF has a plant in Setúbal (Portugal) which supplies
Portuguese customers […]*. ABF's second plant in Córdoba (Spain) almost entirely
supplies the Spanish market […]*. Lesaffre's production facility in Valladolid (Spain)
produces mainly for […]*Fringe players indeed transport their yeast from their home
base, for example Italy or Germany.
(80) Among the three Member States analyzed, the investigation revealed particular links
between the Spanish and Portuguese territories from a supply side perspective. First,
the geographic proximity and location of the Spanish and Portugese markets does play
a role both in the context of shipping radius of (potential) yeast supplies produced in
other regions of Europe and also as regards the proximity of supplies within the
Iberian Peninsula. The latter is best demonstrated by Lesaffre, which has a production
plant in Valladolid (Spain), which is located very close to the Portuguese border and
thus very well suited to serve Portuguese customers as well. Second, the relatively
minor size of the Portuguese market compared to Spain and its geographic isolation
make Portugal, from a supply perspective, to a certain degree linked to the
neighbouring Spanish market which is more than three times bigger in size. This,
perhaps coupled with a relative cultural proximity, is likely the reason why two major
suppliers in the region – GBI and Lesaffre – both have a central regional head office
making business decisions for both Portugal and Spain.
(81) However, taking a balanced approach and considering the very strong national
characteristics of the markets as described in the sub-sections above, the markets for
compressed yeast are considered national in scope, despite the links between Spain
and Portugal on the supply side, and the fact that the products are not necessarily
produced locally but often shipped cross-border. Naturally, the competitive
constraints imposed by producers located within a reasonable supply distance from
Spain, Portugal and France have been fully analysed within the relevant sections of
the competitive assessment of this Decision.
5.2.1.7 The notifying party's view on geographic market for compressed yeast
(82) In the Form CO, the notifying party takes the view that the market for compressed
yeast is most likely wider than national and increasingly European in its geographic
scope, essentially relying on supply-side considerations.
(83) It is, however, interesting to note that in an earlier submission to the Commission
made in relation to a referral request pursuant to Article 22 of the Merger
36 Form CO, paras. 208-246, containing the notifying party's views on the relevant geographic market.
20
Regulation37, the notifying party puts forward arguments speaking strongly in favour
of national markets. In particular, in the context of inter-state trade, ABF states that
"while ABF acknowledges […] that on the supply side of the yeast market there are
competitive constraints from imports into each territory, on the demand side, for the
reasons described in the [national] notifications, the patterns of demand are
manifestly national, with different distribution structures, different distributors and
pattern of retail demand and different wholesale and retail pricing"38 The notifying
party states in its submission that "It is clear from the national notifications that there
are distinct national features of the geographic markets concerned"39. ABF also
acknowledges that "on the supply side, the structure of the national territories differs
significantly between Member States" pointing at significant differences in market
shares40. ABF also points out at further differences in the demand characteristics: "the
bread markets in Spain and Portugal are characterised by a much large number of
craft/artisanal bakers who are supplied by distributors, although the distribution
structures between those two territories are materially different. ".41 ABF further
argues that a further difference is evidenced by the fact that consumption of liquid
yeast in Spain represents a far greater share of the total yeast consumption than it does
in Portugal, which corresponds to the greater proportion of artisanal bakery in
Portugal, this giving rise to different features of distribution in the two territories. "In
Portugal, where there are many small 'drop' sizes, distribution networks are key and
ABF has accordingly entered into exclusive distribution agreements. In contrast, in
Spain, ABF tends not to have any formal agreements with distributors; any exclusivity
is de facto, rather than contractual and is decided by distributors, not ABF. "42
Further, ABF argues that "another factor strongly indicating the national focus of the
Transaction is the significant price differences for yeast between each Member
States"43. ABF concludes that "In light of the particular supply and demand
characteristics explained above, and the significant differences in yeast prices
37 Submission of ABF of 20 November 2007 "Briefing Note to the European Commission concerning a
request by the Spanish CNC pursuant to Article 22 of the EC Merger Regulation"
38 page 5, para 4.3 of the submission of ABF of 20 November 2007 "Briefing Note to the European
Commission concerning a request by the Spanish CNC pursuant to Article 22 of the EC Merger
Regulation"
39 Page 6, para 5.1 of the submission of ABF of 20 November 2007 "Briefing Note to the European
Commission concerning a request by the Spanish CNC pursuant to Article 22 of the EC Merger
Regulation"
40 Pages 6-7, para 5.4 and 5.5 of the submission of ABF of 20 November 2007 "Briefing Note to the
European Commission concerning a request by the Spanish CNC pursuant to Article 22 of the EC Merger
Regulation"
41 Page 8, para 5.7 of the submission of ABF of 20 November 2007 "Briefing Note to the European
Commission concerning a request by the Spanish CNC pursuant to Article 22 of the EC Merger
Regulation"
42 Page 8, para 5.7 of the submission of ABF of 20 November 2007 "Briefing Note to the European
Commission concerning a request by the Spanish CNC pursuant to Article 22 of the EC Merger
Regulation"
43 Page 9, para 5.10 of the submission of ABF of 20 November 2007 "Briefing Note to the European
Commission concerning a request by the Spanish CNC pursuant to Article 22 of the EC Merger
Regulation"
21
between Member States, the focus of any competition assessment will be in the
national markets…"44.
5.2.1.8 Conclusion on geographic market for compressed yeast
(84) In light of the above, it is considered that the geographic market for compressed yeast
is national in the territories of Spain, Portugal and France.
5.2.2 Liquid yeast
(85) The notifying party submits that the relevant geographic market for liquid yeast might
be rather limited and could be national. It provides examples of cases where liquid
yeast has been supplied across borders, for example from GBI's plant in Italy into
Spain and Portugal, but admits that these (marginal) cases were supplies of liquid
yeast in 1.5 litre Tetrapak cartons and not bulk supplies of liquid yeast to industrial
clients, which account for the overwhelming majority of supplies of liquid yeast.
(86) Shipping distances depend on several factors such as demand and preferences of an
individual customer or a group of customers in a specific region (such as frequencies
of deliveries and reliability), as well as the size of the production facility which
determines the level of efficiencies of scale and margins. These factors determine the
maximal technically feasible and economical shipping radius which is necessarily
plant-specific.
(87) The shipping data on a plant-by-plant basis submitted by the parties indicates that this
type of yeast is almost exclusively supplied to customers in the country where the
plant is located, with some exceptions of supplies, consistent over time, by GBI from
Germany and Italy into France. Competitors explained that they would always first
seek opportunities relatively close to their production sites, since they would face the
challenge of ensuring sustainable quality of this sensitive product at higher transport
costs than competitors whose plants might be closer to a given customer.
(88) In the market investigation, customers and competitors indicate that due to the limited
shelf life of liquid yeast (approximately 3 to4 weeks) and the costs related to the
transport of bulk liquid yeast in refrigerated container trucks, this type of yeast is
usually only supplied over maximum distances of 300 km to 600 km. It is only under
certain, very specific circumstances that suppliers could find it commercially
attractive to supply this type of yeast over further distances.45
44 Page 10, para 5.12 of the submission of ABF of 20 November 2007 "Briefing Note to the European
Commission concerning a request by the Spanish CNC pursuant to Article 22 of the EC Merger
Regulation"
45 There are indications that it could be up to 800 km to1000 km, but this would only be feasible for the
suppliers, on the one hand, if they had a sufficient client base that source regularly and in high quantities,
since it would only make sense for them if they could send at least one container truck per week with a
volume of 12 to 20 tonnes to a customer located further away. On the other hand, another pre-condition
for such quantities of long distance supply is the scale and production capacity of a given plant.
22
(89) Both the shipping patterns of the parties themselves, as well as the results of the
market investigation, therefore, point towards a national market scope for bulk liquid
yeast. However, for the purpose of the present decision it not necessary to determine
the exact scope of the geographic market for liquid yeast.
5.2.3 Dry Yeast
(90) The notifying party submits that the geographic market for dry yeast is global, as a
result of important and significant cross-border trade flows within the Community as
well as between the Community and third countries in the Middle East, Asia and
Africa. It submits that dry yeast has a very long shelf life (approximately 2 years),
which allows for cheap transport in very large units over wide distances. For example,
[…]*.
(91) The market investigation has broadly confirmed that the relevant geographic market
for dry yeast is at least EEA-wide, if not worldwide. However, for the purpose of the
present decision the exact market definition can be left open.
6 COMPETITIVE ASSESSMENT
(92) There exist a number of structural similarities between the markets for liquid,
compressed and dry yeast. However, the evidence uncovered by the market
investigation indicates that the merger raises competition concerns only in the
compressed market. With respect to the liquid and dry yeast markets, in spite of
indications of limited competitive interaction, it can be expected that the merger will
have no significant impact.
6.1 YEAST PRODUCERS ACTIVE IN THE AFFECTED MARKETS
6.1.1 The main players
(93) ABF is a worldwide bakers yeast producer with a strong presence in all continents.
Within the Community, ABF has yeast production facilities in a number of Member
States, namely the United Kingdom (Hull), Ireland (Dublin), Spain (Córdoba) and
Portugal (Setúbal). It has been present in the Spanish and Portuguese markets for
several decades, whilst it entered the French market more recently (in the early
nineties). ABF is not vertically integrated into distribution to artisan bakers and
therefore does not own in-house distributors. In terms of distribution, ABF relies on a
network of formally independent distribution agents linked through long-term
relationships. It has subsidiary offices in Portugal, Spain and France.
(94) GBI currently operates plants in Casteggio (Italy), and in Germany through the
Uniferm joint venture. It has traditionally been present in Portugal (for more than 80
years)46 and entered the Spanish market only in 1992. Like ABF, GBI is not vertically
integrated into distribution. It has subsidiary offices in Portugal, Spain and France.
46 See agreed non-confidential minutes of conference call on 22 May 2008 with the General Manager of
GBI Portugal and GBI Spain.
23
(95) Lesaffre focuses its core business on the production of bakers yeast, with a strong
presence in all continents. In Western Europe, it has one plant in Spain (Valladolid)
and others in France, Belgium and Italy. As in the cases of ABF and GBI, Lesaffre is
active in the dry, liquid and compressed yeast sectors, with local offices in Portugal,
Spain and France and is not vertically integrated into the distribution of yeast to
artisan bakers. Lesaffre's market conduct and actions are followed systematically by
its rivals. This is demonstrated by a number of internal documents accessed during the
investigation, such as […]*47.
6.1.2 Fringe players
(96) There are also some smaller players with marginal presence in Portugal, Spain and
France:
(97) Lallemand is originally a Canadian company, also active in the US, that began its
activities in Europe in 1993 with the acquisition of a plant in Estonia. In the last few
years, it has adopted a strategy of acquiring smaller yeast production plants (the
largest one having currently 10kt to 20kt following a recent capacity expansion)48
from smaller independent producers in Northern, Central and Eastern Europe. It has
no plants in Southern or Western Europe and currently, it supplies very small
quantities of compressed yeast into Portugal ([…]t in 2007), Spain ([…]t) and France
([…]t) - these quantities are minimal and account for market shares of a maximum of
[0-5%] in the relevant markets. Lallemand's closest production plants are in Germany
and Austria. Lallemand has no sales force or distribution structure in France, Spain or
Portugal.
(98) Puratos is a Belgian company whose main focus of business is on bakery ingredients
and chocolate. Puratos has only one production plant of a relatively small size in
Belgium (17kt)49 where it produces yeast, but has explained that it currently gives
priority to its in-house consumption and only sells the rest to the merchant market to
complement its range of bakery ingredients. Puratos sells liquid yeast in Belgium and
small amounts of compressed yeast in France (with a share of [0- 5%]) and Belgium.
In any event, it has had no sales of compressed yeast in Portugal and Spain in the last
three years, with very minimal volumes of dry yeast sold in Spain. It has no sales
presence or structure for the sale of compressed yeast in Portugal or Spain.
(99) Zeus (formerly know as Grechi (Italy)) is a traditional family business with most of its
activity based in its local Italian market. It has only one plant based in Florence,
which according to ABF's estimates (discussed in more detail below) would amount to
20kt, selling only marginal quantities of compressed yeast in France and Spain
([…].k) to a small number of customers, but nothing of any significance into Portugal.
It has no sales force or any type of formal structure in France, Spain or Portugal.
(100) Asmussen (Germany) only has a small plant (7kt) with limited available capacity
(only 1kt) in the north of Germany. It has only very minimal sales of compressed
47 […]*.
48 See further Annex 18 to the Capacity to Supply memorandum sent by ABF on 9th
June 2008.
49 See Table 2.
24
yeast in Spain […]k which would amount to a negligible share on that market of [0-
5]%. It is not present in Portugal and France. Its main business focus is the supply of
liquid yeast to bakeries in the north of Germany.
6.1.3 Alleged Potential Entrants
(101) ABF argues that a number of players can be regarded as potential entrants in Spain
and Portugal. ABF mentions that it "perceives" the presence, in particular of Pakmaya
and Somadir in Spain.50 However from the data retrieved from ABF itself, Pakmaya,
Somadir or Akmaya only have very minor supplies of compressed yeast as well as few
quantities of dry yeast in France, Spain and Portugal. The market investigation has
confirmed that none of these players currently supply liquid or compressed yeast into
Spain, Portugal or France and with respect to dry yeast, the existing negligible sales
can be considered sporadic.
(102) Nonetheless, ABF has argued that Pakmaya, Somadir, Akmaya, and also Indawisa
would be either potential entrants or could expand their presence in the French,
Spanish or Portugese national markets in response to an increase in price.
(103) With regard to Pakmaya, they distribute only compressed yeast in Spain through the
distributor Lozano according to ABF. It has three relatively large manufacturing sites
in Turkey, approximately 4000 km from Spain, which the notifying party estimates
has significant spare capacities.51 It is significant that none of the […]*internal
documents regarding the yeast business in Europe monitor Pakmaya as a competitor
of compressed yeast in Europe.5253 Other producers have referred to the fact that when
Pakmaya tried to enter certain markets within the Community, the company was faced
with lower prices in its home Turkish market as a reaction of the European
incumbents that also have local plants in Turkey, and has since reduced its
competitive efforts in Europe.54
(104) Somadir is a Morrocan producer of yeast with two plants in Morrocco producing 20k
and 50k55, respectively – Gilde, the owner of GBI, has a 10% stake in Somadir,
which is also the object of the projected concentration operation by ABF. Although
the notifying party alleges that Somadir distributes in "small quantities" in Portugal,
none of the distributors that participated in the investigation undertaken by the
Commission referred to Somadir as even a possible supplier of yeast in Portugal. The
investigation revealed that distribution of yeast by Somadir in Spain is in minute
quantities and was a spot acquisition by a distributor that does not intend to purchase
50 Paragraph 2.32 of the document "Observations of ABF in response to the Commission's Article 6(1)(c)
Decision of 16 April 2008 in Case M. 4980 ABF/GBI Assets", dated 5th
May 2008.
51 See further Annex 18 to the Capacity to Supply memorandum sent by ABF on 9th
June 2008.
52 […]*.
53 […]*.
54 See for example: agreed minutes of a conference call with Lallemand dated 14.02.2008.
55 Information provided by ABF
25
more due to quality issues.56 No internal documents […]*mention Somadir with
respect to their European yeast businesses'.
(105) Akmaya is a Turkish operator founded in 1994 with one yeast plant producing both
fresh and dry yeast in Turkey. There is no information available to the Commission as
to any compressed yeast sales that Akmaya might have had in France, Spain or
Portugal. It is also significant that none of […]* internal documents regarding the
yeast business in Europe, monitor Akmaya as a competitor of compressed yeast in
Europe.57
(106) Finally, as a result of an up-front remedy before the Bundeskartellamt, the Swiss
company Indawisa acquired the Nuremberg plant and the attached sales force of ABF,
with sales only to the German market. Traditionally, Indawisa had only been present
in the Swiss market, a market that is described by Indawisa as being characterised by
higher prices than elsewhere in the EEA as there are import duties for imported yeast
making entry difficult. However, during the procedure Indawisa indicated that the
plant in Nuremberg is currently already at full capacity, and that it does not foresee
the possibility of selling yeast in France, Spain or Portugal.58
6.2 BACKGROUND OF THE TRANSACTION
(107) Before being acquired by Gilde in 2005, the yeast business of GBI Holding
(previously owned by Gist-Brocades and DSM) had achieved the second position in
Western Europe with a clear leadership in Germany, Portugal and Netherlands, the
third position in Latin America with a clear leadership in Chile and first position in
Africa. In Western Europe, GBI Holding's yeast business has been the incumbent
player in the Portuguese, German and Dutch markets. Before the sale of the GBI
Business to ABF and the UK activities to Lesaffre, GBI Holding was significantly
present in the Community with three large yeast plants: Felixstowe in the United
Kingdom, Casteggio in Italy and the Uniferm Joint-Venture in Moonheim, Germany.
With these three plants, GBI Holding was in a position to supply large parts of the
markets in Western, Southern and Central Europe. With plants located in South
America, GBI Holding also had a strong position in the South American market for
fresh yeast. GBI Holding was also present in the worldwide market of dry yeast.
(108) At the time of the acquisition by the Dutch private equity firm Gilde and considering
that the previous owner of GBI Holding's activities, Gist-Brocades, wished to sell the
entire yeast activities connected with GBI Holding in one package, Gilde saw the
opportunity, given that it considered that the acquisition of the whole business by
Lesaffre, ABF, and perhaps by Lallemand would raise antitrust issues, to purchase the
yeast activities of GBI Holding and resell, at a profit, parts of GBI Holding's yeast
business in the short-term to several purchasers59 .
56 Agreed minutes of conference call of 3 July 2008 with [Spanish distributor ].
57 […]*.
58 See agreed minutes of conference call with Indawisa of 3 April 2008.
59 See internal document of Gilde "Investment Proposal DSM Bakery Ingredients" dated March 2005 :
"DBI is considered an attractive target particularly for the three largest competitors - ABF (who recently
26
(109) Gilde therefore had the intention of selling GBI Holding's yeast business at the
earliest opportunity. Accordingly, Gilde did not undertake any long-term business
plans and/or development projects, but rather, developed a short term strategy aimed
at raising short term gains.
(110) The objective of GBI Holding accordingly seemed to be to avoid fierce price
competition in Europe, as is apparent from their internal documents: "Looking at the
yeast market it is good to realize that the three major players besides GBI, i.e.
Lesaffre, ABF and Lallemand, have been fighting a price war in the USA already for
more than 10 years. Yeast prices in this country are the lowest worldwide, all three
players have been losing money for years. There are no signs that this situation will
change in the (near) future. It is hard to understand why they are not able to solve this
problem but it will be clear that we are cautious to avoid such a market situation in
Europe."60
(111) This short term profit maximizing strategy was further confirmed when a GBI
Holding internal document refers that: "Our objective is to increase the yeast prices in
such a way that we will be able to keep the EBIT at the present level or, if possible,
higher. Due to the fact that for the bakers the costs for yeast amount to less than 3%
of the cost price of bread and the fact that the mentioned cost increases are valid for
the whole yeast industry, we assume - at least at this moment - that we will succeed in
these price increases."61
(112) The negotiations between Gilde and the potential purchasers concluded with the
yeast business of GBI Holding being divided and sold in two parts with Lesaffre
acquiring the facilities in the United Kingdom and South America62 and ABF
acquiring the German and Italian facilities. The two acquirers, Lesaffre and ABF, are
respectively the worldwide number 1 and number 2 players in the yeast business. By
acquiring the parts of the yeast business of GBI Holding in South America and the
United Kingdom, Lesaffre consolidated its positions in geographic areas where it was
relatively weak in terms of market share as compared to ABF. On the other hand,
ABF, by acquiring the GBI Business, located in Continental Europe, would acquire a
more solid position in Western Europe, where traditionally Lesaffre has had the
strongest market presence. Via the GBI Business' plants located in Casteggio (Italy)
and the joint venture with Uniferm (after having divested the Nuremberg facility to
Indawisa), ABF would strengthen its position in France (Lesaffre's home market),
Portugal and Spain.
acquired Philip Burns), Lesaffre and Lallemand. Except maybe for Lallemand […] we believe that these
competitors will run into antitrust issues when acquiring DBI as a whole."
60 Memo of August 11, 2006 of GBI Holding NV
61 Memo of August 11, 2006 of GBI Holding NV.
62 See Form CO, paragraph 65, see also paragraph 115.
27
6.3 COMPRESSED YEAST MARKETS
(113) There are certain market characteristics, both in relation to demand and supply, which
are similar across the three national compressed yeast markets (Spain, France and
Portugal). It is therefore useful, before assessing the most likely competitive effects of
the proposed merger in each individual market, to provide an overall background
analysis of demand and supply conditions in these markets.
6.3.1 Common market characteristics for the three affected compressed yeast
markets
6.3.1.1 Demand for compressed yeast is relatively stable or in slight decline
(114) The market for bakers yeast in the Community can be regarded as relatively mature.
Demand for bakers yeast is primarily driven by population size, age and income
distribution and the pattern of food consumption within a national or regional area.
These factors generally change very slightly over time.
(115) As regards compressed yeast, the market can be considered relatively stable but has
experienced a slight decline over the last five years. In Portugal, demand for
compressed yeast declined from approximately […]*in 2002 to […]*by 2007. In
Spain, this decline was from […]*in 2002 to […]*in 2007 and in France the demand
decreased from […]* in 2002 to […]* in 2007.
(116) According to the parties, this slight decline in demand for compressed yeast can be
largely explained by a gradual switch from artisanal to industrial bakers, in particular
for France and Spain63. Industrial bakers, in general terms, tend to consume more
liquid yeast, and may also use yeast more efficiently. However, there is little
indication that this trend will continue much longer. Indeed, despite this trend towards
more industrial buyers in the bakers yeast market, in general, artisan bakers still
represent the most significant proportion of the demand. For example, the distribution
segment which primarily serves artisan bakers account for about [40-50]% of the
compressed yeast turnover in France, [70-80]%64 in Spain and [90-100]% in Portugal.
(117) In all three markets demand can be moderately seasonal, with less yeast being
consumed during the warm months than the cold months. This is mainly due to two
reasons: (a) consumption of bread, especially in Southern Europe reduces during the
warm months and (b) during warm months less yeast is required to produce the same
amount of dough.
63 Paragraph 310 to paragraph 314 of the Form CO.
64 See […]*.
28
6.3.1.2 Concentration of Supply
(118) In the last few years, the market for bakers yeast in the Community has been
characterised by consolidation, as the smaller traditional family plants and businesses
have been acquired by some of the major players on the world stage, such as ABF,
Lesaffre and Lallemand. At the same time, plants have been closed all over the
Community, with very few new plants built in the last decades. This supports the view
that the yeast production business in Europe is relatively mature.
(119) The combined entity would have a market share of [70-80]% in Portugal, [40-50]% in
Spain and [30-40]% in France, accompanied by a limited number of small players
currently active on this market, with the two main producers post-merger (ABF/GBI
and Lesaffre) accounting for [90-100]% of the market in Portugal, [90-100]% in Spain
and [90-100]% in France.
Table 1 Market shares for compressed yeast in 2007 in Portugal, Spain and France
Company Portugal
[90-100]%
distributors
[0-5]% direct *
Spain
[70-80]%
distributors
[20-30]% direct *
France
[40-50]%
distributors
[50-60]% direct
*
ABF [20-30%] [30-40%] [10-20%]
GBI [40-50%] [10-20%] [10-20%]
Combined [70-80%] [40-50%] [30-40%]
Lesaffre [20-30%] [40-50%] [60-70%]
Lallemand [0-5%] [0-5%] [0-5%]
Puratos (BE) - - [0-5%]
Zeus/Grechi (IT) - [0-5%] [0-5%]
Asmussen (DE) - [0-5%] Source:
market investigation
*indicative proportion of direct (mostly industrial) clients, and clients served via distributors
(primarily artisan bakers)
6.3.1.3 Technological maturity of yeast production
(120) The technology of yeast production is mature, and the basic production process has
not been altered to any significant extent in quite some years, and ABF has shown that
whilst some patents do exist they are a number of competing ways of achieving the
same equivalent products and results65.
(121) Further, whilst there seems to be some room in the industry for process innovation
and marginal improvements on packaging technology for example, the market
investigation shows that no market players expect that any technological leap-
65 The market investigation has confirmed that this viewpoint is widely shared. According to paragraph 474
of the Form CO "ABF’s yeast division estimates that it spent less than […]* of its revenue on R&D,
demonstrating that R&D costs are not significant in this sector."
29
frogging can threaten the established position of the existing incumbents in the
affected markets (or elsewhere), namely ABF, GBI and Lesaffre.
(122) Finally there have been some recent products developed and sold (such as the liquid
yeast in Tetrapak by GBI and Kastalia by Lesaffre), but these have had a very minor
impact on the market and the industry does not expect these to grow to any significant
extent.
6.3.1.4 The role of distributors
(123) The market investigation has revealed that distributors play a very significant role in
the distribution of bakers yeast, in particular as regards the artisan segment of the
compressed yeast market, as they provide the access point needed for these clients.
(124) The artisan segment by definition involves operators that require small but frequent
supplies, particularly in view of the need for the refrigerated storage of compressed
yeast. However, none of the yeast producers have their own integrated distribution
networks to supply these customers. It should be noted that artisan bakers account for
about [70-80]% of the total turnover in Spain, [90-100]% in Portugal and [40-50]% in
France.
(125) The importance of regular contacts between artisan bakers and distributors cannot be
overstated. The artisan bakers' marketplace is fairly traditional. Most artisan bakeries
are family businesses with a local focus, often in activity for many years, in some
cases even generations. In this context, personal contact and stable relationships with
trusted suppliers is considered of fundamental importance. Nonetheless, there are
certain differences as regards the role of distributors in France with those of Spain and
Portugal.
6.3.1.4.1 Portugal and Spain
(126) In the Spanish and Portuguese markets, the relationship between yeast producers and
distributors on the one hand, and distributors and artisan bakers on the other, is
characterised by durable and long-term relationships.
(127) This is clearly stated in the responses received from the distributors, both in Portugal
and Spain, but can be also inferred, as regards Portugal, from existing written
contractual arrangements between the yeast producer and distributor66. Such contracts,
for the most part, formally cover a period of one year, but incorporate automatic
extensions or renewals so that it is rarely the case that a distributor discontinues its
relationship with its former supplier and switches to another.
(128) The sample distribution contracts sent by the notifying party as annexes to the Form
CO, as well as the market investigation, indicates that in Portugal all distribution
arrangements are of an exclusive nature, meaning the distributors may not distribute
competitors' yeast and may only distribute within a determined geographic area.
66 For ABF contracts see, for example, the "Agency Contract" […]*(Annex 8.40C to the Form CO), signed
in 1988 and Contract/terms of Trade between AB Mauri and […]*(Annex 8.40A to the Form CO), signed
in 2000. For GBI contracts see for example the contract with […]*, signed in 1989.
30
Indeed, in Portugal, an extremely limited number of distributors have changed yeast
supplier in the last few years.67
(129) In Spain, GBI has similar arrangements with its distributors amounting to de facto
exclusivity, which is also the norm for other players.68 Indeed, ABF itself claims that
"Spanish distributors usually purchase yeast products at any one time from one
supplier only"69 but is referred to in more categorical terms by other operators in the
marketplace.
(130) Whilst there are some exceptions to this (de facto) exclusivity of supply to
distributors, there are very few examples, often caused by very particular
circumstances.
(131) It may therefore be concluded that, to a very significant extent, ABF, GBI and
Lessafre work with a network of de facto or contractually exclusive distributors who
only distribute yeast from one producer. In addition, these distributors are essentially
arranged in a way that within one regional or smaller territory there would mostly one
distributor of a given supplier (see recital (214). 70 As in the case of Portugal, the
market investigation in Spain has also shown that very few distributors have changed
supplier in the last few years.71
(132) As a result of these long-term, traditional and exclusive vertical relationships between
distributors and yeast producers, artisan bakers tend to regard a particular distributor
as the distribution arm of a particular yeast producer in a given province or geographic
region.72
(133) In turn, as mentioned in recitals (125) and (126), artisan bakers prefer to develop longterm
and close relationships with their distributors (and hence with the supplying
yeast producer). Nonetheless, it is not uncommon for an artisan baker to rely primarily
on one distributor for the large part of its supplies of yeast but to also build links with
a secondary supplier. The reason for this is mainly to be assured of supply, given that
discontinuity in supplies on a given day can have serious consequences for the
67 In Portugal, the very few exceptions include […]*, from ABF to Lesaffre in 1994, whilst […]* sells ABF
in its delimited exclusivity zones and Lallemand elsewhere since 2006. See also analysis of switching
data in recital (309).
68 See, for example, minutes of the conference call with GBI Spain and GBI Portugal on 22nd
May 2008.
69 See paragraph 352 of the Form CO.
70 Although Lesaffre has divided its distributors, especially in Portugal, according to brands, so there may be
more than one distributor of Lesaffre's yeast products supplying a given area.
71 The notifying party refers to "a number of distributors formerly distributing for ABF in [Spanish
region]*" now distributing Zeus yeast in Spain. However, the market investigation revealed that there are
only two distributors of Zeus in [Spanish region]*, one of which has ceased being supplied by ABF since
the nineties (see minutes of conference call with [Spanish distributor] of 26 June 2008); the other
distributor, [name of distributor] distributed Zeus yeast before it started to distribute ABF. The analysis of
transaction data also confirms minimal switching of distributors in Spain -see recitals (238).
72 See, for example, agreed non-confidential version of the minutes of a conference call with Prodipani, on
29 May 2008.
31
reputation of an artisan baker and directly affect his/her livelihood. A "back-up"
distributor, in principle, can also allow the artisan baker to obtain information
concerning prices of other yeast producers and may thus offer some margin of
negotiation on prices.73 However, the market investigation revealed that whilst
quantities bought from a particular distributor (and hence a particular supplier) may
vary, this is driven largely by temporary changes in the proportion of purchases
obtained from the "primary" supplier relative to purchases obtained from the "backup".
Such shifts in purchases occur when the primary supplier increases prices earlier
than the back-up supplier and thus tend to only be temporary. When the back-up
supplier increases its prices to the same level as the primary supplier, the relative
proportion of purchases reverts back to past levels. 74
(134) It should be noted that the loyalty of an artisan baker to its primary distributor not
only derives from past experience and the distributor's proven reliability but also from
on-going direct contacts, including weekly visits of distributors to their clients and, in
some cases, by the distributor's ability to supply other complementary bakery
ingredients and their knowledge of a given artisan bakers overall needs75. These
factors contribute to cementing the loyalty of an artisan baker to its primary supplier.
6.3.1.4.2 France
(135) In France, the distribution system is organised somewhat differently with a number of
large scale national central purchasing organisations, such as Backeurop France
("Backeurop"), Most French distributors are regrouped in one of the three large
purchasing groups (which together cover more than four fifths of the distribution
market) which negotiate the supply conditions (mainly discounts) on behalf of their
members with the yeast producers, who are then referenced by the group (each group
has two or three suppliers).
(136) The large distribution groups do not have exclusive relationships with a single
supplier of yeast. Final distributors are free to set the final prices.
6.3.1.5 Past cases of collusion in compressed yeast markets
(137) There is a history of past cartel decisions in the fresh yeast sector by a number of
National Competition Authorities. For instance, the French Competition Authority
adopted a decision in 1989 regarding illegal collusive conduct in the market of fresh
yeast in France.76 At the time, the French market was characterized by a duopolistic
structure relying very much on distributors where the two players were Lesaffre and
73 As explained above, given that yeast producers (with exceptions on the side of Lesaffre) effectively rely
on a single distributor in a given region or smaller territory (see recital (214)), the secondary supplier of a
given artisan baker will mostly distribute yeast from a different yeast producer.
74 As will be more closely examined in recitals (222) to (227) as regards Spain and (318) to (320) as regards
Portugal, prices of ABF, GBI and Lessafre have all been increasing within a very short time difference
since 2006. This has been corroborated by the interviews undertaken
75 See for example: confirmed minutes of conference call with Prodipani on 29 May 2008.
76 French Competition Authority, Conseil de la Concurrence decision dated 22.03.1989 and numbered 89-
D-08.
32
Gist-Brocades (former GBI). The main elements put forward in support of this
decision were: (a) price parallelism, with almost simultaneous prices increases to
artisan bakeries; (b) Lesaffre was generally the leader in announcing these price
increases and (c) coordinating firms were engaged in a targeted reaction to new entry
in the fresh yeast market. In this case, Italian and German producers tried to enter the
French market and Lesaffre, followed by Gist-Brocades, engaged in a system of
retaliation based on free or reduction of delivery charges.
(138) Another more recent example concerns a finding of collusive conduct by the Turkish
Competition Authority.77 Bakers' yeast producers were fined for setting allegedly
cartel prices and sharing customers. In particular, yeast manufacturers had posted
uniform price increases unrelated to any changes in costs.78
6.3.2 Coordinated effects in the Spanish and Portuguese compressed yeast markets
(139) The evidence uncovered in the market investigation taken as a whole provides strong
indications that the elimination of GBI as an independent operator and the emergence
of a quasi-duopolistic market structure with two large compressed yeast producers
will very likely give rise to coordinated effects in Spain and Portugal.
(140) By its very nature, tacit coordination can be difficult to prove. Price-fixing or market
sharing agreements in violation of Article 81 EC Treaty can generally be proven by
way of hard evidence (generally written documents). In contrast, tacit coordination, as
indicated by the Court of Justice, "is likely to emerge if competitors can easily arrive
at a common perception as to how the coordination should work".79 Tacit
coordination can thus only be inferred indirectly from observing and adequately
interpreting the actual conduct of market players in light of existing market
conditions, affecting their ability and incentives to tacitly coordinate their actions.
This is reflected in the Commission’s Guidelines on the assessment of horizontal
mergers under the Council Regulation on the control of concentrations between
undertakings (“Horizontal Merger Guidelines”)80 in paragraph 43: “in assessing the
likelihood of coordinated effects, the Commission takes into account all available
relevant information on the characteristics of the markets concerned, including both
structural features and the past behaviour of firms."
(141) In this respect, in its recent judgement Sony/BMG v Impala81, the Court of Justice
held, in paragraphs 120-121, that:
77 Turkish Competition Authority's Board Decision dated 23.09.2005 and numbered 05-60/896-241
78 Although there was no qualitative data proving the existence of a cartel, that is, explicit collusion, the
cost-price analysis compared to inflation with a period of three years showed there was at least a
concerted practice between the producers.
79 Paragraph 123 of the judgement in Case C-413/06 P Bertelsmann and Sony Corporation of America v
Impala [2008], OJ C 223 of 30.08.2008, p.7.
80 OJ C 31, 5.2.2004, p. 5, paragraph 43.
81 Case C-413/06 P Bertelsmann and Sony Corporation of America v Impala [2008], OJ C 223 of
30.08.2008, p.7.
33
"(120) In the case of an alleged creation or strengthening of a collective dominant
position, the Commission is obliged to assess, using a prospective analysis of the
reference market, whether the concentration which has been referred to it will lead
to a situation in which effective competition in the relevant market is significantly
impeded by the undertakings which are parties to the concentration and one or more
other undertakings which together, in particular because of correlative factors
which exist between them, are able to adopt a common policy on the market (see
Kali & Salz, paragraph 221) in order to profit from a situation of collective
economic strength, without actual or potential competitors, let alone customers or
consumers, being able to react effectively.
(121) Such correlative factors include, in particular, the relationship of
interdependence existing between the parties to a tight oligopoly within which, on a
market with the appropriate characteristics, in particular in terms of market
concentration, transparency and product homogeneity, those parties are in a
position to anticipate one another’s behaviour and are therefore strongly
encouraged to align their conduct on the market in such a way as to maximise their
joint profits by increasing prices, reducing output, the choice or quality of goods
and services, diminishing innovation or otherwise influencing parameters of
competition. In such a context, each operator is aware that highly competitive action
on its part would provoke a reaction on the part of the others, so that it would derive
no benefit from its initiative".
(142) Furthermore, in paragraph 123 of the same judgment in Sony/BMG v Impala , the
Court of Justice (recasting the CFI decision in Airtours v Commission, paragraph 6282)
also held,
"(123) Such tacit coordination is more likely to emerge if competitors can easily
arrive at a common perception as to how the coordination should work, and, in
particular, of the parameters that lend themselves to being a focal point of the
proposed coordination. Unless they can form a shared tacit understanding of the
terms of the coordination, competitors might resort to practices that are prohibited
by Article 81 EC in order to be able to adopt a common policy on the market.
Moreover, having regard to the temptation which may exist for each participant in a
tacit coordination to depart from it in order to increase its short-term profit, it is
necessary to determine whether such coordination is sustainable. In that regard, the
coordinating undertakings must be able to monitor to a sufficient degree whether the
terms of the coordination are being adhered to. There must therefore be sufficient
market transparency for each undertaking concerned to be aware, sufficiently
precisely and quickly, of the way in which the market conduct of each of the other
participants in the coordination is evolving.
Furthermore, discipline requires that there be some form of credible deterrent
mechanism that can come into play if deviation is detected. In addition, the reactions
of outsiders, such as current or future competitors, and also, the reactions of
customers, should not be such as to jeopardise the results expected from the
coordination."
82 Case T-342/99 Airtours/First Choice [2002] ECR II-2585
34
(143) The section on coordinated effects in the Horizontal Merger Guidelines lays out the
analytical approach prescribed by the Courts in a systematic way. Consistent with the
guidance offered by the Court of Justice the Horizontal Merger Guidelines identify
four cumulative conditions to establish the likely emergence and sustainability of
coordinated conduct: (a) firms have the ability to agree tacitly on the terms of
coordination, (b) there is sufficient transparency to monitor any deviations; (c) there
are deterrent mechanisms and (d) outsider reactions cannot undermine the coordinated
outcome.
(144) It follows from all of the above that the assessment of the coordinated effects of the
proposed merger can be structured into three parts:
(a) Assessment of the presence of market conditions conducive to tacit
coordination
(b) Identification of a likely mechanism for tacit coordination and the resulting
degree of tacit coordination that can be expected in the absence of the merger
(c) Assessment of the extent to which the merger significantly impedes effective
competition by making the existing degree of tacit coordination easier, more
stable or more effective for the three firms concerned either by making such
coordination more robust or by permitting firms attain even higher prices.
(145) In the first part of the analysis, a number of structural market conditions likely to
facilitate the emergence and sustainability of tacit coordination are identified. These
factors are common to both the Portuguese and the Spanish markets. Following the
Court of Justice in Sony/BMG v Impala, "it is necessary to avoid a mechanical
approach involving the separate verification of each of those criteria taken in
isolation, while taking no account of the overall economic mechanism of a
hypothetical tacit coordination".83 In the second part, for each relevant market, an
assessment is made as to the extent to which market conditions facilitate a tacit
understanding between Lesaffre, ABF and GBI and possible terms of coordination,
the monitoring of deviations, deterrence of deviations and the reasons why outsiders
have no ability to undermine the resulting degree of tacit coordination.
(146) Finally, it is established case law that the Commission must further show, on the basis
of a prospective analysis, the extent to which the “the alteration in the [relevant
market] structure that the transaction would entail significantly impedes effective
competition by making coordination easier, more stable or more effective for the three
firms concerned either by making the coordination more robust or by permitting firms
to coordinate on even higher prices".84 Accordingly, in the third part of this section, it
is shown that in the markets for compressed yeast in Spain and Portugal, for
essentially similar reasons, “the alteration in the [relevant market] structure that the
transaction would entail” is likely to significantly impede effective competition by
making coordination easier, more stable or more effective for the two remaining firms
concerned either by making the coordination more robust or by permitting firms to
coordinate on even higher prices.
83 See paragraph 125 of the judgement in Case C-413/06 P Bertelsmann and Sony Corporation of America
v Impala [2008], OJ C 223 of 30.08.2008, p.7.
84 Case T-342/99 Airtours/First Choice [2002] ECR II-2585, paragraph 61.
35
6.3.2.1 Structural characteristics conducive to tacit coordination in the Spanish and
Portuguese compressed yeast markets
6.3.2.1.1 Few active competitors in the affected markets
(147) According to economic theory, coordinated conduct is more likely to emerge the
lower the number of firms required for it to be sustainable. Currently there are indeed
very few active players in Spain and Portugal. The C3 concentration ratio, involving
ABF, GBI and Lesaffre in both cases is [3500 to 4000] ([90-100]% combined market
share) and is [3500 to 4000] ([90-100% combined market share), respectively (see
Table 1). Therefore, the markets in Portugal and Spain may be defined as an oligopoly
with three main players and a small fringe.
(148) Economic theory provides a solid analytical foundation for the view that suppliers
who face numerous rivals will be constrained in their incentive and ability to
coordinate. There are a number of reasons to expect this.
(149) First, coordination is more difficult the larger the number of parties involved. This is
particularly true when coordination is only based on a tacit understanding of the terms
of coordination. For example, identifying a common “focal point”, in terms of prices
or market shares, may be difficult, particularly when firms are not symmetric, and
thus have different incentives.
(150) Second, when suppliers face more rivals, each supplier will tend to have a weaker
self-interest in contributing to the reduction in industry output that is required to
elevate the market price artificially.
(151) Third, it can be harder to detect and punish cheating against a consensus when rivals
are more numerous. Cheating by any single seller is more apt to go undetected
because it is unlikely to have a dramatic effect on price. When cheating does not
dramatically affect price, rivals will also be less willing to punish a cheater severely.
And when severe punishments lose their credibility, discounting is likely to become
sellers’ preferred pricing strategy.
(152) More generally, since firms must share the overall profit arising from tacit
coordination, as the number of firms increases each firm gets a lower share of the pie.
This has two implications. First, the gain from deviating increases for each firm since
by undercutting the coordinated outcome a firm can steal market shares from all its
competitors; that is, in having a smaller share, each firm would gain more from
capturing the entire market. Second, for each firm the long-term benefit of
coordinating their conduct is reduced, precisely because it gets a smaller share of the
total profit. Thus, the short-term gain from deviation increases, while at the same time
the long-term benefit of coordinating, is reduced. It is thus more difficult to prevent
firms from deviating.
(153) ABF, GBI and Lesaffre currently all have a strong presence in Spain and Portugal,
and face virtually no threat of entry or expansion from competitors. Hence they stand
to benefit significantly from tacitly coordinating a higher price and sustaining such
coordination as opposed to engaging in fierce competition for each other's customers
and market share.
36
6.3.2.1.2 Repeated interaction
(154) According to economic theory, tacit coordination is unlikely to emerge in the
absence of frequent and repeated interaction among market players. As such,
interaction needs to be relatively frequent in order to avoid detection lags in which
firms could deviate without being punished. This also implies that transactions should
be in the form of many frequent and small orders instead of large and lumpy orders.
Similarly, coordination is unlikely when firms interact only infrequently, since the
short-term gains from undercutting a tacitly coordinated price could then be
“punished” only far in the future.
(155) The market investigation has clearly demonstrated that the compressed yeast market
is characterized by the high frequency of interaction between suppliers, indirectly via
their distributors. All three firms concerned - ABF, GBI and Lesaffre - supply
directly to customers or distributors on a regular basis. Their distributors in turn
supply artisan bakers on a weekly and even bi-weekly basis, reporting back to their
yeast suppliers.
6.3.2.1.3 Compressed yeast demand elasticity is likely to be low
(156) According to economic theory, concerns regarding coordination are more serious
when demand is inelastic, as it becomes more profitable to coordinate and to pass on
the price increase to consumers. When choosing a price, the firms must trade off the
profit generated by a price increase with the reduction in sales triggered by that price
increase. When demand elasticity is low, firms can afford to keep prices high without
losing too many customers.
(157) The investigation has shown compressed yeast demand to be relatively inelastic. The
main reasons are that:
(a) yeast is a necessary ingredient in the production of bakery products, that is not to
any significant degree, substitutable by other products. This is likely to lead to low
bargaining power, especially in the artisan baker sector as the size of the artisans are
relatively small. Thus, artisan bakeries' daily bakery production relies entirely on a
regular delivery of yeast;
(b) fresh yeast is a perishable ingredient and has a limited shelf life (30 to45 days for
compressed yeast) as its quality in any case deteriorates over time. This makes
stocking or storage relatively uneconomical and undesirable, in particular for small
artisan bakers. The investigation has confirmed a customer preference for fresh yeast
and weekly (and sometimes by-weekly) supply delivery; and
(c) relative to the cost of other ingredients, yeast still remains a small cost component
in the production of bakery products (ranging between 3% and 10%).
(158) All these factors taken together provide an important indication that demand
elasticity is relatively low in the compressed yeast market.
6.3.2.1.4 High Barriers to entry and expansion
(159) Tacit coordination is difficult to sustain if there are low barriers to entry. First, in the
absence of entry barriers, any attempt to maintain supra-competitive prices would
trigger entry (for example, short-term or “hit-and-run” entry strategies), which would
37
erode the profitability of collusion. Second, the prospect of future entry tends to
reduce the scope for retaliation, which in turns limits the sustainability of collusion.
The basic idea is that firms have less to lose from future retaliation if entry occurs
anyway. More precisely, the prospect of future entry does not affect the short-run
benefit that a firm can obtain from a deviation, but it reduces the potential cost of
deviation in terms of foregone future profits. Indeed, retaliation against a deviating
firm is less significant if entry occurs, since entry dissipates profits irrespective of the
past behaviour of incumbent firms. Firms are then more tempted to undercut collusive
prices and the ability to collude thus declines when the likelihood of entry increases.
(160) The notifying party argues that there are no barriers to entry for production and sale
of compressed yeast in Spain and Portugal85. However, the market investigation has
largely refuted this claim. Successful new entry or expansion into the affected markets
from other geographic areas requires access to a local distribution system, with local
sales persons and recognised brands.
(161) The market investigation reveals that both industrial and artisan bakers value the
quality of the yeast as well as the reliability of supplies extremely highly. In this
respect, and in particular as regards the artisan bakers, brands play, in all three
compressed yeast markets, an important role as they allow artisan bakers to identify
the origin of the yeast and thereby attest its quality. Brand recognition is therefore a
barrier to entry particularly for the supply of yeast to artisan bakers, as brands signal
quality and reliability of the product. Whereas in France there is more brand
segmentation into more reputed and cheaper brands (so called "marques de premier
prix"), in Spain and Portugal the price differences are not that big between the main
established brands. However, there is a significant difference in price level between
the brands of the established producers and by the fringe players who do not enjoy
notoriety and reputation. A new brand from a supplier which is not traditionally
known on the market would only be possible if the product would be positioned with a
very low price, to persuade the most price-sensitive customers to switch.
(162) Furthermore, the need for an established local sales force together with the setting up
of a distribution network is a high barrier to entry for non-established competitors.86
Competitors explained that it would be very difficult to expand significantly without
an active local sales force. In Spain and Portugal distributors are usually relatively
small and have no technical support, so it is not only necessary to have a local sales
force in order to build up and develop relationships with distributors but also in the
offering of the technical back up required to assist these in their relationship with their
artisan bakers clients.
(163) Further, the necessity to develop the network of distributors is a significant barrier to
entry in Portugal and Spain, where the majority of compressed yeast is sourced by
artisan bakers who buy the yeast from their local distributors. The distributors in
Spain and Portugal are generally very small companies, with a local or regional
outreach, often serving their artisan customers for generations. In addition,
distributors normally distribute only the yeast of one supplier, with which they have a
85 See for example paragraph 19(g) in the Form CO.
86 On the importance of local presence in terms of sales force and local distribution network, see also recitals
(58) to (68).
38
de facto or formal exclusive relationship. The market investigation showed a
significant degree of loyalty of the distributors to their yeast suppliers87 even in the
absence of written distribution contracts for many distributors (which in turn confirms
the traditional relationships build on trust over time). Establishing a network of
distributors of a more significant scale would therefore take considerable time for a
newcomer on the Spanish and Portuguese market. The absence of an established sales
force together with a distribution network was mentioned by most distributors and
competitors in the market investigation as barrier to entry for a new supplier.
(164) The importance of brand recognition and the necessity of developing an effective
and reliable distribution network has been confirmed both by bakers' yeast producers88
and by both Portuguese and Spanish distributors, in particular as regards their outlook
on the possibility of being supplied in the future by other yeast suppliers other than
Lesaffre and the merging parties.
(165) Players such as Pakmaya (Turkey) and Somadir (Morocco) sporadically enter and
leave the markets but are considered to be unreliable and have no stable foothold in
the markets89. In general, distributors do not consider these players as real alternatives
due to reliability and quality problems90. Indeed, small alterations in quality can have
a strong influence on the final product. Many distributors, for example, dismissed
yeast offered by Turkish producers as of inferior quality91. It follows that in a
traditional market like the artisan segment most customers stressed that it can take a
long time for a new entrant like these players to establish such a reputation for
reliability of an ingredient which is considered critical.
(166) In summary, barriers to new entry barriers are significant, and successful entry or
expansion requires access to a local distribution system, with local sales persons and
recognised brands. In addition, new entrants in these geographic areas require the
establishment of a reputation for quality and reliability of supplies.
6.3.2.1.4.1 No greenfield entry can be expected in the foreseeable future
(167) It is highly unlikely that new plants will be built anywhere in Western Europe in the
next few years. According to the notifying party's submissions, the investment needed
to set up a new yeast manufacturing facility producing 25 000 to 35 000 tonnes of
fresh yeast would cost between EUR [20-30]* to [30-40]* million, and could be
constructed in a timeframe of between [10-20]* to [20-30]* months, and could be
fully operational after a further period of [1-5]* to [5-10]*months. However, very few
plants have been built in Western Europe in the last few decades, and there are a
87 See analysis of distributor switching recitals (309) for Portugal, and recital (237)and footnote 71 for
Spain.
88 See for example: agreed minutes of a conference call with Lallemand dated 14.02.2008 – "it takes years to
build its quality reputation in new markets".
89 Minutes of conference call of 22 May 2008 with General Manager of GBI Portugal and GBI Spain.
90 See also minutes of conference calls with EuroYeast on 26 June 2008 and Anfecor on 3 July 2008.
91 See for example: agreed minutes of ANFECOR conference call of 3 July 2008.
39
number of very significant environmental concerns related, amongst other aspects, to
waste water treatment.
(168) In effect, only one plant has been constructed in Western Europe in the last 10 years,
- the Puratos plant with 17kt built in 200092. ABF also refers to a new plant that is
being established by Lesaffre in Valladolid, Spain. However this is only a relocation
from the city centre to another less central location in the same city. Other competitors
have confirmed that the construction of greenfield plants is difficult under the current
environment of a saturated market and highly unlikely. In fact, none of the
competitors have indicated that they have any plans to construct new plants in Europe
involving a new capacity on the market.
(169) In fact, the opposite trend is observed in the marketplace - namely the reduction in
yeast production plants in Europe. Apart from the yeast operations of GBI Holding
itself, which closed its two plants in France and Portugal in recent years and
consolidated that production into its plant in Casteggio in Italy, a number of further
yeast plants have also been closed since 2002 in the EEA. These include Lessafre's
plants in Austria (2002), Czech Republic (2006), Trento (2006, consolidated with the
Parma plant), as well as Lallemand's Polish Lublin plant (acquired and closed in
2006)93 – the market investigation and the market characteristics showed that these
closures were mainly due to consolidation and cost efficiency considerations.
(170) This consolidation of smaller plants into bigger plants suggests that this is an
industry where economies of scale play a significant role, as was indeed referred by
most competitors during the investigation.94 In fact, the owner of GBI, Gilde, was
itself identifying the "scale play" as a barrier to entry.95 This, in turn, depresses the
prospect of new entrants emerging in the affected markets. In the presence of
significant scale economies entrants may doubt their ability to win enough sales to
justify entry, even at high pre-entry prices, and if the scale of its entry is necessarily
large it may fear that it will have a serious negative impact on prices. Both of these
effects will deter entry to the extent some of the entry costs are sunk while the lack of
established distribution networks in the traditional business relationships with artisan
bakers, lack of brand notoriety and reputation would deter customers from switching
92 Paragraph 2.63 of the document "Observations of ABF in response to the Commission's Article 6(1)(c)
Decision of 16 April 2008 in Case M. 4980 ABF/GBI Assets", dated 5th
May 2008.
93 Information contained in Annex 8.14 to the Form CO.
94 See for example: agreed minutes of a conference call with Lallemand on 14 February 2008: "The
business is very capital-intensive in comparison to normal prices: the increasing cost of regulations
(safety, labour, environmental, etc.) leads to the promotion of economies of scale and to the difficulty to
maintain small plants in operation. Central large scale plants have increased transportation costs but the
balance is usually still in their favour. Having large-scale plants with low cost of water, waste treatment,
energy and substrate is what to a large extent determines how competitive a supplier can be. Economies
of scale are very important in that business."
95 This is confirmed by the industry appreciation in a document entitled "INVESTMENT PROPOSAL DSM
Bakery Ingredients March 2005", prepared by Gilde in the context of the acquisition of DBI in 2005:
"Barriers to entry are high as yeast production is a “scale play”; high capacity plants are required to
run near full capacity to be cost competitive. DBI has in recent years optimized its (European) production
plants by closing smaller plants and integrating volumes in its plants in Italy (130kton), Germany
(110kton) and UK (75kton)."
40
from the incumbent firm to the new entrant. Furthermore, as demand is relatively
stable, any potential new entrant faces the additional difficult task of stealing
customers away from the existing suppliers.96
(171) It can be concluded that given the market conditions, the significance of scale
economies in these markets, and, in particular, the apparent lack of any plans by
competitors to build new plants with new capacity brought on the market, the entry
via the construction of a new yeast plant in the broader region, notably in France,
Spain and Portugal is highly unlikely. In any case, given the regulatory barriers in
identifying a suitable site, it is clear that, besides the lack of economic incentives,
there is no evidence to support with a sufficient degree of likelihood that any of the
competitors referred in the Form CO to enter the markets under analysis in a
sufficiently timely and sustained manner so as to deter or defeat the exercise of market
power by the merged entity.
(172) Another way in which entry could occur according to the notifying party is through
acquisition of existing production facilities. ABF cites Lallemand, an important yeast
producer in the US and Canada, as having pursued this strategy in the purchase of
existing plants in Europe. However, there are very few independent plants in the
broader region South-Western Europe (only the Zeus plant in Florence is currently not
owned by Lesaffre, GBI or ABF). The notifying party does not mention or in any way
offer information that may suggest any such plants may be acquired by a new entrant
in this geographic area.
6.3.2.1.4.2 Limited ability for actual or potential competitors in neighbouring markets to
expand capacity into supplying Spain or Portugal
(173) The notifying party argues that actual and potential suppliers exercise competitive
pressure on the incumbents in Spain and Portugal. Allegedly, fringe competitors can
enter or expand their presence through cross-border trade, using plants currently
supplying other regions of Europe97.
(174) According to the notifying party, this may be done by either using spare capacities or
by diverting current supplies to other geographic areas into Spain and/or Portugal.
ABF further argues that in order to calculate existing spare capacities, current spare
capacity should be considered together with capacity that is being used for the
production of dry yeast within a certain range around the affected markets.
96 See agreed minutes of telephone conference with Lallemand of 19 May 008: " producers with the
knowledge of the yeast production would likely build or expand facilities only once sales volumes are
secured. The yeast markets in the south-western Europe are saturated and it would be a too high risk to
invest significantly in new capacity not knowing to whom to sell since the export competitiveness of
European plants has been essentially lost as a result of the changes to the EU sugar regime and the
increase in the Euro exchange rates and the stricter environmental restrictions that are now imposed. The
production of yeast entails high fixed costs and suppliers seek stability of sales. When a producer is
entering a market, it has to sell with significantly lower prices to attract customers and one has to take
into account that the artisan sector is very brand loyal and declining in relative importance."
97 Given that no competition concerns arising from the transaction were identified for the French
compressed yeast market (see Section 6.5.1.5), this market will not be the subject to the following indepth
capacity assessment, which is focused on the Spanish and Portuguese markets.
41
(175) Whereas some re-optimising of the product mix between liquid, compressed and dry
may be possible for certain plants in response to temporary variations in market
conditions, there are certain costs involved in a more permanent switch of production
from dry to compressed. First, the expansion of production of compressed yeast will
likely require additional investments in extruding, filtering and packaging capacity.
(176) Further, there are inevitable opportunity costs deriving from not selling the dry
yeast, as for there to be an incentive to make the change, the producer in question has
to make a significantly higher margin from selling compressed yeast, and, in this
regard, the notifying party does not back up its claims that such incentives exist
merely stating that "yeast suppliers will supply the product upon which they can
generate the biggest returns"98.
(177) ABF refers only to general global trends that indicate that there might be change of
production from dry yeast to compressed yeast sometime in the future, given current
exchange rate trends and a number of new yeast plants being built in other markets
such as Russia, China and Kazakhstan. However, of the markets referred, only the
latter is referred to by ABF as being supplied by a plant in France (Lesaffre).
Furthermore, internal ABF documents show that these are markets where demand for
dry yeast is also growing at the highest rates ([…]*), so that local production in those
countries is likely to stay in those markets.
(178) No reports or plans were supplied by ABF as evidence that such an incentive to
change from dry to compressed yeast exists.
(179) Finally, even if dry yeast production capacities would be computed for the effects of
calculating spare capacity to produce compressed yeast, the fact is that this would not
materially change the scenario referred to in Table 2, in the geographic area
considered, as only ABF, Lesaffre and Puratos produce dry yeast. The investigation
did not provide any indications that Lesaffre or Puratos have current plans of
changing current production mix from dry to fresh yeast. For all these reasons, the
Commission considers that it is unlikely that producers of dry yeast have the ability or
incentive to switch their production to compressed yeast.
(180) With respect to the diversion of compressed yeast from other geographic regions
into Spain and Portugal, as the notifying party accepts, similar considerations apply.
However, it is necessary to take into account the opportunity cost of selling where
they are currently selling, for example in Germany. Secondly, in the context where the
distant competitors have no established local presence in terms of distribution
networks, notoriety and sales force and have thus to offer significantly lower prices,
they are in a position of a disadvantage in terms of transport costs that have to be
incurred compared to serving areas relatively closer to their production plants.
(181) Transport costs were cited by most competitors during the investigation as a very
important factor to consider when entering more distant markets. In fact, it is observed
that the yeast producers first try to serve the markets which are relatively close to their
98 See paragraphs 3.22-3.24 of the Memorandum on Capacity to Supply of 9 June 2008 and paragraph 6.3
(iii) of the ABF memorandum to the European Commission in preparation for the state of play meeting
scheduled for 16th
June 2008 concerning the acquisition by ABF of certain parts of GBI Holding's yeast
businesses.
42
production sites, as they can benefit from the transport costs advantage, on top of the
usually traditional establishment of the suppliers in their "home" region. The further
the region from the plant, the less attractive it is to ship refrigerated transport. As one
competitor observes, and "the margin is literally 'on the road'" and affects
competitiveness vis-à-vis local producers.99 However, while transport costs are a very
important element for competitors to consider when entering a distant market, it
appears that transport costs alone, taken in isolation, are not an insurmountable
obstacle for a supplier to ship to a more distant location. This is demonstrated by the
supplies of GBI to Spain and Portugal from a distance (its Casteggio plantapparently,
economies derived from consolidation of production in one large plant
outweighed the additional transport costs when GBI decided to re-locate its
production from Portugal to Casteggio around 2001). Transport costs, although not
being prohibitive by itself as demonstrated by the example of GBI, shall be seen in
combination with other barriers to entry linked with a need to establish a local
presence in terms of distribution networks, reputation and brand recognition and sales
force, particularly in such traditional markets as Spain and Portugal. In contrast to
newcomers from distant regions, GBI benefitted from its well-established position on
the market so it was able to maintain a strong presence within the distribution segment
despite supplying from distance. This being said, it is still considered that transport
costs play an important role in considerations about a new entry.
(182) ABF claims that transportation of compressed yeast up to 4000 km from the
Barcelona depot of GBI is possible, arguing that it is attractive even for very distant
producers to enter the Spanish and Portugese markets. When looking at the distance
deliveries of compressed yeast out of Casteggio, Cordoba or Setubal, deliveries over
4000 km very rarely occur, if at all. Indeed, the transport costs over such distance
would represent a very significant amount.100
99 Minutes of conference call with Puratos of 12 March 2008.
100 Compared to average selling price of EUR […]* per tonne of compressed yeast in Spain and Portugal and
accepting the parties' assumptions that it would be about [10-20]* %, which seems to be a rather
conservative figure. The figure is based on average transport costs of EUR […]*per 1000 km per tonne,
which the notifying party submits as a proxy for calculation of average transport costs. Note that average
transport costs incurred by GBI, transporting yeast from Italy to Portugal and Spain, is in the range of
EUR […]*per tonne per 1000 km (Memo of ABF of 10 June 2008 on Transport Costs and Logistics,
point 2.5.c). Based on this calculation, the transport costs would amount to about [20-30]*% to [20-
30]*% of the average selling price. Note that, in addition, the selling price of fringe players in Portugal
and Spain is considerably lower than the average selling price in these countries, so the calculation is only
an imperfect proxy.
43
(183) With respect to proximate competitors, specifically Lallemand, ABF claims that it
has the ability and would also have the incentive, in the event of a price increase, to
supply both Portugal and Spain101. ABF bases this conclusion on an analysis of the
percentage of transport costs over final price charged, calculating the difference in
costs in relation to distance covered, on a point to point basis.102 However, this
analysis is overly simplistic and does not take into account the additional entry
barriers, as discussed elsewhere in this section, which this competitor or any other
newcomer would have to overcome when developing a reasonable presence in Spain
and Portugal. A distant competitor would always be at certain disadvantage in terms
of transport costs and, in the absence of an established presence with the Spanish and
the Portuguese distributors and final customers, it would be very vulnerable to attacks
from strong incumbents defending their home market. In addition, as shown in the
following recitals, Lallemand, like other (potential) smaller competitors on the
Spanish and Portuguese markets with plants located at a reasonable distance from the
Iberian Peninsula, have little spare capacity with which they can supply these markets,
contrary to the three incumbents.
(184) In light of the available evidence, it is considered, for the purposes of this decision,
that a 2500 km incremental distance from the Iberian Peninsula represents a
reasonable maximum limit of the universe of yeast plants that may be considered as
potentially having the ability and incentive to supply Portugal and Spain103. Further, it
should be considered that this calculation refers to a 2500 km incremental distance
from the Barcelona depot of GBI, so that distances to other western regions of Spain
and Portugal would be even higher.
101 Para 5.26 of the ABF memorandum to the European Commission in preparation for the state of play
meeting scheduled for 16 June 2008 concerning the acquisition by ABF of certain parts of GBI Holding's
yeast businesses.
102 Based on the calculation method as explained in footnote 100, the difference in the percentage of total
costs is not insignificant depending on whether there is a 1000 km incremental distance or 2500 km
incremental distance – it is the difference between, [0-5]* % of total price, and [10-20]* % of total price
respectively (taking into account EUR […]* per 1000 km per tonne as average transport costs). If a proxy
of EUR […]*per 1000 km per tonne is taken as a basis (average transport costs of GBI serving Portugal
and Spain from its Italian distribution hub), the figures would be accordingly[0-5]* % to[5-10]*% of the
total price in the case of 1000 km, to [10-20]* % to[10-20]*% for an 2500 km incremental distance.
103 This is further confirmed by the document entitled "INVESTMENT PROPOSAL DSM Bakery
Ingredients March 2005", prepared by Gilde in the context of the acquisition of DBI in 2005: "Due to the
relatively short shelf-life of FY and the costs involved in refrigerated transportation, FY is generally
produced regionally and distributed within a 1,500 kilometer radius of the plant."
44
(185) Therefore, it is considered that the applicable spare capacities that may be
considered in the current analysis are those set out in Table 2:
Table 2 Spare Capacity in Fresh Yeast Equivalent (FE) in 2007
Company name
Country ABF Asmussen GBI Zeus Indawisa Lallemand Lesaffre Puratos
Austria […]*
Utilised […]*
Belgium […]* […]*
Utilised […]* […]*
France […]*
Utilised […]*
Germany […]* […]* […]* […]*
Utilised […]* […]* […]* […]*
Italy […]* […]* […]*
Utilised […]* […]* […]*
Portugal […]*
Utilised […]*
Spain […]* […]*
Utilised […]* […]*
UK […]* […]*
Utilized […]* […]*
Total Sum of
Yeast
production
capacity (FE)
('000 t) […]* […]* […]* […]* […]* […]* […]* […]* […]*
Total Sum of
Total Current
yeast production
(FE) ('000 t) […]* […]* […]* […]* […]* […]* […]* […]* […]*
Sum of spare
capacity* […]* […]* […]* […]* […]* […]* […]* […]* […]*
[…]* […]* […]* […]* […]* […]* […]* […]*
45
Source: ABF.
* The notifying party claims that these existing production capacities can be expanded in the very short
term in through running these facilities on a 24/7 basis although only the plant owned by Zeus is
referred as running on a lower cycle than a 24/7, since, for example, Indawisa already operates on this
basis, as the ABF itself refers (cfr. paragraph 1.2 of the Note on Capacity to Supply dated 9 June
2008). However, smaller players like Asmussen and Zeus are constrained to increasing weekly cycles
as they have only one plant and need enough margin to undertake necessary repairs as should a
problem in the production of yeast arise no back up production exists. Such a possibility has therefore
not been considered in the current analysis of available production capacities..
(186) Within this universe of yeast plants, Asmussen, Zeus, Indawisa, Lallemand and
Puratos have a total amount (together) of spare capacity of 7.8kt. Considering that in
2007 the total compressed market size in Spain is 46kt and in Portugal is 14.5kt, it
appears that competitors, even taken as a whole and assuming the extreme scenario
that all spare capacity of all these players together is directed to Spain and Portugal
(and not to other closer regions), this capacity could cover only a small proportion
(less than 13%) of the market and consequently exert negligible competitive pressure
on the three incumbents.
(187) Furthermore it should be emphasised that even in the event of an unlikely demand
calling for increased supplies, ABF currently has […]*, GBI […]*and Lesaffre […]*
of spare capacity including the Felixstowe plant, […]* excluding this plant (as shown
in Table 2). Both parties therefore enjoy sufficient slack to expand sales in Spain or
Portugal thereby pre-empting any possible new entry or expansion by rivals.
6.3.2.1.5 High degree of product homogeneity
(188) Economic theory suggests that greater product homogeneity can be a facilitating
factor by making the monitoring easier, to the extent that homogeneity often implies
the existence of common shocks of demand to the brands of different suppliers. Given
that all three incumbents use similar mature technology and all supply yeast for the
same applications downstream (mostly bread and other bakery products), it is likely
that the compressed yeast of the different suppliers are influenced and react in similar
ways to exogenous shocks of demand or supply. This would tend to increase the
ability to anticipate the conduct of rivals and thus to monitor deviations.
(189) In this context, it should be stressed that some players even described compressed
yeast as a commodity market. The product is relatively homogeneous, in particular,
for the yeast of those suppliers with an established reputation in a given national
market.
(190) Whilst there is some differentiation in brands, each supplier only has a limited
number of brands active in Portugal and Spain. As explained above, brands are used
mostly to increase recognition and help the producer to benefit from its reputation in
terms of service and reliability. Also brands help distinguish between two different
type of end customer segments based on pricing and packaging.
(191) In any event, few brands and types of packaging are in fact currently sold in the
compressed yeast market in Portugal and Spain. In effect, each of the three main
players covers almost the totality of its compressed yeast demand using only 3 to 4
brands in each Member State. The packaging of the compressed yeast is very similar,
with packages having similar weights and sizes: the majority is 20 blocks of ½ kg
each and 25 kg sacks. The product itself does not differ to a significant extent between
46
ABF, Lesaffre and GBI in terms of their main competitive dimensions important to
buyers of quality, durability, availability, after-sale service. It can therefore be
concluded that compressed yeast is fairly homogenous across suppliers and thus
subject to similar supply or demand shocks as explained above.
6.3.2.1.6 Market transparency in competitors' final prices, volumes and capacity
(192) The lack of transparency of prices and sales does not necessarily prevent tacit
coordination but makes it both more difficult to sustain and more limited in scope.
This is because when a firm’s sales fall in a given period it can either be because of
“bad luck” (adverse shock on demand), or because another market participant has
“cheated or deviated” (undercut the coordinated price). That is, the more transparent a
market, the more clearly the market participants are able to monitor any deviation
from the common policy, and the more feasible it becomes to sustain tacit
coordination.
(193) The compressed yeast market can generally be considered as relatively transparent
regarding competitors' prices. Interviews with market participants have revealed that
producers of yeast are relatively well informed concerning the prices of competitors.
Puratos states that: "The information of a competitors' price increase spreads quite
rapidly in the industry. Customers start shop around and asking for new offers. The
price increase due to increase in the input prices can be verified in the press. The
bakery industry is covered by a large number of journals" and Indawisa confirms that:
"Information on prices and information on price increases circulate in the market and
become common knowledge quite rapidly."104 This is further reinforced by the market
investigation undertaken at the distributor level in both Portugal and Spain.
(194) Not only are prices very transparent, but so are other dimensions of competition, in
particular capacities. The parties have been able to compile capacity data for all
production sites and all competitors in the EEA and in Turkey. They submit that this
data is based on their own market intelligence. Even though the figures do not always
correspond exactly to figures submitted by competitors in the market investigation,
the overall precision and detail with which capacity of competitors in relation to own
capacity (overall, but also current use for production of the three different types of
yeast) remains striking and indicates a very high degree of transparency in that
respect. The fact that capacity figures and production rates are transparent in the
industry has also been confirmed by a number of competitors.
(195) Moreover, the process leading to the change of ownership of the yeast business of
GBI Holding in the last five years, from Gist-Brocades to Gilde and now to ABF and
Lesaffre has meant that most of the competitors, including Lallemand and Puratos,
have undertaken due diligence of GBI Holding's assets, thereby acquiring detailed
knowledge of GBI Holding's production plants.105
104 See agreed minutes of conference call with Puratos, Call on 20 May 2008 and agreed minutes of
telephone conference with Indawisa 16 May 2008.
105 See agreed minutes of telephone conference between members of the case team and Lallemand held on 14
February 2008: "The bidding procedure organised by Gilde for the sale of GBI further provided
participants with rather detailed insight into this company's situation by providing participants with an
Information Memorandum and allowing them to conduct a due diligence investigation."
47
(196) Overall the market transparency of the industry is rather high. As confirmed by
Lallemand, "the yeast business is a small industry and it is very porous. People know
each other through the main suppliers (equipment, molasses) as well as through
customers (the competing offers of competitors are often used by (mainly) industrial
suppliers in price negotiations). Former employees are sometimes fluctuating to
competing firms and some people from the smaller ‘independent’ companies have
also met in various research projects which they cooperated and shared in the cost.
Sometimes competitors are even invited to see the plant of another competitor upon
the initiative of some equipment suppliers who want to demonstrate a particular piece
of equipment."106
(197) In this context, both distributors and suppliers also explain that it takes less than two
months to discover to whom a customer has been lost. "Puratos explains that the sales
man detects in general within a 2 months delay to whom industrial customers
substitute away from purchasing its own yeast."107. It is not uncommon for a
distributor to visit the atelier of artisan customers. As for prices, the supplier will be
informed of consumption variation and the identity of the "stealer" due to reporting
obligation/practice by the distributor. In this regard, local sales forces appear to be
fundamental assets: "In the countries where Lallemand has local sales force, it has a
good sense of what is happening on the market. The yeast markets are transparent if
you have good market intelligence via sales people on the ground – it is not so
difficult to find out the prices of competitors (for example sometimes bakers even
show the invoices they pay to competitors) or usually to find out to whom the
customer switched away. Customers often provide this type of information in the
framework of price negotiations with other suppliers in order to negotiate a better
price. Lallemand thinks it is not so difficult for sales people to monitor the customers’
behaviour in term of quantity variations of purchases. "108
(198) At the level of national markets, there is also significant evidence of market
transparency concerning prices and volumes specifically in Spain and Portugal as
explained in detail in the relevant sections below, particularly taking into
consideration the role of distributors in these two countries.
6.3.2.1.7 Very limited risk of leap-frog innovation
(199) Tacit coordination is easier to sustain in mature markets where innovation plays a
smaller role than in innovation-driven markets. The occurrence of technological shock
in the supply side has the effect of destabilising coordination as this would lead to a
misalignment of incentives among the several players that would want to exploit their
technological innovations. Therefore, this is an important factor in assessing whether
coordination is a serious concern.
(200) There is a widespread perception in the market that the technology of yeast
production is mature. The basic production process described above has not been
altered in decades. There is room in the industry for process innovation and marginal
106 See agreed minutes of telephone conference with Lallemand on 14 February 2008.
107 See agreed minutes of conference call with Puratos, Call on 20 May 2008.
108 See agreed minutes of telephone conference with Lallemand of 19 May 2008.
48
improvements on packaging technology. However none of the market players expects
any technological leap-frogging of the kind observed in more dynamic or hi-tech
markets which could threaten the established position of the existing incumbents in
the affected markets (or elsewhere), ABF, GBI and Lesaffre.
(201) Research and development is a relatively minor aspect of the business of producing
yeast, and ABF has shown that whilst some patents do exist, there are a number of
competing ways of achieving equivalent products and results109. There have been
some recent products developed and sold (such as the liquid yeast in Tetrapaks by
GBI and Kastaglia by Lesaffre). However, all market data collected throughout the
investigation, as well as the interviews undertaken, have shown that these have had a
minor impact on the market (see recital (30).
6.3.2.1.8 Extensive multi-market contacts
(202) Multi-market contact refers to situations where firms interact in more than one
market at the same time. In particular, multi-market contact can mute market level
asymmetries, for example, if each firm has a major competitive advantage in one
market (which could include one geographic area of a single product market). In this
respect, extensive multi-market contacts make it easier for firms to sustain
coordinated outcomes.
(203) ABF, GBI and Lesaffre currently meet in a number of markets besides compressed
yeast in Portugal and Spain. In particular, all three players have extensive presence
across a significant number of geographic markets, not only within Europe, but also
across the world, both in dry and compressed yeast as well as other bakery
ingredients. It is also worth noting that the sale of part of GBI's assets to ABF and part
to Lesaffre will lead to a more symmetric position of both players at worldwide level
(see also section 6.2).
(204) Generally, it is possible that market conditions or incentives facilitating coordinated
conduct may be less strong within some of these individual geographic markets. For
example, demand could grow rapidly on one particular geographic market and grow
slowly on a neighbouring one. It is also possible that on one market, firms can observe
or respond more quickly to cheating and thus punishment starts sooner. In these cases,
there is a range of parameters, for which with multi-market contact and tacit
coordination is facilitated and induced on both markets, whereas, in the absence of
such contacts, tacit coordination would be comparatively more difficult to sustain on
one market individually. In a similar way, tacit coordination in one market can make
more effective or sustainable tacit coordination in an adjacent market served by the
same players.110
109 The market investigation has confirmed that this viewpoint is widely shared. According to paragraph 474
of the Form CO "ABF’s yeast division estimates that it spent less than […]* of its revenue on R&D,
demonstrating that R&D costs are not significant in this sector.".
110 In technical terms, if full collusion is possible in one market but only some degree of collusion is possible
on a second separate market, the pooling of the incentive constraints across both market relaxes the
binding constraint on the second market enabling colluding firms to raise overall profits there.
49
(205) In the particular context of this case, the fact that market conditions are conducive to
coordination in the Spanish market may also facilitate coordination in Portugal, and
vice versa. Indeed, Lesaffre has […]* of spare capacity in Spain in Valladolid (see
Table 2), very close to the Portuguese border, whereas this spare capacity corresponds
to approximately [significant proportion]* of the whole Portuguese compressed yeast
market. Furthermore, because of its already established presence in Portugal, Lesaffre
faces virtually none of the barriers to entry or expansion identified in section 6.3.2.1.4.
However, to the extent that Lesaffre likely benefits from some degree of tacit
coordination in Spain, it faces the risk that significant effort to expand its presence in
Portugal may lead to tougher competition in Spain. This is underlined by the fact that
the Portuguese market is relatively minor in size compared to the close Spanish
market which can be thus much more important for Lesaffre. The actual mechanism of
tacit coordination and the effects of the notified merger are discussed for each market
separately in the next sections.
6.3.2.2 The Spanish compressed yeast market
6.3.2.2.1 Mechanism of Tacit Coordination
6.3.2.2.1.1 Ability to reach an understanding on the terms of coordination
(206) According to the Horizontal Merger Guidelines, "Coordination may take various
forms. In some markets, the most likely coordination may involve keeping prices
above the competitive level. In other markets, coordination may aim at limiting
production or the amount of new capacity brought to the market. Firms may also
coordinate by dividing the market, for instance by geographic area or other customer
characteristics, or by allocating contracts in bidding markets."
(207) Quantitative and qualitative evidence obtained during the market investigation
reveals that, the Spanish compressed yeast market already exhibits some degree of
tacit coordination allowing ABF, GBI and Lesaffre to influence prices and/or the
levels of sales in individual regions through, inter alia, exclusive relations with
distributors. These terms of coordination have been further corroborated by
information supplied by a number of customers (distributors) as explained below.
(208) First, as explained in section 6.3.2.1.6, there is a significant degree of transparency
as to the prices, sales and capacity levels of each of the three incumbents in
compressed yeast markets, including Spain. Transparency with respect to capacities
has been shown in recitals (194) and (195).
(209) With respect to sales, there exist historical relationships between producers and their
distributors and, in turn, between distributors and their customers, as explained in
section 6.3.1.4.1. This, combined with a relatively stable market demand and
relatively stable market shares for the three major players in Spain, as reflected in the
Table 3, ensures that there is extensive transparency as regards the historical
distribution of customers across producers (regarding switching see also section
6.3.2.2.1.2)
50
Table 3 Evolution of market shares from 2005 to 2007 in the compressed Spanish market
2005 2006 2007
Lesaffre [50-60]% [50-60]% [40-50]%
ABF [20-30]% [20-30]% [30-40]%
GBI [10-20]% [10-20] % [10-20]%
Zeus [0-5]% [0-5]% [0-5]%
Lallemand [0-5]% [0-5]% [0-5]%
Asmussen [0-5]% [0-5]% [0-5]%
* Source: Market Investigation
(210) With respect to prices, transparency is enhanced through various mechanisms. First,
as explained in section 6.3.2.1.5, reaching terms of coordination is made easier by the
fact that compressed yeast differs little between ABF, Lesaffre and GBI in terms of
quality, durability, availability, sale service, or other dimensions that may be
important to buyers. There is thus no need for suppliers to specify coordination terms
separately for each product dimension and develop a consensus on what constitutes
‘similar enough’ products for purposes of setting price and non-price terms.
(211) Second, bakeries will often enquire about prices charged by different suppliers and
inform competing distributors with the expectation of obtaining a better price. In this
sense, customers serve as an effective communication channel regarding prices of the
other two market players. However, customers often do not benefit themselves, since
(a) a particular producer will learn quickly about price increases from rivals,
subsequently adjusting their own prices and (b) even if a certain price difference
remains, producers provide incentives to distributors to withhold supply to customers
historically served by a rival, as explained in more detail below.
(212) Third, distributors play an important role in the ability to reach a tacit understanding
on the terms of coordination and in the enhanced ability to implement and sustain the
common policy of price increases.
(213) As mentioned in section 6.3.1.4.1 above, distribution in Spain is de facto exclusive
and distributors have tight long-term relationships with suppliers and final customers.
Even if most of the distributors have no written contract and hence no formal
exclusivity, it is the norm to work only with one supplier.111 ABF also confirm that
this is the usual practice.
(214) The market investigation confirms that the suppliers have their distributors
essentially arranged in a way so that generally only one distributor112 serves a given
111 "[He] considers that exclusivity is the norm in the market, i.e. that distributors only distribute one
producer's yeast. This is for GBI as is for the rest of the yeast suppliers." (from agreed minutes of
conference Call with GBI Spain and GBI Portugal 22 May 2008)
112 In Portugal especially, Lesaffre additionally divides its distributors according to the brands, so there can
be more than one distributor of Lesaffre's products serving a given area with 'his' Lesaffre brands.
51
area, even without having formal territorial exclusivity agreements. The general
manager of GBI Spain and Portugal with vast experience in the yeast market confirms
that "(…) geographic exclusivity, mainly based on provinces is the norm, although,
depending on the size of the province the allotted territory of the distributors may be
based on parts of provinces"113. Even if ABF claims that it does not have any
exclusive territorial arrangements, distributors also confirm that if there are more of
them in a given province, the province is then in practice naturally sub-divided into
smaller areas between the distributors, often as a result of the historic presence of the
distributors. Informal territorial arrangements seem to be in place and can be attached
to regions or when demand is high to smaller territories. For example, ABF has more
distributors in the same region (on a 'distribution map' of ABF it shows up to about
[…]* distributors in or around [Spanish region]*). During the market investigation, an
ABF distributor in the [same Spanish region as in previous sentence]* confirmed that
the […]* distributors are very small and each have their part of the region (such as
only one serving the city centre), while none of them covers the whole region, and
they thus virtually do not compete against each other (except in the "border" areas)
and stay in their traditional area of supply.114 Similarly, an ABF distributor in the
[…]* region (for which ABF indicates around […]* distributors) states that he is an
exclusive distributor in a given territory.115
(215) The incentive for distributors to expand and operate at a larger scale appears to be
limited. Distributors explain that they stay in their region and it would not be
profitable for them to expand beyond that region, due to high costs of refrigerated
transport to serve artisans further away for example. The system in place seems to
significantly limit the ability to expand by distributors. As one distributor puts it: "the
whole system is organized in a way that impedes/makes difficult for distributors to
expand"116.
(216) Given that distributors in Spain are not contractually bound as to the prices they set
to their customers, the control of the (normally exclusive) distributor by each supplier
is a key element in the ability of the supplier to simultaneously (or within a short time
lag) increase prices. The control is exercised by the commitment of each supplier to
provide his respective distributors (for each territory) with the normal volume based
on historical consumption.
(217) As a result, given the (de facto) exclusivity arrangements which are a general feature
of the Spanish market, the structure of the market at a local level is very simple and
enhances transparency. As a norm, each territory is populated by essentially the (de
facto) exclusive distributors of the three main suppliers and the market is in essence
divided by the commitment of each supplier to provide his distributor(s) in the given
area by just the right amount of volume, as otherwise the distributor(s) would have the
113 See agreed minutes of conference Call with GBI Spain and GBI Portugal 22 May 2008
114 Confirmed minutes of a call with a [Spanish distributor] of 10 September 2008.
115 Answer of [a Spanish distributor] on question 5 and 6 of the Commission's questionnaire of 28 February
2008.
116 From agreed minutes a conference call with [Spanish distributor] of 11 June 2008r.
52
incentive to expand and try to sell more quantity.117 To do so, the distributor might
decide either to source from other suppliers or try to extract more quantity (by
cheating on his current needs) from the supplier. The overall effect would be a
disruption of the coordinated outcome with increased competition and a price level
which would return to a competitive level.
(218) To compensate the distributors, suppliers have thus to offer them a sufficient margin
on the final price. Overall, the situation generates quite high revenues for the
distributors. The market investigation confirms that distributors in Spain indeed enjoy
a margin (price cost margin) in the range of […]*.
(219) The market investigation confirms that when attempts of this type occur, the
suppliers respond quickly to credibly eliminate any ability and/or incentive of the
distributor to expand. The current supplier threatens the distributor to cut his current
supply or to raise prices disproportionately. This demonstrates how the system
corrects itself when a distributor is trying to deviate from the paradigm imposed by
the suppliers. The market investigation revealed a number of cases where this has
occurred.118
(220) Further, as suggested by economic theory in a territory where distribution is
exclusive, and there are two distributors each selling one brand, suppliers of each
brand may have reduced incentives to lower prices, further creating conditions of
sustainability of a common price increase policy119.
(221) The impact of exclusive distribution in facilitating the tacit understanding on the
terms of coordination is thus threefold. First, exclusive territories reduce competition
between the distributors beyond their assigned territory. Second, exclusive territories
also tend to restrict competition between distributors of different suppliers and may
thereby contribute to stabilise tacit coordination. Coordination is therefore more
effective by way of freezing the existing relationships with distributors and amounts
of yeast supplied to them. Third, exclusive distribution contributes considerably to
enhanced transparency in the market, thereby further facilitating coordination on
117 In Spain, suppliers tend to have only one distributor in a given area, be it a region or a smaller part of the
region if there are more distributors in the bigger region, as explained in recital (214). However, even if
there are more then one distributors of a given supplier serving the same area (like in particular in the case
of Lesaffre, whereas Lesaffre's distributors may only sell certain brands and not the whole range), the
same reasoning can be applied as the supplier simply adds-up the volumes of the distributors which serve
the area in parallel.
118 See, for example, agreed minutes of conference call of 3 July 2008 with [Spanish distributor]..
119 The reasoning for this result is as follows: Imagine that supplier 1 unilaterally lowers its wholesale price.
Under exclusive dealing, when the first distributor revises its retail price (p1) downwards, it attracts
customers from the second distributor, who would then be strongly motivated to revise its retail price (p2)
downwards. On the other hand, if distribution is non-exclusive, the sole distributor selling both products
would feel less pressure to lower p2 as p1 is lowered, since customers switching to product 1 would not
be switching distributors. Thus the net change in the retail price differential is likely to be greater under
non-exclusive distribution. But this suggests that as the wholesale price is lowered, the sales of product 1
will rise by an amount greater under non-exclusive dealing than under exclusive dealing. The same
reasoning can be applied to the other manufacturer. The overall effect is that the perceived demands of the
manufacturers are rendered more inelastic under exclusive dealing, much as if the products were more
greatly differentiated. One then expects wholesale prices to be higher, and manufacturer profits greater,
under exclusive dealing. With more than two brands, the reasoning is similar.
53
prices and monitoring. Typically, in a given region or part of a region in Spain, there
would only be one distributor for each supplier. This contributes to ensure that
distribution system in Spain is simple and transparent, with limited intra-brand
competition.120
(222) Moreover, the pricing data obtained during the market investigation, though partially
incomplete at the stage when the parties submitted remedies, reveals that average
prices of all three competitors remained relatively stable in the years previous to 2006.
As of 2006, there was a simultaneous increase in prices for all three producers.
(223) Note that in the recent past, particularly since 2006, prices have been increasing
significantly in Spain and the three players - ABF, Lesaffre and GBI - have aligned
their price increases whilst at the same time the market shares have been relatively
stable and there has been virtually no new entry and very limited expansion by the
fringe121. Indeed, Lallemand gradually reduced its prices up to 2005 with very limited
impact on the prices of the three incumbents - ABF, GBI and Lesaffre, - which, during
the last five years, have always kept their combined market share above [90-100] %.
(224) It is useful to analyse the gradual and parallel increase in prices as of 2005 in more
detail. It appears that as of 2005, input costs started to increase. Such supply shocks
can, in some circumstances, disrupt any efforts to tacitly coordinate conduct,
particularly to the extent that they may affect some players more than others.
However, as mentioned in section 6.3.2.1.5, given common technology and climatic
conditions of the plants of ABF, GBI and Lesaffre serving the Spanish market,
increased input costs can be expected to affect all three players in a similar manner.
Internal documents from GBI Holding suggest indeed this was expected to be the
case.
(225) The opportunities to increase margins through more effective coordination, arising
from common input cost increases is made more explicit in an internal memo of GBI
Holding: "Our objective is to increase the yeast prices in such a way that we will be
able to keep the EBIT at the present level or, if possible, higher. Due to the fact that
for the bakers the costs for yeast amount to less than 3% of the cost price of bread and
the fact that the mentioned cost increases are valid for the whole yeast industry, we
assume - at least at this moment - that we will succeed in these price increases"122
(226) Such quotes suggest that GBI Holding's pricing strategy was driven by the belief
there would be a common perception among the three major players in the market to
120 Even if there is more than one distributor of a given supplier in an area (like, for example, one selling
certain brands of the supplier and another one selling other brands, as may be in case of Lesaffre), the
level of transparency and market simplicity is still very high in Spain (and in Portugal), given that the
supplier is in possession of information from all of its distributors in the area and knows, given the
reporting of the distributors, whether the distributors lost or won business from each other or from
competitors. In addition, the supplier can simply add up all the sales of his distributors in a given area to
the evolutions of the market on a micro-aggregated level.
121 Even for different brands the market investigation reveals that price is being determined in the same way
for all brands (regardless of the physical characteristics of each brand), meaning that prices differences
across brands (as well as volumes) remain relatively stable over time.
122 Memo of August 11, 2006 of GBI Holding NV.
54
implement price increases, as opposed to competing more fiercely for increased sales
to offset the possible loss in margins resulting from increased input costs.
(227) The behaviour of GBI Holding was indeed well understood by ABF which mentions,
shortly after the Gilde acquisition of the yeast activities of GBI Holding, as early as
January 2006, that: "We expect less price pressure from Gilde as they strive to
increase profitability".123
(228) Finally, and as explained in the Horizontal Merger Guidelines, “Evidence of past
coordination is important if the relevant market characteristics have not changed
appreciably or are not likely to do so in the near future. Likewise, evidence of
coordination in similar markets may be useful information”. Useful lessons can be
learned as to the most effective way to coordinate behaviour from past cartels in the
same product market, as they not only shed light on the likely most efficient terms of
agreement to all the players but also give priors on the interpretation and the reasons
of a specific firm behaviour, reducing the information needed to sustain a tacit
agreement.
(229) It is striking that in the cases of alleged cartel behaviour referred to in Section
6.3.1.5 price increases were at issue, which reinforces the view that price increases act
as a focal point that helps Lesaffre, ABF and GBI form a common perception as to
each others likely conduct124.
6.3.2.2.1.2 Incentives to deviate and monitoring of deviations
(230) According to the Horizontal Merger Guidelines in paragraph 49, "Coordinating
firms are often tempted to increase their share of the market by deviating from the
terms of coordination, for instance by lowering prices, offering secret discounts,
increasing product quality or capacity or trying to win new customers. Only the
credible threat of timely and sufficient retaliation keeps firms from deviating. Markets
therefore need to be sufficiently transparent to allow the coordinating firms to
monitor to a sufficient degree whether other firms are deviating, and thus know when
to retaliate".
(231) As explained in section Section 6.3.2.1.6 the compressed market in Spain can be
considered relatively transparent with respect to prices, sales and capacities. Such
transparency facilitates the monitoring of deviations in various ways:
(232) First, it is to be noted that in a market were prices are increasing, as was the case in
Spain since 2005, deviations from tacitly coordinated prices are possible when a price
increase applied by one player is not followed by any of the others and, as a result, the
123 ABF internal doc […]*.
124 A further case concerns the Polish compressed yeast market. In 2003, the Polish Competition Authority
adopted a decision punishing an alleged cartel in the compressed market for yeast in Poland . According
to the decision, the organization of the cartel was based on geographical market sharing based on
proximity to each plant. In effect, each firm was allocated a leadership position in the surrounding area (or
province) where its plant was located, and prices were increased by similar amounts simultaneously. The
decision was overturned by the Court for the Protection of Competition and Consumers in its decision on
October 6, 2005, considering that the Polish Competition Authority had not produced hard evidence of a
cartel between these 7 suppliers.
55
deviator is getting business that it would not have otherwise obtained. In the context
of frequent deliveries, this is simply verified by observing significant decrease in
volumes with respect to the previous year for a given territory. Indeed when market
demand is relatively stable, as is the case in Spain, inferring deviations from collusive
conduct is easier and requires less market data than when the market demand
fluctuates significantly and unpredictably.
(233) Second, although deviations can be detected by the observation of quantities or
unexpected market share variations within a region, in the manner described above,
deviations can also be detected via monitoring of price, as mentioned in recital (211)
(234) In this regard, distributors play an important role as channels of information. As
described in recitals (132) to (133), the long term, traditional and de facto exclusive
relationships between the suppliers and the distributors, and the distributors and the
artisan bakers, mean that information flows to the supplier as to the pricing behaviour
of competitors, in targeting those customers whose patterns of consumption of yeast
have changed.
(235) Distributors also play a very significant role in discovering to whom the quantities
have gone to, in order to identify the deviator and trigger the retaliation against him.
Further, not only are distributors offering reliable data about the market but also
offering such information in a short delay means, providing data in a timely fashion.
(236) With weekly deliveries, the time lag to detect a deviation from tacit coordination is
relatively short, as per recital (197), since the occurrence of lower than expected sales
to existing clients are readily observed. Seasonality does not result in reduced
transparency since the pattern is regular and hence largely predictable. A loss of sales,
therefore, can indicate, within a very short time that a competitor may have increased
its sales125.
(237) A distribution system arranged in a way where there are small distributors confined
to their local area also reduces the incentives to deviate in the first place as this limits
the possible short-term gains obtained from cheating on the terms of tacit
coordination. The benefit of lower prices (in terms of expanded output) are likely
confined to the region / area in question, unless the supplier provides low prices to all
its distributors and assures increased supplies. Such an action, however, would be
detected relatively quickly due to the numerous price adjustments that the supplier
should apply to several distributors.
(238) Consistent with the view that the incentives to deviate are limited and that it is
relatively easy to monitor deviations, the market investigation reveals very few
instances of switching from one producer to the other on the part of direct customers
or distributors. For example, in the period from 2006 to 2007, the data, collected up to
the date when remedies were offered, shows one instance of switching in Spain over
125 Where demand is relatively elastic, seasonality may increase the incentives to deviate. This is because
undercutting rivals is more tempting when demand is high. In addition, however, the perceived cost of
future price wars is lower when the cycle is at its top, since retaliation will only occur later, thus in
periods of lower demand. However in the case of compressed yeast, as explained in section 1.2.1.4.5,
demand elasticity is likely to be rather low throughout the year. This implies that the threat of retaliation
remains severe also in periods of comparatively lower demand. Furthermore the difference of volumes
between the peak quarter and the following quarter is less than 10% thus relatively low.
56
419 customers identified and in the period from 2005 to 2006, the data shows four
instances of switching in Spain over 451 customers identified.126
6.3.2.2.1.3 Deterrence
(239) In Impala v Commission127 the CFI held at paragraph 465 that: "It follows from the
case-law that in order for a situation of collective dominant position to be viable,
there must be adequate deterrents to ensure that there is a long-term incentive in not
departing from the common policy, which means that each member of the dominant
oligopoly must be aware that highly competitive action on its part designed to
increase its market share would provoke identical action by the others, so that it
would derive no benefit from its initiative".
(240) In the compressed yeast market, a return to fully competitive interaction would act
as a sufficient deterrent mechanism. This is for at least two reasons.
(241) First, given the low elasticity of demand (see section 6.3.2.1.3) for compressed
yeast any output expansion would likely have a significant impact on prices thereby
rapidly reducing profitability.
(242) Second, all three players- GBI, ABF and Lesaffre - currently hold excess capacity in
their plants serving Spain, sufficient to initiate a long-lasting price war in the event of
any of them deviating from coordinated interaction. Moreover, ABF and Lesaffre are
able to serve the Spanish market from Portugal or France respectively, where they
also hold additional capacity or can shift current sales from these markets for a
temporary period as an additional threat. Shifting volumes from one geographic
market to the other, though likely uneconomical on a permanent basis given the
opportunity cost of lost sales, allows the three producers to reinforce the threat of
significantly expanding sales without necessarily holding excessive idle capacity.
(243) Retaliation would also likely be timely as transactions in the yeast market are
characterized by weekly or bi-weekly supply. As seen in section 6.3.2.2.1.2, there is
sufficient transparency in the market to determine the identity of a player deviating
from the common policy. This has the effect of making the punishment timely. This,
in turn, further decreases the incentive to deviate in competing for small and regular
orders. Market transparency derived from the role of distributors also contributes to
the effectiveness of any retaliation. This is because "punishment" cannot be confused
with a slump in demand.
(244) The credibility of deterrence is enhanced by multi-market contacts among the three
players (see Section 6.3.2.1.8) which implies that retaliation can take place in adjacent
regions within Spain, in other geographic markets128, in other yeast markets in
126 Switching is here defined as the change by a customer of his main supplier from one year to the other.
The main supplier is defined as the one from which a customer buys the largest share of the entire
acquired quantity.
127 Case T-464/04 Impala v Commission [2006], OJ C 224 of 16.09.2006, p.39
128 On a geographical scope, GBI, Lesaffre and ABF meet across various EU markets (and also worldwide),
including Portugal and France where all three firms are present. Retaliation can therefore occur in
different geographic regions
57
particular liquid, or with respect to a specific segment of customers, such as direct
customers. As earlier explained firms can sustain tacit coordination more easily when
they are present on several markets.
6.3.2.2.1.4 Reaction of outsiders
(245) Tacit coordination is only successful if the actions of non-coordinating firms and
potential competitors, as well as customers, should not be able to jeopardise the
outcome expected from coordination.
6.3.2.2.1.4.1 Fringe competitors face high barriers to entry and/or expansion
(246) In the absence of entry barriers, any attempt to maintain supra-competitive prices
would trigger entry (for example, short-term or “hit-and-run” entry strategies), which
would erode the profitability of collusion. Second, the prospect of future entry tends
to reduce the scope for retaliation, which in turns limits the sustainability of collusion.
The basic idea is that firms have less to lose from future retaliation if entry occurs
anyway. More precisely, the prospect of future entry does not affect the short-term
benefit that a firm can obtain from a deviation, but it reduces the potential cost of
deviation in terms of foregone future profits. Indeed, retaliation against a deviating
firm is less significant if entry occurs, since entry dissipates profits irrespective of the
past behaviour of incumbent firms. Firms are then more tempted to undercut collusive
prices and the ability to collude thus declines when the likelihood of entry increases.
(247) According to the notifying party entry and/or expansion could occur a number of
ways: (i) new entry with the construction of a new plant in the region or acquisition or
expansion of existing production facilities; or (ii) expansion into the area by using
spare capacities and/or diversion from other geographical areas or yeast products.
However, as explained in detail in section 6.3.2.1.4 the market investigation has
demonstrated that not only are there barriers to entry and expansion but also that the
available spare capacity is not sufficient to undermine the degree of tacit
coordination.
(248) In particular, successful entry and or expansion requires access to (a) a local
distribution system, with (b) local sales persons and (c) recognised brands. In
addition, new entrants in these geographic areas require (d) the establishment of a
quality and consistency of supplies reputation, which does not seem to have been
taken seriously into account by the notifying party.
(249) Traditional relationships with distributors play an important role in Spain (where the
distributors channel accounts for [70-80] % of the market), as these relationships are
to a vast degree long-standing and even, in some cases, inter-generational.
Distributors in Spain have a significant influence on the final artisan bakers, as they
have supplied them for a long time, on a very frequent basis – once or even twice
weekly. Moreover, the distribution structure is very rigid, with exclusive distributors
for all three main producers divided into their exclusive territories.
(250) The need for an established local sales force together with the setting up of a
distribution network is thus a high barrier to entry for non-established competitors.
Competitors explain that it would be very difficult to expand significantly without an
58
active local sales force129. In Spain, distributors are usually relatively small and have
no technical employees, so it is not only necessary to have a local sales force in order
to build up and develop relationships with distributors but also to provide a technical
back up required to assist the sales force in developing their distribution network. The
development of a network of distributors takes time and, given the outreach of the
three current major players (with [90-100] % of the market), it was cited as
fundamental by most distributors and competitors in the market investigation as
barrier to entry of a new supplier.
(251) Brand notoriety is another factor to consider with artisan bakers, as brands represent
quality and reliability of the product. A brand which is not traditionally known or has
little standing in the marketplace, and introduced by a newcomer would only be
considered if the product would be positioned with a very low price, to persuade the
most price-sensitive customers to switch.
(252) However, the quality and reliability of the product are further fundamental factors to
be considered by bakers in using a yeast brand as even small changes in quality can
affect the final product. Many distributors, for example, dismissed compressed yeast
offered by Turkish producers as being of inferior quality130. Further, customers need
the compressed yeast to arrive on a continuous basis. It follows that in a traditional
market like the artisan segment most distributors contacted during the investigation
stressed that it can take a long time for a new entrant to establish such a reputation for
reliability.
(253) Finally, investment costs for new plants are high and there are regulatory difficulties
associated with building new plants, essentially due to environmental constraints.
What is more, this comes within the setting of a relatively stable demand for bakers
yeast and a saturated market. In effect, only one plant has been built in Western
Europe in the last 10 years, - the Puratos plant with 17kt built in 2000. In fact, in the
recent past, there has been a trend towards consolidation of smaller plants into bigger
plants which indicates that this is an industry where economies of scale play a
significant role.
(254) In short, entry barriers are significant and successful entry or expansion requires
access to a local distribution system, with local sales persons and recognised brands.
In addition, new entrants in these geographic areas require the establishment of a
reputation for quality and reliability of supplies.
(255) These barriers impact the ability and incentives for the current marginal players such
as Lallemand and Zeus, as well as the possible new entrants, such as the Turkish yeast
producers.
(256) As regards the current marginal players, the market investigation has shown that
non-coordinating firms would not be able to jeopardise the common policy in the
compressed yeast market in Spain. It is useful to recall here that the three major
incumbents hold approximately [90-100] % of total demand in Spain. Outsiders have
currently, therefore, only a very marginal presence in Spain and there are no
129 See agreed minutes of Conference Call with Zeus of 12.03.2008.
130 See for example: agreed minutes of ANFECOR conference call of 3.07.2008
59
indications in the form of expansion plans or agreements with distributors suggesting
that either Lallemand or Zeus are currently seeking to expand their presence in Spain.
However, Lallemand and Zeus hold only […]* and […]* spare capacity, respectively,
in the relevant geographic area (see Table 2). In addition, due to stable demand, in
order to obtain customers suppliers must 'steal' customer from other producers.131
(257) Further, Zeus, a player already with a presence in Spain, even if very marginal, has
no space to build more production facilities or to expand them.
(258) Moreover, both Zeus (with […]*) and Lallemand (with […]*) have plants that are
some distance away from Spain, and so are at a transport cost disadvantage in relation
to both ABF's and Lesaffre's plants in the Iberian Peninsula, which is a further
disincentive to expand on top of the very important disadvantages such as the absence
of an established extensive network of distributors, brand recognition and notoriety
with final customers which serve as an important entry barrier.132 In fact, Zeus and
Lalemand have only three and one distributor(s) in Spain, respectively. 133
(259) This shows that not only do they lack a nationwide distribution network but also a
solid and consolidated reputation for quality and reliability and well known brands134 .
(260) More generally, as to new entry into the Spanish compressed yeast market by
players not currently present on this market, ABF referred, namely, to players such as
Pakmaya, Akmaya and Somadir.
(261) According to numerous Spanish distributors, new entrants operating from plants
further afield, such as the Turkish producers Akmaya and Pakmaya, as well as
Somadir from Morrocco, are unable to credibly and sustainably become a competitor
in Spain. Supplies by these players have been negligible and irregular, with supplies
arriving for a time and then ceasing, so they are perceived by distributors and artisan
bakers as unreliable. Even more than in the case of Lallemand and Zeus, not only are
these players located at a transport disadvantage given the very far location of their
plants but also given the lack of any local sales forces, as well as quality and
reliability issues identified in the investigation.
131 See also agreed minutes of telephone call with Indawisa of 16 May 2008 : "Generally, before an
expansion of production capacity could be considered, one has to know where the yeast could be sold.
Currently, the yeast market is saturated in Europe. This means that a supplier would have to take
customers from its competitors, and then as a reaction one has to expect that the competitors would take
his own customers. In the current situation where market is even slightly declining (even if the demand for
bread is stable, the industrialisation of bares means that there is less yeast needed on the market), it is
thus not reasonable to expand capacities."
132 GBI also supplies the Iberian markets from distance from the plant in Casteggio and it is also incurring
some additional transport costs, however Casteggio has a relatively lot of spare capacity ([…]*) in the
plant where it consolidated its production with the former production from its Portuguese plant closed
around 2001 (presumably, due to better economies of scale of a consolidated production). Even more
importantly, GBI was able to leverage from its long lasting established position on the Spanish market
including distribution structures and recognised brands, so it faced no entry barriers whatsoever.
133 See agreed minutes of conference call with Zeus on 12th
March 2008.
134 See for example: agreed minutes with Panificação Costa e Ferreira, as regards Lallemand.
60
(262) The likelihood of new entry is further reduced by past aggressive behaviour which
has created a reputation for squeezing out attempts to supply in Spain. Indeed, several
distributors described during the market investigation many instances of such
behaviour.135 Indeed, the strong presence of ABF, GBI and Lesaffre in the Spanish
market, and the fact that they hold sufficient spare capacity, is likely to provide a
disincentive for potential entrants to attempt to undermine any possible of tacit
coordination. The reason is that a potential entrant must take into consideration (a)
the fact that if entry triggers competition by destabilising the existing tacit
coordination the post-entry price may be insufficient to cover for any sunk costs of
developing a distribution network in Spain or expanding capacity to serve the Spanish
market (b) given the degree of transparency in the market it is likely that any entry
will be easily detected and the producer from which sales have been diverted has
sufficient capacity to target the affected customers with lower prices, defeating the
rationale for entry, or even lower prices/increase sales in the domestic markets of the
potential entrant. For example in the case of Zeus or Lallemand, both GBI or Lesaffre
can retaliate in Italy and Eastern Europe, respectively136137
(263) It is worth noting that in the case of the alleged cartel in France, collusion extended
to retaliation against any potential entrants (see section 6.3.1.5 above). In that case, a
German and an Italian producer both attempted to enter the French market but
incumbents successfully targeted the customers of the entrant by offering free
deliveries. Other instances were cited by Lallemand as regards the entry of Puratos
into the dry yeast market, namely when it built a dry yeast plant in Wallonia and was
subject to a "very strong competitive reaction by Lesaffre …in Israel from Lesaffre’s
plants in Turkey" so that "in spite of its great reputation and established distribution
networks it has had a very hard time penetrating profitably the yeast markets Puratos
is now not very aggressive in the market, according to Lallemand”.138
(264) Apparently, targeted retaliation is still in use, more specifically in the Spanish
market. Market participants provided specific evidence showing how the incumbents
retaliate when distributors attempt to purchase from the new coming fringe players.139
135 See, for example, agreed minutes of the conference call with Lallemand dated 14.02.2008.
136 In the case of alleged collusion in France, coordination extended to retaliation against any potential
entrants (see section 6.3.1.5 above)
137 Another example referred by Lallemand is the attempt of Pakmaya to enter in Romania: “Another
competitor, Pakmaya (Turkey), produces and supplies fresh yeast in Turkey and more recently in
Romania and dry yeast worldwide and has a very good quality product in the dry yeast, according to
Lallemand. However, when it decided to export to Europe, Lesaffre and GBI dropped their prices in
Turkey, a major market for Pakmaya, which seems to have now decided to stop exporting fresh yeast to
Western Europe.” See agreed minutes of a conference call with Lallemand dated 14.02.2008.
138 See agreed minutes of the conference call with Lallemand dated 14.02.2008.
139 See, for example agreed minutes of a conference call with [Spanish distributor] of 11 June 2008 showing
how he was threatened and actually retaliated by an incumbent suppler via a very significant rise of prices
to this distributor (resulting in the loss of his customers), as a reaction on the distributor's choice to
distribute yeast from a fringe player. The same distributor reported that subsequently, he was informed by
the fringe player that the latter is under pressure from the incumbents not to grow sales in Spain,
otherwise he would be risking losing clients in his home market.
61
(265) For entry or expansion to be considered a sufficient competitive constraint on the
merging parties, it must be shown to be not only likely but also timely and sufficient
to deter or defeat any potential anti-competitive effect of the merger. It is clear from
the evidence presented that there are no plans to expand current spare capacities that
could be used to profitably serve this market.
6.3.2.2.1.4.2 Limited countervailing buying power of distributors and artisan bakeries
(266) A related factor concerns the countervailing buying power of customers. If buyers
are powerful, even a monopolist or a fully collusive oligopoly may find it difficult to
impose high prices. More generally, actions by power buyers may reduce the
profitability of tacit coordination. Economic theory suggests that large buyers can
successfully break collusion by concentrating their orders, in order to make firms’
interaction less frequent and to increase the short-term gains from undercutting rivals;
more generally, large buyers can design procurement schemes that reduce the scope
for tacit coordination.
(267) Artisan bakers, a large majority of the final customers, are very numerous and small
and are reliant for their yeast purchases on distributors, given that their bread making
process is highly dependent on yeast. In Spain the distributors channel the vast
majority of the compressed yeast sales of the yeast producers (approximately [70-
80]%), the remaining being sold directly by the producers to mostly industrial
customers.
(268) As to distributors they have only a limited role to play as independent players from
the suppliers of bakers yeast. In effect, as detailed above in recitals (213) to (221), the
division of Spain by producers into small territories for its distributors (for example
along province boundaries) ensures that each individual distributor only accounts for a
small share of total sales. This reduces the risk of any given distributor growing in
size so as to increase sufficient bargaining power vis-à-vis suppliers.
(269) The geographic allocation system verified in Spain has also another important
implication. The alternatives left to a distributor who wishes to source yeast from
suppliers other than ABF, GBI and Lesaffre, and given that the three significant
suppliers have already nationwide distribution networks, are very limited.
(270) Finally, the distributors are also to an extent dependent on the technical and
commercial back-up that may be provided by the local sales and technical people that
are part of the ABF, GBI and Lessafre's dedicated local force.
(271) Therefore, whilst the role of distributors is an important one vis a vis the artisan
bakers, since they provide the logistic platform on which all the individual artisan
bakers may be reached by the suppliers of yeast, they do not have, for the reasons
given above, a strong negotiating position vis a vis the yeast producers.
(272) It follows that neither distributors nor artisan bakers have any countervailing buyer
power.
6.3.2.2.2 The effect of the transaction in the Spanish compressed yeast markets
62
(273) It is established case law that the Commission must further show, on the basis of a
prospective analysis, the extent to which the “the alteration in the [relevant market]
structure that the transaction would entail”140 significantly impedes effective
competition by making coordination easier, more stable or more effective for the three
firms concerned either by making the coordination more robust or by permitting firms
to coordinate on even higher prices.
(274) In the previous section it was shown that a series of structural and behavioural
elements are in place supporting the conclusion that the Spanish compressed yeast
market already exhibits some degree of tacit coordination allowing ABF, GBI and
Lesaffre to influence prices and/or the levels of sales in individual regions through,
inter alia, (de facto) exclusive relations with distributors.
(275) In a range of market outcomes, in which at the extremes there are a competitive
oligopoly and a perfectly collusive oligopoly, the acquisition of GBI Assets by ABF
as notified will likely enhance the ease, stability and the effectiveness with which tacit
coordination leading to a significant increase in prices beyond the level that would
have prevailed in the absence of the merger.
(276) This increase in the degree of tacit coordination in Spain would result from either
one of the following mechanisms (or coordinated effects), which taken together,
reinforce each other141.
(277) First, the break up and sale of GBI's assets into ABF further increases transparency
by reducing the number of players in the market in Spain, thereby facilitating the
ability to detect deviant conduct and to retaliate effectively.
(278) Second, relative to ABF and Lesaffre, GBI exhibits certain differences, which may,
in the absence of the merger, induce greater incentives to favour different strategic
choices than its coordinating competitors would prefer. These differences relate to the
fact that (a) its plant is located outside the Iberian Peninsula, and (b) GBI is not
present in the industrial direct clients segment. The merger eliminates the risk that as a
result of an occasional misalignment of incentives, GBI deviates from the terms of
coordination. It follows that by further increasing the similarity between Lesaffre and
the merged entity the notified merger would increase the future sustainability of tacit
coordination.
(279) These effects reinforce one or more of the necessary conditions required for tacit
coordination.
(280) In the case of Spain, the effects of the merger identified above will likely make tacit
coordination easier to sustain, more resilient and more effective by removing GBI as a
potential source of independent pricing variation from the market and allowing the
remaining two players to align their incentives and better monitor compliance with
agreed terms of coordination.
140 Case T-342/99 Airtours/First Choice [2002] ECR II-2585, paragraph 61.
141 Note that such prospective assessment of the coordinated effects of the merger must be undertaken
irrespective of the exact degree of tacit coordination presumed.
63
(281) In addition, in Spain, the merger, by increasing symmetry not only in terms of cost
structure but also in terms of market shares, contributes to better align the incentives
to coordinate between Lesaffre and ABF and to sustain a tacit understanding over the
terms of such coordination.
6.3.2.2.2.1 The merger reduces the number of major competitors from three to two in Spain
(282) The notified merger would essentially lead to a duopolistic market structure between
the merged entity and Lesaffre across almost every customer segment and region, in
the market for compressed yeast in Spain
(283) Post-merger, ABF and Lesaffre would hold similar spare capacities (approximately
[…]* each) in the feasible area of supply, and would be the only producers to have
established distribution networks. Together they would hold [90-100] % of the
Spanish compressed yeast markets.
(284) While any horizontal merger will tend to make tacit coordination incrementally
easier to negotiate and sustain, the quantitative importance of this effect will vary with
the pre-merger structure of the market. A merger that reduces the number of major
rivals in a relevant market from three to two carries with it a presumption both from
economic theory and empirical studies that coordination can be significantly
facilitated by the elimination of an independent decision-maker in a highly
concentrated market. The reduction of competitors from three to two will likely make
it incrementally easier to tacitly coordinate their conduct, for at least five reasons.
(285) First, the presence of a lower number of rivals tends to increase the incentives to
coordinate. With higher concentration, the merged entity and Lesaffre face a lower
base of rivals’ customers from which to attract new sales, thus depressing the shortterm
gains from behaving more aggressively in terms of prices or output. At the same
time, through the merger, ABF expands its installed base of customers on which it
will wish to protect its above-competitive margin, thus raising the long-run return to
preserving tacit coordination142.
(286) Second, two players instead of three will likely be better able to tacitly agree on the
terms of coordination. The merger will reduce the number of independent parties who
must be brought together to tacitly coordinate thereby facilitating the forming of
expectations regarding rivals' conduct. With three suppliers, ABF for example, must
form an expectation regarding both Lesaffre’s and GBI’s likely conduct and response
to ABF’s actions and each other's. In contrast with two players, each firm needs to
form an expectation only about each other's future conduct.
(287) Third, monitoring of competitors' sales in the market appears to already be possible.
However, the concentration from three to two players will tend to increase
transparency, thereby further reducing the time lag necessary to detect a deviation.
142 Conversely, since firms must share the collusive profit, as the number of firms increases each firm gets a
lower share of the pie. This has two implications. First, the gain from deviating increases for each firm
since, by undercutting the collusive price, a firm can steal market shares from all its competitors; that is,
having a smaller share each firm would gain more from capturing the entire market. Second, for each firm
the long-term benefit of maintaining collusion is reduced, precisely because it gets a smaller share of the
collusive profit. Thus, the short-run gain from deviation increases, while at the same time the long-run
benefit of maintaining collusion is reduced. It is thus more difficult to prevent firms from deviating.
64
Generally, the more firms present in the market, the harder it will be to determine the
identity of the deviator once whenever it is suspected that cheating has occurred. In
contrast, when the number of coordinating firms is two, as opposed to three, the
identity of the deviator can be easily determined. If, for example, the distributor of
Lesaffre in a specific region in Spain informs that it is losing significant sales to one
or more of its historical customers, in most cases, it will be possible to presume that
the merged entity has deviated.
(288) Fourth, as concentration increases, punishments that are intended to maintain pricing
discipline will gain credibility because the opportunity cost grows of turning a blind
eye to more aggressive conduct by a now larger rival. Moreover, increased
transparency also facilitates the effectiveness of the punishment threat since to the
extent rivals may disagree on which firm is better placed to punish a deviator a
reduction in the number of players from three to two also eliminates the risk that one
firm may prefer to free-ride on the punishment efforts of the other.
(289) Finally, a decrease in the number of firms increases the impact of an individual
firm's action on the aggregate market parameters. Thus, if the merged entity believes
that its actions are more easily monitored, it will be less likely to deviate from the tacit
coordination.
6.3.2.2.2.2 The merger eliminates the risk of GBI destabilising the existing degree of tacit
coordination
(290) There are many situations whereby a merger might facilitate coordinated interaction
by narrowing asymmetries between suppliers. For example, a merger may
homogenize competing suppliers’ product attributes, cost structures, planning
horizons, geographic coverage, or excess capacity holdings. Homogenisation along
such dimensions can align more closely producers’ incentives and ability to
coordinate and can make it easier for the remaining suppliers to reach and defend a
consensus on price, output, or market allocation.
(291) GBI has characteristics that gives it a greater incentive to favour different strategic
choices than its coordinating competitors would prefer in the face of future
unanticipated demand or supply shocks:
(a) First, GBI serves Portugal and Spain from its single plant in
Casteggio, which is also the second largest in Western Europe.
(b) Second, GBI has made recently a number of innovative
improvements in the production and packaging of compressed
yeast leading to patents.
(c) Third, GBI is not present in the market for liquid yeast in Spain or
Portugal, whereas ABF and Lesaffre are both present.
(292) The size and location of GBI's plant imply that it may be affected in different ways
that ABF and Lesaffre by future unanticipated demand or supply shocks. This may
make it more difficult for these two suppliers to make inferences regarding GBI's
intended conduct from market observables and can ultimately destabilize any degree
of existing coordination in the absence of the merger.
65
(293) For example, from Casteggio, GBI serves markets other than Spain and Portugal.
Asymmetric demand shocks in these markets (for example a sharp temporary decline
in demand) may encourage GBI to attempt to expand its sales in the Iberian Peninsula.
(294) Post merger, the merged entity can rationalise production for the Iberian Peninsula
into its plants in Setubal and Cordoba, reducing the supplies originating in Casteggio
into Spain. For example, Setubal, which supplied France, could be used to serve the
Iberian markets and Casteggio could in turn be used to increase supplies into France.
The spare capacity available in ABF's plants can cover the reallocation of Casteggio
production to other areas. This will reduce the impact of asymmetric demand shocks
on GBI's incentives, in the absence of the merger, to tacitly coordinate with ABF and
Lesaffre.
(295) Furthermore, such reallocation will also increase cost symmetry between the merged
entity and Lesaffre, thereby further aligning their incentives to sustain and enhance
tacit coordination143. Indeed, a firm with a lower marginal cost may insist in lower
prices than what the other firms would wish to sustain. Further, extreme asymmetries
in suppliers’ cost structures may rule out simple focal points that suppliers otherwise
might have used to simplify reaching a tacit agreement on pricing schedules. In
addition, technical efficiency would require allocating market share to low-cost firms,
but this may be difficult to sustain in the absence of explicit agreements and sidepayments.
GBI faces a cost disadvantage in terms of transportation and logistics to the
Iberian Peninsula relative to ABF and Lesaffre. Recall that compressed yeast, needs to
be transported in special refrigerated trucks, which makes transport relatively
expensive. Suppliers therefore first seek opportunities relatively close to their
production sites. A reallocation of production from Casteggio to Cordoba and Setubal
also eliminates these differences and would again contribute to better align the
incentives between the merged entity and Lesaffre. Greater commonality in the cost
structures of Lesaffre and ABF narrows conflicts of interest in price setting or market
allocation, and can facilitate suppliers’ identification of focal points for reaching a
sustainable tacit understanding on the term of coordination.
(296) The reasoning extends to other differences in cost structure, or to differences in
production capacities. Capacity constraints potentially affect the sustainability of
collusion in two ways. First, a capacity-constrained firm has less to gain from
undercutting its rivals. Second, capacity-constraints limit firms’ retaliatory power. At
first glance, capacity constraints thus appear to have an ambiguous effect on tacit
coordination, since they reduce both the incentives to deviate and the ability to punish
such deviations. And indeed, studies that have focused on symmetric capacities have
confirmed this apparent ambiguity.
(297) According to established economic theory, however, asymmetry in capacities will
generally make tacit coordination more difficult to sustain144. Compared with a
143 In recent years, the theoretical literature has explored various possibilities: Rothschild (1999) on costs,
Compte et al (2002) on capacity, Kuhn (2004) on the number of products. Vasconcelos (2004) on
capacity/costs. Although the details of these models vary, the underlying mechanism always works
through the asymmetry this causes between firms in the profitability of/ability to punish and/or deviate.
144 This results from the fact that the smallest firms cause the highest competitive pressure given they have
the most to gain via business stealing (even if they cannot cover the market), and the largest firms are
least likely to follow punishment strategies given they have the most to lose in punishment phases.
Furthermore the incentives to deviate of each of the smaller firms independently in absence of binding
66
situation where all firms face the same capacity constraints, increasing the capacity of
one firm at the expense of the others both raises the first firm’s incentive to undercut
the others and limits these other firms’ retaliatory power. Overall, therefore,
introducing such asymmetry hinders tacit coordination. In contrast, by increasing
symmetry in capacities, incentives to tacitly coordinate are better aligned. In effect,
post-merger both Lesaffre and ABF would have almost identical spare capacities
(approximately […]*each) in the Iberian Peninsula.
(298) The tendency towards increased symmetry also manifests itself with respect to
market shares. In the case of the Spanish compressed yeast market, the effects of the
merger in increasing symmetry in market share are particularly stark. Post-merger
ABF/GBI will have a market share of [40-50] % and Lesaffre’s [40-50] %.
(299) Another additional consideration is that innovation makes tacit coordination less
easy to sustain. The reason is that innovation, particularly if it is a break-through in
the industry, may allow one firm to gain a significant advantage over its rivals. This
prospect reduces both the value of future tacit coordination and the amount of harm
that rivals will be able to inflict if the need arises. This idea is in fact a particular
variant of the more general point about cost asymmetry145. Whilst yeast production
uses relatively mature technology, GBI has, in the recent past, made investments in
R&D, leading to some innovation – namely as regards the Tetrapak liquid yeast
cartons for the use of artisan bakers.
(300) In fact, the merger also rests on an IP sharing agreement between Lesaffre and ABF,
whereby […]*According to this agreement, […]*. Such an agreement may
significantly enhance the sustainability of tacit coordination, in that it enhances
transparency regarding each other’s product features and establish a continuous and
long-term link between the coordinating firms.
(301) Under the terms of the transaction, by sharing GBI patents, the coordinating firms
(a) eliminate GBI as a source of potentially destabilizing innovation and (b) ensure
neither of the two coordinating firms inherits the competitive advantage that may
eventually derive from IP rights. Furthermore, such sharing of IP rights may
significantly enhance the sustainability of tacit coordination in at least two ways.
First, it enhances transparency regarding each other’s product features. Second, and
by extension, it makes the product offerings of both firms more homogenous.
(302) Finally, note that GBI, unlike ABF and Lesaffre does not serve the liquid yeast
market in Spain. In the absence of the merger this could result in misaligned
capacity constraints are greater than that of the merged entity given that the merged entity can only
increase sales by attracting customers from Lesaffre. In other words, when the productive capacity is such
that no firm is able to cover all aggregate demand, a merger that increases symmetry by strengthening the
two smaller firms will enhance the ability of the merged entity to retaliate in case of a deviation by the
larger firm
145 For example, consider an industry where, in the absence of any innovative activity, the incumbents would
benefit from a secure, stable situation. They would then hesitate before cheating on a collusive conduct,
which would trigger a price war and dissipate their future rents. Suppose now that, with some probability,
one incumbent makes a drastic innovation, which drives its rival out of the market. If the probability of
successful innovation is substantial, the incumbents then anticipate that their market position is short-lived
(at least in expected terms); they thus put less emphasis on the cost of future retaliation and are more
tempted to cheat on collusion.
67
incentives over time should market conditions lead to significantly higher sales in the
liquid market at the expense of sales of compressed yeast. The merger would also
eliminate this source of asymmetry.
(303) Similarly, GBI operates largely through distributors in Spain and thus has limited
direct sales in comparison with ABF and Lesaffre. This can be explained by the fact
that GBI lost almost all of its industrial customers when moving production in 2001-
2002 to Casteggio, as they were unwilling to risk delays or quality changes given the
large distances. Thus post-merger, Lesaffre and the merged entity will be more
homogenous also with respect to the distribution of their customer base in Spain.
6.3.2.2.2.3 Conclusion
(304) Based on the above, it is concluded that the proposed merger would significantly
impede effective competition in the market for compressed yeast in Spain. However,
as seen below, the remedies offered by ABF were sufficient to solve the identified
competition concerns and to restore effective competition in those markets.
6.3.2.3 The Portuguese compressed yeast market
6.3.2.3.1 Mechanism of Tacit Coordination
6.3.2.3.1.1 Ability to reach an understanding on the terms of coordination
(305) In the Portuguese market for compressed yeast, similarly to Spain, there is a
significant degree of transparency as to the prices, sales and capacity levels of each of
the three incumbents, as explained in section 6.3.2.1.6 and section 6.3.2.2.1.
(306) In the Portuguese market for compressed yeast, as in Spain, there exist historical
relationships between producers and their distributors and in turn between distributors
and their customers, as explained in section 6.3.1.4.1. Overall demand and market
shares are also relatively stable over time, as reflected in Table 4. This implies that
also in Portugal there is extensive transparency as regards the historical distribution of
customers across producers (regarding switching see also section 6.3.2.3.1.2 below).
Table 4 Evolution of market shares from 2005 to 2007 in the compressed Portuguese market
2005 2006 2007
GBI [40-50]% [40-50]% [40-50]%
ABF [30-40]% [20-30] % [20-30]%
Lesaffre [10-20]% [20-30]% [20-30]%
Lallemand 0.0% [0-5]% [0-5]%
Source: market investigation
68
(307) With respect to prices, transparency is also enhanced through product homogeneity
as explained in section 6.3.2.1.5, and the role of distributors as collectors of
information with regards rivals' prices and switching behaviour by customers.
(308) An analysis of the written contracts submitted by ABF in the Form CO, clearly
demonstrates that distributors in Portugal are exclusive and [brief description of the
limited degree of distributors' pricing autonomy and of their reporting obligations]*
(309) These are long standing relationships, often intra-generational, with very limited
instances of switching by distributors over time. In the period from 2006 to 2007 and
from 2005 to 2006, the data shows not a single instance of switching in Portugal over
53 and 56 customers identified, respectively.146
(310) The distribution system in Portugal is also very rigid. In Portugal, distributors tend
to only carry yeast from one supplier and to have geographic exclusivity for a
specified area. The market investigation revealed only one distributor selling yeast
from more than one producer. In effect, distributors have a long-standing relationship
with their yeast suppliers. ABF, Lesaffre and GBI already have a complete network of
distributors covering Portugal which makes extremely unlikely that distributors may
switch to other suppliers.
(311) Take for example the case of Prodipani. Prodipani is one of the more important
distributors of ABF in Portugal. Recently, it attempted to extend its yeast sales
activity beyond its designated exclusive. Despite its importance, ABF refused to
support this action and Lesaffre also refused to provide compressed yeast as its
network was also covered. Ultimately Prodipani turned to Lallemand, from which it
now acquires directly from its factory in Austria. However, it appears it has been
unable to sell more than just relatively small quantities from the latter.
(312) In some cases, the contracts with distributors include minimum quantity obligations
and/or other types of restrictions. For example, […]*Distribution contracts are also
designed to limit the incentives of the distributor to sell beyond the historical level.
On the contrary, the emphasis is on the maintenance of present customers. For
examples, […]*147.
(313) Both ABF and GBI's distributors do not set the final prices, as the market
investigation revealed that both final prices and distributors' margin are, in most cases,
determined by the producer. In few cases, where distributors may have some freedom
to set prices, the fact that these distributors have very low margins148 limits their price
setting ability.
(314) Furthermore, in most cases, distributors are not entitled to negotiate prices in case
one customer asks for a price reduction. It appears from the market investigation that
for both ABF and GBI distributors, the commercial representatives of these producers
146 Switching is here defined as the change made by a customer with regard to his main supplier from one
year to another. The main supplier is defined as the one from which a customer buys the largest share of
the entire acquired quantity.
147 See, for example, contracts provided as annex 8.40B of the Form CO.
148 See for example, agreed minutes with Sodifer of conference call on 26th
May 2008
69
are directly involved in the negotiations of prices that differ from the recommended
prices and, in case of a price cut, they will compensate the distributor.
(315) Additionally, the ability to control distributors' prices is coupled with the ability to
control volumes sold by the suppliers to the market. Distributors are dependent on
their producer and if they lose him, there is little possibility to have a credible
alternative supplier, as other established producers also typically have exclusive
distributors in the region.
(316) As a result, given the de facto or contractual exclusivity of distributors, at a local
level, the structure of the market is very simple, and enhances transparency, as each
territory is essentially populated by only the exclusive distributors of the three main
suppliers.149
(317) The impact of a de facto exclusive distribution in facilitating a tacit understanding on
the terms of coordination has been explained in section 6.3.2.2.1 concerning the
mechanism of coordination in Spain. In summary:
(a) exclusive territories reduce competition between the distributors beyond their
assigned territory;
(b) exclusive territories also tend to restrict competition between distributors of
different suppliers ; and
(c) exclusive distribution contributes considerably to enhance transparency in the
market.
(318) The evolution of prices in Portugal follows a similar pattern to that in Spain. Prices
went up consistently after the acquisition of GBI by Gilde, coinciding with increases
in input costs. Prices by the three large incumbent players, increased in parallel, but
this was not followed by similar price increases in magnitude by Lallemand150.
(319) The market investigation also indicates that, in contrast to Spain, GBI commands
higher prices, which reflects their stronger market position, whereas Lesaffre, and to
some extent also ABF, appear to act as a follower.
(320) The reasoning concerning the increase in prices observed between 2005 and 2007 as
described in recitals (222) to (227) for Spain, also applies in the case of Portuguese
market. Indeed, price increases in Portugal have been simultaneous by the three
suppliers - Lesaffre, ABF and GBI. In fact, internal documents of the notifying party
ABF demonstrate that the pricing behaviour in Portugal was closely monitored, and
there was to some extent an understanding of how the remaining players would react
149 In case of ABF and GBI there would be normally only one distributor for a given area, Lesaffre tends to
use specialised distributors for separate brands. This, however, does not compromise the transparency and
relative simplicity of the system. See also footnote 120.
150 Even for different brands the market investigation reveals that price is being determined in the same way
for all brands (regardless of the physical characteristics of each brand), meaning that price differences
across brands (as well as volumes) remain relatively stable over time.
70
to pricing movements: "we announced increase in December, we understand LSF will
increase in February". This further confirms that the market players consider the
market to be fairly transparent.
(321) In the case of the Portuguese market it is particularly striking that Lesaffre, despite
being the weakest supplier, in fact has a plant in Valladolid, much closer to Portugal
than GBI’s plant in Italy. Importantly, Lesaffre has had approximately […]* of spare
capacity in the past year yet it has not expanded its presence in Portugal. In fact,
quantitative data from Lesaffre suggests that in the last three years, it has behaved
rather passively in the Portuguese market for compressed yeast. It appears Lesaffre
was content to follow price increases as opposed to taking the opportunity to expand
market shares significantly as input prices went up, failing to take advantage of the
proximity of its plant in Valladolid that has spare capacity, and the already established
position on the market.
6.3.2.3.1.2 Incentives to deviate and monitoring of deviations
(322) For essentially the same reasons mentioned in section 6.3.2.1.6, the compressed
market in Portugal can also be considered relatively transparent. Such transparency
facilitates the monitoring of deviations in the same way as described in recitals (231)
to (233) concerning Spain.
(323) Moreover, in the case of Portugal, the market investigation clearly shows that
distributors are subject to full reporting obligations with regard to changes in market
conditions. For example, ABF's distributors have contractual obligations to report
fully (that means […]*).
(324) For example, […]*GBI's distributors have also contractual obligation to report fully.
Examples are […]*.
(325) Therefore, suppliers can interpret and verify the competitors' pricing behaviour. An
internal document of ABF relating to situation in Portugal at the beginning of 2006
states that “Our sales price increase was implemented from January although not
complete. Gilde (GBI) implemented on 1 February and we understand Lesaffre will
implement during February”. This suggests that there is a high degree of transparency
at the supplier level as regards competitor's policies relating to price increases.
(326) Further, not only do distributors offer reliable data about the market but they also
offer such information within a very short delay, namely, they provide data in a timely
fashion. With weekly deliveries and full monthly reporting obligations, the time lag
before a deviation from tacit coordination can be detected is relatively short, as per
recital (197), since the occurrence of lower than expected sales to existing clients can
be readily observed. Seasonality does not result in reduced transparency since the
pattern is regular and hence largely predictable. A loss of sales therefore can in a very
short time indicate that a competitor may have increased its sales151.
151 Where demand is relatively elastic seasonality may increase the incentives to deviate. This is because
undercutting rivals is more tempting when demand is high. In addition, however, the perceived cost of
future price wars is lower when the cycle is currently at its top, since retaliation will only occur later, thus
in periods of lower demand. However in the case of compressed yeast, as explained in section 1.2.1.4.5,
demand elasticity is likely to be rather low throughout the year. This implies that the threat of retaliation
71
(327) In conclusion, as in the Spanish market, distributors play a very significant role in
discovering to whom the quantities have gone to, and therefore in identifying the
deviator and trigger retaliation.
6.3.2.3.1.3 Deterrence
(328) For the same reasons as identified in section 6.3.2.2.1.3 concerning Spain and
applicable to the Portuguese compressed yeast market, a move back to fully
competitive interaction would act as a sufficient deterrent mechanism.
6.3.2.3.1.4 Reaction of outsiders
(329) All the reasons mentioned in section 6.3.2.2.1.4 as to the inability of new entrants or
customers to undermine the existing degree of tacit coordination in Spain, apply
equally in the case of the Portuguese compressed yeast market. Fringe players here
have even a lower share of the market than in Spain, Zeus and Asmussen not being
present and Lallemand having essentially one distributor only, while the arguments
made about unlikely entry or expansion of the fringe players apply equally.
(330) Furthermore, relative to Spain the further distance of the Portuguese market with
respect to producers outside the Iberian Peninsula, together with its smaller size in
absolute terms add to the barriers to entry and the limited incentives for expansion
identified in section 6.3.2.1.4.
6.3.2.3.2 The effect of the transaction in the Portuguese compressed yeast markets
(331) In the previous section it was shown that a series of structural and behavioural
elements are in place supporting the conclusion that the Portuguese compressed yeast
market already exhibits some degree of tacit coordination allowing ABF, GBI and
Lesaffre to control prices and/or the levels of sales in individual regions through,
inter alia, (de facto) exclusive relations with distributors.
(332) This increase in the degree of tacit coordination in Portugal results primarily from
the fact that the sale of GBI assets to ABF further increases transparency by reducing
the number of players in the compressed yeast market, thereby facilitating the ability
to detect cheating behaviour and to retaliate effectively. In this respect, all the reasons
identified in recitals (284) to (289) in relation to the Spanish market, as regards the
effects of a reduction in the number of players from three to two, also apply, mutatis
mutandis, in the case of the Portuguese market.
(333) Furthermore, GBI's historical presence in Portugal for many decades implies that it
benefits from a well recognized brand and a well established network of distributors.
These factors allow GBI to maintain a strong market position despite a competitive
disadvantage arising from the lack of domestic production, even relative to ABF. In
the absence of the merger, it can be expected that over time, in the event of
asymmetric demand or supply shocks these two firms might run into conflict as to
which of them should take the initiative to set prices for the others to follow.
remains severe also in periods of comparatively lower demand. Furthermore the difference of volumes
between the peak quarter and the following quarter is less than 10% and thus relatively low.
72
(334) The merger eliminates the threat that conflicting expectations as to the role of either
of the merging parties in sustaining the existing degree of tacit coordination would
lead to disruption of an otherwise effective coordination mechanism as described in
section 6.3.2.3.1. This is because the merger eliminates the uncertainty as to the
identity of the leader in setting the terms of coordination and in particular prices. Post
merger, it can be expected that the merged entity would assume this role whereas
Lesaffre would remain a market follower.
(335) The differences in the market shares of the merged entity and of Lesaffre postmerger
would also confirm the leadership role of the merged entity in the tacit
collusion. In that respect, the absence of symmetric market shares on the Portuguese
market is not an obstacle to effective coordination. On the other hand, symmetry
among the players will be enhanced on the production side (having influence on cost
structures), as both Lesaffre and the merged entity will likely both serve the market
from local plants in Spain and Portugal, eliminating the asymmetry arising from GBI
supplying the yeast from a distant production plant in Italy.
6.3.2.3.2.1 Conclusion
(336) Based on the above, it is concluded that the proposed merger would significantly
impede effective competition in the market for compressed yeast in Portugal.
However, as seen below, the remedies offered by ABF were sufficient to solve the
identified competition concerns and to restore effective competition in those markets.
6.3.3 No evidence of coordinated effect in the French compressed yeast market
6.3.3.1.1 French compressed yeast market is lead by Lesaffre
(337) The French compressed yeast market is slightly larger in size than the Spanish market
and about four times larger than in Portugal. It is characterised by the incumbent
producer Lesaffre's very strong position, who enjoys about [60-70] % market share.
Lesaffre is the world leader in the yeast business and in its home country, France, it
enjoys a clear leading position. Lesaffre is the only yeast producer active in France
having local yeast production facilities in the country, operating three plants in
France. Particularly, in the artisan segment served though distributors (distributors
cover about half of the compressed market in France) and where brand-value plays an
important role in France, Lesaffe is leading the market with its reference brand
L'Hirondelle. This is by far the most sold and most reputed and traditional compressed
yeast brand in France. Lesaffre complements its portfolio with two other high-end
brands, Springer and Fala. On the lower end of the market, Lesaffe mainly offers
Levamax.
(338) Lesaffre is also the clear leader with regard to supplies to direct (mostly industrial)
customers.
(339) Lesaffre has retained its leading position in the French compressed yeast market over
the past years and its market share was relatively stable.
Table 5 Evolution of market shares from 2005 to 2007 in the compressed French market
2005 2006 2007
73
Lesaffre [60-70]% [60-70]% [60-70]%
GBI [20-30]% [20-30]% [10-20]%
ABF [5-10]% [10-20] % [10-20]%
Puratos [0-5]% [0-5]% [0-5]%
Zeus [0-5]% [0-5]% [0-5]%
Lallemand [0-5]% [0-5]% [0-5]%
Source: market investigation
(340) ABF has around [10-20] % market share on the French compressed market. It
established a presence on the market much later than Lesaffre, around early nineties,
and is supplying yeast predominantly from its Setubal plant in Portugal. ABF's sales
were increasing in the past. Due to lack of tradition on the market it is still considered
as a foreign company. In addition to supplying direct customers, it also supplies yeast
to distributors, whereby it heavily relies on one distribution group (Back Europe),
which alone sells almost […]*of ABF's compressed yeast in France (and about
[…]*% of ABF's sales to the artisan/distribution segment). ABF sells mainly
Universal and Europa brands (for both, Back Europe is the exclusive distributor in
France), which are brands on the lower end of the market.
(341) GBI is still considered a traditional producer in France, with a relatively long presence
in the country, achieving around [10-20] % market share in 2007. It used to have a
production facility in France until the nineties and the company now supplies its
products mostly from its plant in Casteggio, Italy, and also from Uniferm JV in
Germany. GBI benefits from traditional high brand recognition of its main brand La
Parisienne and complements its portfolio with a cheaper brand Levareal.
(342) The fourth player on the French market, the Belgian producer Puratos, achieves about
[0-5]% of the market, supplying direct clients and also the artisan sector via its own
distribution network (which is supplying many other bakery ingredients). Fringe
players Lallemand and Zeus achieve each only around [0-5] % market shares,
supplying to a few distributors.
6.3.3.1.2 Structural features of the demand unfavourable to sustain coordination
(343) There are several features in the French compressed market which, in stark contrast to
the Portuguese and Spanish markets, contribute to lower entry barriers, stronger
countervailing buyer power and less market transparency and make thus possible
coordination less sustainable.
6.3.3.1.2.1 Industrial bakers with higher market power
(344) In contrast to Spain and Portugal, France has a much higher proportion of industrial
bakers. These clients are served directly by the producers and they tend to
multisource, in order to achieve a better security of supply and also gain more
leverage in negotiations with the suppliers. The industrial clients, in particular the
larger ones, thus have a certain degree of buyer power with which they may be able to
animate the competition.
74
(345) In addition, in contrast to direct customers in Spain and in Portugal, a number of
industrial clients responding to the market investigation in France showed more
openness to be supplied by companies not established in France. This is in line with
the fact that all suppliers other than Lesaffre are delivering yeast from abroad (GBI
from Germany and from Italy, ABF from Portugal and Puratos from Belgium). To
recap, in Spain and Portugal, direct customers are supplied almost only by suppliers
producing in the Iberian Peninsula, as GBI lost most of its direct customers when the
production was relocated to Italy. The relative geographic closeness of industrial
customers thus makes entry/expansion of outside producers more likely than in Spain
and Portugal.
6.3.3.1.2.2 Role of large distribution groups in facilitating entry
(346) The artisan segment in France is served, as in Portugal and Spain, by distributors. The
distribution system in France is however completely different. Instead of a network of
(de facto) exclusive distributors offering only products of one producer, the French
distributors are in essence regrouped in one of the three large distribution
groups/purchasing organisations. The sales conditions (mainly discounts) are then
negotiated with two or three yeast producers by the group on behalf of all its members
and these producers are then referenced by the group and all members can enjoy the
centrally set conditions. This increases the buyer power of the organisation when
compared to individual members. The groups then compete against each other on the
distribution level, together with some non-affiliated distributors (the number of which
is becoming smaller) and some private distribution networks developing in the
country, inter alia, by buying individual distributors.
(347) The purchasing organisations seem to have a certain influence on the purchasing
decisions of its members, as the group sometimes directs its members to sell products
of a particular producer. Some groups tend to be more loyal to their ‘preferred
supplier’, as they are incentivized by their discount schemes and other benefits, and
therefore expanding presence in these groups may be very difficult for other suppliers.
However, one large group confirmed that it is currently organising a tender for an
alternative yeast supplier, as it has a policy of diversifying its supplies and looking for
a low-price alternative to the established brands with high notoriety and higher pricepositioning.152
Therefore, entry or expansion of a new player into the French market
can be facilitated significantly by cooperation with such a large distribution group.
This is demonstrated by ABF supplying […]*of its sales to the artisan/distribution
segment in France via one distribution group with which it was able to grow.
(348) In France, customer preference for the leading brands is incontestable, and a large part
of artisan customers are ready to pay a premium for the products with high reputation
and brand value, where the fidelity to the brands was often built through generations.
However, there is a smaller but growing price sensitive segment of the customers who
opt for "marque de premiere prix" (best value brands) and where brand recognition
plays a minor role, provided that the reliability and quality of the product is
satisfactory.
(349) This appears to be the segment where ABF is active and it seems that, in exchange for
exclusivity, the large distribution group Back Europe was able to develop the sales of
152 Minutes of telephone interview with [distribution group] of 30 May 2008.
75
these brands. For this large distribution group, the support of a producer’s local sales
force is not very important as it is large enough to have own means to promote the
brands it is selling. Also, logistics arrangements can be relatively simple, as these
groups would have a central depot and the products can be re-distributed intra-group.
Thus, although large-scale entry which would be able to significantly constraint
Lesaffre seems unlikely in France, entry into this lower segment is much more likely
and is facilitated by the role of large distribution groups.
6.3.3.1.2.3 More complicated distribution structure makes the market less transparent to
monitor deviations
(350) In Spain and Portugal, the distribution of compressed yeast shows a very high degree
of market "simplicity" and a particular distributor typically only serves one supplier,
often serving as a prolonged arm of the producer, with reporting mechanisms put in
place to ensure that market information is passed very quickly from distributor to the
producer. In France, such a system does not appear to exist and distributors often
distribute products of more than one producer at the same time, typically in line with
the referenced suppliers of their group. There is no reporting obligation or practice for
the distributors to report back to their supplier, as they are simply not affiliated to any
particular supplier. French distributors are completely free to set the final prices. The
presence of more parallel distribution groups, in addition to independent distributors
and private networks, make the market more complicated and reduce transparency.
(351) While distributors of certain groups are supplied directly by the producers and the
group only acts as an intermediary in negotiations, the producers supply another group
centrally, to the group's warehouse, while the group takes care of distributing the
products to its members all over the country. In that case, suppliers do not know the
final destination of the products supplied and it is more difficult to swiftly identify the
location and cause of a possible drop in volumes (which could possibly be due to
competitors' actions or promotions).
6.3.3.1.3 The merger does not change the balance of power in France
(352) Currently, the French compressed yeast market is clearly led by Lesaffre, whose very
strong position is rooted in its incumbent status fortified with strong brand recognition
of its three high-end traditional French brands. In France, a large part of artisan
customers rely on established brands for which they are ready to pay a premium of up
to 30%. Lesaffre, leveraging on its position in the higher end, is also able to compete
on the lower end of the market with its lower brands as well as on the segment of
industrial bakers. In addition, Lesaffre has a cost advantage with regard to its rivals in
terms of transport costs, benefitting from its local French production sites. Post
merger, there will remain asymmetries between Lesaffre and the merged entity, in
particular on the production side and also in terms of market shares, whereas the
leading position of Lesaffre with [60-70] % of market share is likely to continue postmerger.
After the merger, the combined entity with [30-40] % market share would,
like ABF and GBI pre-merger, likely not be able to easily challenge Lesaffre's
position on the market.
6.3.3.1.4 Conclusion
(353) While it is true that seen in the overall framework of multi-market contacts of the
likely post-merger coordination in Spain and Portugal, France may play a role as a
76
possible retaliation territory for the merged entity against Lesaffre. Similarly, trying to
vigorously challenge Lesaffre in its home market may not be likely as this may
destabilize the possible degree of coordination in Spain and Portugal. However, when
analysing the French market as such on its own merits, and when taking into account
all structural features of the market and the strength of the links to the neighbouring
Spanish market, it is concluded, on balance, that the merger will not likely trigger
coordinated effects.
(354) While the analysis of the Portuguese market in section 6.3.2.3 concluded that in
Portugal the merger is likely to lead to coordinated effects in the form of a collusive
price leadership which is also strongly influenced by possible coordinated behaviour
in neighbouring Spain, the situation in France is different. Apart from the different
structural features of the French market discussed above which make less likely to
sustain coordination, namely buyer power and lower barriers to entry and lower
degree of market transparency, there are two additional elements which make the
situation sufficiently different.
(355) First, the links between the Spanish and Portugese markets are much larger than
between Spain and France from the supplier's perspective. Although from a demand
perspective Portugal and Spain clearly form two separate markets as was discussed in
the section on relevant geographic market, there are certain links which the merged
entity and Lesaffre will likely take into account post merger. As production
reallocation seems to be a rational choice for the merged entity, this would result in a
situation where both the merged entity and Lesaffre would serve the two markets from
local Iberian production facilities. The relatively small size of the Portuguese market
located very close to a much larger Spanish market may influence the alignment of
strategies for both markets. This is strengthened by the fact that the regional
businesses decisions of Lesaffre and of GBI are currently made in a common Iberian
head office, serving both Portuguese and Spanish markets. The possible coordination
in Spain thus necessarily would have certain influence on the strategic behaviour of
the colluding companies in Portugal. In contrast, the links from the Spanish market to
the relatively large and more self-standing French market are more distant.
(356) Second, the ability of the respective follower in France (the merged entity) and in
Portugal (Lesaffre) to challenge the position of the market leader seems to differ in
these two markets. In France, the strength of Lesaffre is very hard to dispute and the
possibility of expanding at its expense is, regardless of the merger, rather limited. On
the other hand, in Portugal, Lesaffre is likely to expand on that market. Therefore, the
follower role of Lesaffre in Portugal post-merger is likely to be based on a conscious
strategy to constraint its own growth rather than the inability to grow.
(357) Based on the above, it is concluded that the merger will not lead to coordinated
effects on the compressed yeast market in France.
6.3.4 Non-coordinated effects in France
(358) There are no indications that the proposed transaction will lead to non-coordinated
effects in France. Lesaffre will remain the clear market leader, and there are no
indications that the removal of the competitive interaction between ABF and GBI will
lead to relevant anti-competitive effects in this environment. In fact, the proposed
transaction will create a stronger second force on the French yeast markets.
77
6.3.5 Non-coordinated effects in Spain and Portugal
(359) For the purpose of the present decision, it is not necessary to further assess the
likelihood of non-coordinated effects as a result of the merger. Even if the present
transaction gave rise to competition concerns with regard to possible non-coordinated
effects, such concerns would be removed by the commitments entered into by the
notifying party, which will (as explained in more detail in the assessment of the
commitments in section 7) remove the overlap brought about by the transaction
entirely and provide a third party with production capacity comparable to GBI.
6.4 LIQUID YEAST MARKETS
(360) Table 6 below shows the market structure on the market for liquid yeast – based on
ABF's own best estimates – at the national level in Portugal, Spain and France in
2006. The results of the market investigation broadly confirm this picture.
Table 6 Liquid Yeast 2006 (source: ABF's estimates)
Company Portugal Spain France
ABF [90-100]*% [30-40]* % GBI
0% 0% [30-40]* %
Combined [90-100]*% [30-40]* % [30-40]* %
Lesaffre - [60-70]* % [50-60]* %
Others - - [5-10]* %
(361) Historically, GBI had been active in the sales of liquid bulk in Portugal and Spain.
However, after the closure of the Portuguese plant in 2001, GBI lost the totality of the
bulk liquid yeast business153. This was due to the difficulty to transport bulk liquid
over long distances (see recital (88) above) and also given that industrial customers
require reliability and proximity of supplies.
(362) On the other hand, according to the Notifying party, its liquid sales are entirely bulk
liquid to industrial customers. Thus, both in Spain and Portugal, GBI is not active in
the same segment of the liquid yeast markets as ABF.
(363) In addition, GBI's efforts to promote the sale of liquid yeast in Tetrapak cartons have
had so far only limited success.
(364) With regard to the French bulk liquid market, there is no overlap between GBI and
ABF as ABF has no sales of liquid yeast in France.
(365) It can be excluded that the merger will further strengthen ABF's already strong
position on the Portuguese market for liquid yeast. In Spain and France, the parties'
activities overlap only marginally. The merger will not give rise to any noncoordinated
or coordinated effects.
(366) In the light of these considerations, it is concluded that the concentration is
compatible with the common market in respect of any possible market definition as
regards the supply of liquid yeast.
153 According to Form CO paragraph 319, GBI lost its last direct industrial customer in […]*in Spain.
78
6.5 DRY YEAST MARKETS
(367) The vast majority of world consumption of dry yeast is in Africa, the Middle East,
Russia and Asia due to the lack of infrastructure (refrigerated transport or storage) and
the lack of distribution network. According to the data provided by the notifying
party, only [0-5]*% of the […]* of dry yeast sold worldwide was sold in Europe.
Even though […]* of dry yeast is produced in Europe, only […]* is sold in this
geographic area. Of this […]*, approximately […]* (which amounts to approximately
[30-40]*% of European total of dry yeast consumption) were imports from China,
Turkey and South Africa.154
(368) The significant share of imports into Europe together with the long shelf life
(approximately two years) of dry yeast suggests that barriers to enter are relatively
low.
Table 7 Dry Yeast 2006 (Source: ABF's estimates)
Company EU Worldwide
ABF [10-20]* % [10-20]* %%
GBI [20-30]* % [0-10]* %
Combined [30-40]* % [20-30]* %
Lesaffre [30-40]* % [30-40]* %
Lallemand (CEE) [0-5]* % [0-5]* %
Pakmaya (Turkey) [10-20]* % [10-20]* %
Akmaya (Turkey) [0-5]* % [0-5]* %
Puratos (Belgium) [0-5]* % [0-5]* %
Zeus (Italy) [0-5]* % [0-5]* %
Angel (China) - [5-10]* %
Others [5-10]* % [10-20]* %
(369) As shown in Table 7, there are a number of players currently already active in the
sales of dry yeast in Europe and also a number of important worldwide producers,
such as Angel in China, which would not face, in the event of a price increase,
significant barriers in order to profitably start supplying Europe.
(370) As regards non coordinated effects, those are less likely given the over supply of dry
yeast in Europe. The presence of significant imports from a number of worldwide
producers and the potential for additional supplies from other countries have the likely
effect of defeating any non coordinated and/or coordinated post merger price increase.
154 According to Form CO paragraphs 569 et seq.
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7 COMMITMENTS SUBMITTED BY THE NOTIFYING PARTY
(371) During Phase I of the proceedings, the notifying party already submitted commitments
to render the transaction compatible with the common market. It proposed to divest
GBI's current activities in relation to the sale and distribution of yeast products in
Spain and Portugal. The remedy proposal did not include a production plant, but a
supply toll-manufacturing agreement to last for at least three years for the supply of
yeast from GBI's plant in Casteggio, Italy.
(372) The result of the market test of the aforementioned remedies offered in Phase I was
negative. Without a production plant, the divested business would not be viable and
would not represent a sufficient competitive force that could compete effectively with
ABF and Lesaffre in Spain and Portugal on a long term basis. The reasons for this
were that a new entrant being supplied by his competitor who has detailed knowledge
and can influence his cost basis could not be competitive. The potential suitable
purchaser of the divested business would have to rely entirely on supplies from
Casteggio with the risk of production problems and interruptions which could weaken
his position as a credible and reliable supplier.155 In addition, the remedy had some
insufficiencies regarding the limited duration of the trademarks licenses and also, at
that time, there were no sufficiently clear indications that a potential purchaser would
be effectively interested in entering the relevant markets on the basis of such an
arrangement.
7.1 PROCEDURE
(373) In order to render the concentration compatible with the common market, the
notifying party offered new commitments pursuant to Article 8 (2) of the Merger
Regulation, which are annexed to this decision. The draft commitment package was
submitted by the notifying party on 10 July 2008.156 The notifying party was given
further advice how to improve the remedy proposal pursuant to the Commission
Notice on Remedies Acceptable under Council Regulation (EEC) No 4064/89 and
under Commission Regulation (EC) No 447/98.157 On 15 July 2008158, the notifying
party submitted a new draft and on 23 July 2008159 the final version of the
commitments.
(374) […]*It demonstrates for the purposes of this investigation that […]*is a potential
purchaser of those businesses.
155 Case COMP/M.4980, ABF/GBI, Article 6(1)(c) decision, recital 114.
156 Email of 10 July 2008.
157 OJ C 68, 2.3.2001, p.3, paragraph 40. See also Draft Revised Commission Notice on Remedies
Acceptable under the Merger Regulation, published on
ec.europa.eu/comm/competition/mergers/legislation, paragraph 88.
158 Email of 15 July 2008.
159 Email of 23 July 2008. The final version has no material changes in comparison to the version of 17 July
2008 which was market tested.
80
(375) The market investigation of the proposed commitments was initiated on 17 July 2008
in order to obtain the opinion of market players active in Spain and Portugal
(customers and competitors) on the suitability of the proposed commitments to
remedy the competition problems identified during the investigation.
7.2 DESCRIPTION OF THE COMMITMENTS
(376) ABF essentially proposes to either sell the current GBI distribution businesses in
Spain and Portugal to a suitable purchaser who will possess dedicated production
capacity in Felixstowe (UK) for supplying GBI businesses in Spain and Portugal or,
as an alternative remedy, to sell the distribution businesses in Spain and Portugal
together with GBI's production facility in Setúbal. The second alternative is necessary
as one condition of the first alternative remedy – the acquisition of the Felixstowe
plant in parallel by the suitable purchaser – depends on a third party's decision.160
Indeed, Felixstowe is being divested as a result of the authorization by the
Commission of the acquisition by Lesaffre of GBI UK under case COMP/M. 5020 –
Lesaffre/GBI UK, decision of 11 July 2008. 161
(377) ABF committed to pursue both alternative divestments in parallel. The divestiture
period […]*If ABF has not entered into an agreement by the end of the […]*period,
the divestiture trustee has the exclusive mandate to sell the Setúbal plant together with
GBI's distribution business in Spain and Portugal. […]*the alternative structure of the
remedy ensures that either way, the identified concerns are removed.
(378) The two divestiture alternatives are summarized in the sections 7.2.1 and 7.2.2 below.
7.2.1 First alternative remedy
(379) The first alternative comprises a divestiture of GBI's current activities in relation to
the sale and distribution of yeast products in Spain and in Portugal which are currently
operated by the Spanish and Portuguese subsidiaries of GBI (GBI Bakery Ingredients
Spain, S.L (“GBI Spain”) and GBI Unipessoal, Lda (“GBI Portugal”), which ABF
commits to divest. The divestiture includes:
(a) all tangible and intangible assets including intellectual property rights
which contribute to the current operation or are necessary to ensure the
viability and competiveness of the divested business, including if
necessary information on strains and recipes used to manufacture
products currently sold by GBI Spain and GBI Portugal;
(b) all licences, permits and authorizations issued by any governmental
organization for the benefit of the divested business;
160 For the possibility of such alternative remedies see Commission Notice on Remedies Acceptable under
Council Regulation (EEC) No 4064/89 and under Commission Regulation (EC) No 447/98 OJ C 68,
2.3.2001, p.3, paragraph 22,23. See also Draft Revised Commission Notice on Remedies Acceptable
under the Merger Regulation, published on ec.europa.eu/comm/competition/mergers/legislation,
paragraph 44-46.
161 Not yet published.
81
(c) all contracts, leases, commitments and customer orders of the divested
business and all customer, credit and other records of the divested
business;
(d) the personnel of GBI Spain and GBI Portugal;
(e) all trade marks (whether through transfer of the trade mark or a
perpetual licence for the territory of Spain and Portugal) associated with
products sold by GBI Spain and GBI Portugal; and
(f) the benefit at the option of the purchaser, for a period of 1 year after
closing of supply arrangements under which ABF or affiliated
undertakings will continue to supply products or services to the divested
business.
(380) ABF acknowledges that the Commission will only approve the sale of the businesses
of GBI Spain and GBI Portugal to a suitable purchaser who (a) has acquired the
former GBI production plant for yeast located in Felixstowe (UK) currently being
owned and sold by Lesaffre and (b) demonstrates to the Commission's satisfaction that
it will deploy the necessary capacity from Felixstowe, on a long lasting basis, to
supply the GBI Spain and GBI Portugal businesses. As a standard condition, the
suitable purchaser will also possess proven expertise, financial resources, and
incentive to maintain and develop the business.
7.2.2 Second alternative remedy
(381) As a second alternative remedy, ABF commits to divest the distribution businesses of
GBI Spain and GBI Portugal (as described in the first alternative divestment) together
with ABF's production facility in Setúbal, Portugal. The production plant includes in
particular:
a) all tangible and intangible assets (including intellectual property
rights), which contribute to the current operation or are necessary to
ensure the viability and competiveness of the production facility;
b) all licences, permits and authorizations issued by any governmental
organization for the benefit of the production facility;
c) all contracts, leases and commitments of the production facility; all
other records of the production facility except insofar as the sale and
distribution of yeast is concerned;
d) all personnel associated with the manufacture and production of yeast
at the production facility excluding those employees associated with
the sale and distribution of yeast; and
e) at the option of the purchaser the benefit of supply arrangements
including waste water treatment services and raw material supply
arrangements.
(382) ABF and the purchaser will enter into transitional supply arrangements for a period of
1 year after closing to allow both parties to migrate their business, in the case of ABF
away from the Setúbal production facility, and in the case of the purchaser, from the
82
production sites(s) serving GBI Spain and GBI Portugal to the Setúbal Production
facility.
7.3 EVALUATION OF THE PROPOSED COMMITMENTS
(383) In the market investigation, the Commission received replies from more than 30
customers and from (potential) competitors in Spain and in Portugal, in particular
from Lesaffre, Lallemand, Zeus, and Puratos. The market test revealed overall
positive results. However, some respondents explicitly saw transport costs as a factor
to be taken into account when assessing the viability of the remedy proposal. Others
considered that the duration of the transitional supply agreement should not be too
short in order give the acquirer of the divested business the possibility to adapt the
production to the needs of customers in Spain and Portugal.
7.3.1 Effectiveness
(384) The divestiture of GBI's Spanish and Portuguese subsidiaries to a suitable purchaser
with sufficient production capacities will entirely eliminate the overlap brought about
by the present transaction with respect to the Spanish and Portuguese compressed
yeast market and thus will remove the serious doubts as to the compatibility of the
transaction with the common market.
(385) With respect to the Spanish market, the remedy will restore the market structure
which existed pre-merger. The suitable purchaser of GBI Spain will have an initial
market share between 10% and 20%, compared to ABF with approximately [30-40] %
and Lesaffre with approximately [40-50]%.162 In any event, the suitable purchaser will
have at least the same ability and incentive to supply compressed yeast to the Spanish
market as GBI has today.
(386) First of all, the remedy will maintain a market structure with three players whereas the
merger as initially notified would have brought about a market structure with only two
players left. The reduction of the major competitors from three to two in Spain would
have been a major step towards a stable coordination in that market as it would have
increased the incentives to coordinate, facilitated the process of reaching terms of
coordination and of monitoring the competitor's behaviour as well as retaliating in
case of deviations.163 Absent the remedy, non-coordinating firms or potential suppliers
would not have been able and would have had no incentive to jeopardise the outcome
expected from the coordination.
(387) Furthermore, the suitable purchaser of GBI Spain will be a newcomer who is unlikely
to stabilize the existing terms of coordination on the market as the merged entity
would have done. The increased symmetry in cost structures and in market shares
which would have been a result of the transaction is eliminated and thus the increase
in incentives to tacitly coordinate brought about by the merger is removed.164
162 Table 1.
163 Recital (282)
164 Recital (295)
83
(388) The suitable purchaser of the divested business in Spain is likely to be a competitive
force which is at least equivalent to GBI. It can be expected that the suitable purchaser
will adapt to the specific demand of customers in Spain and will at least be able to
defend GBI's current market share. Provisions in the remedies package in particular
the transfer of all trade marks, and at the option of the suitable purchaser a transitional
supply agreement will ensure that the new entrant can compete successfully with ABF
and Lesaffre on the Spanish market.
(389) With respect to the Portuguese market the remedy will restore the market structure
which existed pre-merger. The suitable purchaser of GBI Portugal will have an initial
market share of approximately [40-50] %, compared to ABF with approximately [20-
30] % and Lesaffre with approximately [20-30] %.165 In any event, the suitable
purchaser will have at least the same ability and incentive to supply compressed yeast
to the Portuguese market as GBI has today.
(390) As in the Spanish market, the remedy will maintain a market structure in Portugal
with three players whereas the merger as initially notified would have brought about a
market structure with only two players left. The reduction of the major competitors
from three to two in Portugal and the resulting market structure would have been a
major step towards a stable coordination.166 Like in the Spanish market, noncoordinating
firms or potential suppliers would not have been able and would have
had no incentive to jeopardise the outcome expected from the coordination.
(391) Furthermore, the suitable purchaser of GBI Portugal will be a newcomer who is likely
to introduce a destabilizing element and thus eliminate the danger of the competitors
finding terms of coordination on the market.
(392) Like in Spain, the suitable purchaser of the divested business in Portugal is likely to
be a competitive force which is at least comparable to GBI. It can be expected that the
suitable purchaser will adapt to the specific demand of customers in Portugal and will
at least be able to defend GBI's current market share. Provisions in the remedies
package in particular the transfer of all trade marks, and at the option of the suitable
purchaser a transitional supply agreement will ensure that the new entrant can
compete successfully with ABF and Lesaffre on the Portuguese market.
7.3.2 Independence, viability, and competiveness of the divested business
(393) The remedy package combines the GBI distribution in Spain and Portugal with
production capacity either in Felixstowe in the United Kingdom, which is currently
owned by Lesaffre, or in Setúbal which is currently owned by ABF.
(394) It has already been confirmed in the market test of the remedies submitted by the
notifying party in Phase I that the divestiture of the distribution alone is not sufficient
to remove the concerns relating to the proposed transaction. The market test
concluded in essence that the divestment of the distribution business without a
production plant would make the purchaser without own capacity wholly dependent
on ABF, and that the competitive constraint which GBI has so far been exercising on
165 Table 1.
166 Recital (332)
84
its competitors would not be replaced but eliminated. The fact that the remedy offered
at that time failed to address the need for the purchaser to supply the Spanish and
Portuguese markets with its own production capacity led the Commission to reject the
remedy in Phase I.167
(395) The market test of the remedy package which the notifying party offered in Phase II
was generally positive as it combines distribution and production. A majority of
respondents, comprised of both of Spanish and Portuguese customers and of
competitors, agreed that the suitable purchaser of GBI Spain and of GBI Portugal will
be able to compete effectively with ABF and Lesaffre. However, some respondents
referred to two aspects in the remedy proposal which in their view could make it
difficult for the suitable purchaser to compete on the same level as did GBI before the
transaction: Increased transport costs as a consequence of sourcing from Felixstowe
instead of Casteggio and the limitation of the transitional supply agreement between
ABF and the suitable purchaser to a maximum of one year. However, for the reasons
explained in the following recitals, it is not likely that the viability of the divested
business is negatively influenced in any respect. In any event, the commitments
essentially restore the pre-merger situation and remove competition concerns specific
to the merger which were identified by the Commission.
7.3.2.1 Transport Costs will not prevent the suitable purchaser in the first alternative from
effectively competing
(396) The existing supply structure shows that it is not necessary to have a production plant
on the Iberian Peninsula to compete effectively with ABF and GBI in the Spanish and
Portuguese markets for compressed yeast. If it were necessary for a competitor in
Spain and Portugal to have a production facility in this region, it would be impossible
for GBI to supply the Portuguese and the Spanish market from Italy and reach the
substantial levels of sales that it currently does.168 In that respect, the acquisition of
GBI's distribution business in Spain and Portugal by a suitable purchaser having
production facilities outside the Iberian Peninsula restores the market situation which
existed pre-merger with GBI sourcing compressed yeast from Italy. Accordingly, it
results from all the information obtained in the Second Phase market investigation that
it is technically feasible (in terms of transport logistics and preservation of the yeast
quality) and economically viable for a producer with production facilities located
several hundreds of kilometres away from Portugal and Spain, to effectively supply
these markets, in a situation where he has a strong local foothold in terms of an
established position, distribution network, sales force and recognized brands.
(397) A suitable purchaser with production facilities located in the United Kingdom will
face higher transport costs than competitors like ABF with production facilities in the
Iberian Peninsula. However, the market investigation confirmed that the incremental
transport costs for shipping compressed yeast from the United Kingdom to Spain and
Portugal will not prevent supply to the Spanish and Portuguese markets at competitive
prices, in a situation not very different to GBI supplying from Casteggio. In fact, the
increment in transport costs resulting from the longer distance transports from
167 Case COMP/M.4980, ABF/GBI, Article 6(1)(c) decision, recitals 105 et sequ.
168 In 2000 / 2001 capacities in Casteggio were enlarged to supply the Portuguese market after closing GBI's
(Gist –brocades) production facility in Portugal.
85
Felixstowe is rather limited and will not compromise the viability of and
competitiveness of the business.169
(398) Finally, Lallemand, a potential acquirer of the Felixstowe plant, confirmed that it is
worthwhile to supply compressed yeast to the Spanish and the Portuguese market
from Felixstowe. Even if crossing the channel is likely to increase transport costs,
there are available options in the market to optimize transports from the United
Kingdom to Spain and Portugal, according to Lallemand.170
(399) Furthermore, the Felixstowe plant has ample spare capacity for the production of
compressed yeast (see Table 2) which, given the need to achieve sufficient economies
of scale, creates incentives to serve the Spanish and Portuguese compressed yeast
markets, offsetting the additional transport costs. The suitable purchaser must
demonstrate long term commitment to supply these markets in competitive terms. 171
7.3.2.2 The transitory supply agreement ensures that the suitable purchaser can adapt
production facilities to the needs of the Spanish and Portuguese market
(400) The transitory supply agreement which is part of the commitment package will give
the suitable purchaser of the divested business the necessary time to adjust production
to the specific needs of the Portuguese and Spanish markets, in particular in the first
alternative. However, it is necessary to limit the duration of the supply agreement to
what is strictly necessary for the adaptation of the production processes. Otherwise,
prolonging these arrangements to periods longer that a strict minimum risk rendering
the new suitable purchaser dependant on ABF, and consequently decreasing the
incentive for the new suitable purchaser to become an independent force on the
market and exercise an effective competitive constraint on ABF after the
transaction.172
7.4 CONCLUSION ON THE COMMITMENTS
(401) In light of the above, the Commission considers that the commitments as submitted on
23 July 2008 would remove the significant impediment to effective competition in the
compressed yeast markets in Portugal and Spain.
169 Distance from Coimbra, the Portuguese hub of GBI, to Casteggio is 1929 km and 2135 km to Felixstowe,
a difference of approx. 200 km. The distance from the Barcelona distribution hub of GBI for Spain is 942
km to Casteggio and 1595 km to Felixstowe, a difference of approx. 650 km Based on the calculation
method as explained in footnote 100, the incremental transport costs of 200 km to Portugal would amount
to [0-5]*% of the average selling price and additional 650 km to Spain of about [0-5]*% (considering the
proxy of EURO […]*per 1000 km per tonne as average transport costs). If a proxy of EURO […]*per
1000 km per tonne is taken as a basis (average transport costs of GBI serving Portugal and Spain from its
Italian distribution hub), the figures would be accordingly incremental [0-5]*- [0-5]*% for Portugal and
[0-5]* - [0-5]*% for Spain.
170 Such as benefitting from refrigerated truck mainly transporting goods from southern Europe to the UK
and coming back empty. Minutes of telephone conference between members of the case team and
Lallemand held on 19 May 2008.
171 From the information available to the Commission, the capacity situation in the Felixstowe plant is such
that the plant has the ability to serve the Portuguese and Spanish markets.
172 Cf. the results of the market test of the remedy submitted in phase I, recital 1.
86
8 CONDITIONS AND OBLIGATIONS
(402) Pursuant to the second subparagraph of Article 8(2) of the Merger Regulation, the
Commission may attach to its decision conditions and obligations intended to ensure
that the undertakings concerned comply with the commitments they have entered into
vis-à-vis the Commission with a view to rendering the concentration compatible with
the common market.
(403) The fulfilment of the measure that gives rise to the structural change of the market is a
condition, whereas the implementing steps which are necessary to achieve this result
are generally obligations on the parties. Where a condition is not fulfilled, the
Commission’s decision declaring the concentration compatible with the common
market no longer stands. Where the undertakings concerned commit a breach of an
obligation, the Commission may revoke the clearance decision in accordance with
Article 8(5) of the Merger Regulation. The undertakings concerned may also be
subject to fines and periodic penalty payments under Articles 14(2) and 15(1) of the
Merger Regulation.
(404) In accordance with the basic distinction described above, the decision in this case is
conditioned on the full compliance with Section B of the Commitments submitted by
the notifying party on 23 July 2008, whereas all other sections are obligations within
the meaning of Article 8 (2) of the Merger Regulation. The full text of the
commitments is annexed to this decision and forms an integral part thereof.
9 OVERALL CONCLUSION
(405) For the reasons outline above the notified operation, as modified, should be declared
compatible with the common market and with the EEA Agreement pursuant to Article
2(2) of the Merger Regulation, subject to compliance with the Commitments in the
Annex to this Decision.
87
HAS ADOPTED THIS DECISION:
Article 1
The notified operation whereby Associated British Foods Plc acquires sole control of several
subsidiaries engaged in the yeast business and owned by GBI Holding B.V. as well as a
group of assets owned by GBI Ingredients The Netherlands B.V. and DSM Bakery
Ingredients BV (the target assets together referred to as "GBI Business") within the meaning
of Article 3(1)(b) of Regulation (EC) No 139/2004 is hereby declared compatible with the
common market and the EEA Agreement.
Article 2
Article 1 is subject to full compliance with the conditions set out in section B of the Annex.
Article 3
Article 1 is subject to full compliance with the obligations set out in the remaining sections of
the Annex.
Article 4
This decision is addressed to:
Associated British Foods Plc
Weston Centre
10 Grosvenor Street
London W1K 4QY
United Kingdom
Done at Brussels, 23/09/2008
For the Commission
Signed by
Neelie KROES
Member of the Commission
TABLE OF CONTENTS
1 INTRODUCTION........................................................................................................................................................ 1
2 THE PARTIES............................................................................................................................................................. 2
3 THE CONCENTRATION .......................................................................................................................................... 3
4 COMMISSION'S JURISDICTION ........................................................................................................................... 4
5 RELEVANT MARKETS ............................................................................................................................................ 4
5.1 RELEVANT PRODUCT MARKETS............................................................................................................. 4
5.1.1 Demand Side Substitutability .......................................................................................................................... 7
5.1.2 Supply Side Substitutability............................................................................................................................. 9
5.1.3 Conclusion on the relevant product markets.................................................................................................. 10
5.2 RELEVANT GEOGRAPHIC MARKETS.................................................................................................... 11
5.2.1 Compressed yeast .......................................................................................................................................... 11
5.2.1.1 Market shares and positions of suppliers vary considerably.................................................................................. 11
5.2.1.2 The structure of demand and distribution systems are considerably different on a national basis ........................ 12
5.2.1.3 Importance of local presence in terms of sales force and local distribution network ............................................ 13
5.2.1.4 Brands vary from Member State to Member State ................................................................................................ 14
5.2.1.5 Price levels and dynamics of price movements is different in France, Portugal, and Spain.................................. 15
5.2.1.6 Supply-side considerations.................................................................................................................................... 18
5.2.1.7 The notifying party's view on geographic market for compressed yeast............................................................... 19
5.2.1.8 Conclusion on geographic market for compressed yeast....................................................................................... 21
5.2.2 Liquid yeast ................................................................................................................................................... 21
5.2.3 Dry Yeast....................................................................................................................................................... 22
6 COMPETITIVE ASSESSMENT ............................................................................................................................. 22
6.1 YEAST PRODUCERS ACTIVE IN THE AFFECTED MARKETS............................................................. 22
6.1.1 The main players............................................................................................................................................ 22
6.1.2 Fringe players ................................................................................................................................................ 23
6.1.3 Alleged Potential Entrants ............................................................................................................................. 24
6.2 BACKGROUND OF THE TRANSACTION................................................................................................ 25
6.3 COMPRESSED YEAST MARKETS............................................................................................................ 27
6.3.1 Common market characteristics for the three affected compressed yeast markets........................................ 27
6.3.1.1 Demand for compressed yeast is relatively stable or in slight decline................................................................... 27
6.3.1.2 Concentration of Supply........................................................................................................................................ 28
6.3.1.3 Technological maturity of yeast production .......................................................................................................... 28
6.3.1.4 The role of distributors .......................................................................................................................................... 29
6.3.1.4.1 PORTUGAL AND SPAIN ....................................................................................................................................29
6.3.1.4.2 FRANCE................................................................................................................................................................31
6.3.1.5 Past cases of collusion in compressed yeast markets............................................................................................. 31
6.3.2 Coordinated effects in the Spanish and Portuguese compressed yeast markets ............................................ 32
6.3.2.1 Structural characteristics conducive to tacit coordination in the Spanish and Portuguese compressed yeast
markets......................................................................................................................................................................
.............................................................................................................................................................................. 35
6.3.2.1.1 FEW ACTIVE COMPETITORS IN THE AFFECTED MARKETS.....................................................................35
6.3.2.1.2 REPEATED INTERACTION................................................................................................................................36
6.3.2.1.3 COMPRESSED YEAST DEMAND ELASTICITY IS LIKELY TO BE LOW....................................................36
6.3.2.1.4 HIGH BARRIERS TO ENTRY AND EXPANSION............................................................................................36
6.3.2.1.4.1 No greenfield entry can be expected in the foreseeable future .................................................................. 38
89
6.3.2.1.4.2 Limited ability for actual or potential competitors in neighbouring markets to expand capacity into
supplying Spain or Portugal...................................................................................................................... 40
6.3.2.1.5 HIGH DEGREE OF PRODUCT HOMOGENEITY .............................................................................................45
6.3.2.1.6 MARKET TRANSPARENCY IN COMPETITORS' FINAL PRICES, VOLUMES AND CAPACITY..............46
6.3.2.1.7 VERY LIMITED RISK OF LEAP-FROG INNOVATION...................................................................................47
6.3.2.1.8 EXTENSIVE MULTI-MARKET CONTACTS ....................................................................................................48
6.3.2.2 The Spanish compressed yeast market .................................................................................................................. 49
6.3.2.2.1 MECHANISM OF TACIT COORDINATION .....................................................................................................49
6.3.2.2.1.1 Ability to reach an understanding on the terms of coordination ................................................................ 49
6.3.2.2.1.2 Incentives to deviate and monitoring of deviations.................................................................................... 54
6.3.2.2.1.3 Deterrence.................................................................................................................................................. 56
6.3.2.2.1.4 Reaction of outsiders ................................................................................................................................. 57
6.3.2.2.1.4.1 Fringe competitors face high barriers to entry and/or expansion....................................................... 57
6.3.2.2.1.4.2 Limited countervailing buying power of distributors and artisan bakeries........................................ 61
6.3.2.2.2 THE EFFECT OF THE TRANSACTION IN THE SPANISH COMPRESSED YEAST MARKETS .................61
6.3.2.2.2.1 The merger reduces the number of major competitors from three to two in Spain.................................... 63
6.3.2.2.2.2 The merger eliminates the risk of GBI destabilising the existing degree of tacit coordination.................. 64
6.3.2.2.2.3 Conclusion ................................................................................................................................................. 67
6.3.2.3 The Portuguese compressed yeast market ............................................................................................................. 67
6.3.2.3.1 MECHANISM OF TACIT COORDINATION .....................................................................................................67
6.3.2.3.1.1 Ability to reach an understanding on the terms of coordination ................................................................ 67
6.3.2.3.1.2 Incentives to deviate and monitoring of deviations.................................................................................... 70
6.3.2.3.1.3 Deterrence.................................................................................................................................................. 71
6.3.2.3.1.4 Reaction of outsiders ................................................................................................................................. 71
6.3.2.3.2 THE EFFECT OF THE TRANSACTION IN THE PORTUGUESE COMPRESSED YEAST MARKETS........71
6.3.2.3.2.1 Conclusion ................................................................................................................................................. 72
6.3.3 No evidence of coordinated effect in the French compressed yeast market.................................................. 72
6.3.3.1.1 FRENCH COMPRESSED YEAST MARKET IS LEAD BY LESAFFRE...........................................................72
6.3.3.1.2 STRUCTURAL FEATURES OF THE DEMAND UNFAVOURABLE TO SUSTAIN COORDINATION .......73
6.3.3.1.2.1 Industrial bakers with higher market power............................................................................................... 73
6.3.3.1.2.2 Role of large distribution groups in facilitating entry................................................................................ 74
6.3.3.1.2.3 More complicated distribution structure makes the market less transparent to monitor deviations........... 75
6.3.3.1.3 THE MERGER DOES NOT CHANGE THE BALANCE OF POWER IN FRANCE..........................................75
6.3.3.1.4 CONCLUSION......................................................................................................................................................75
6.3.4 Non-coordinated effects in France................................................................................................................. 76
6.3.5 Non-coordinated effects in Spain and Portugal ............................................................................................. 77
6.4 LIQUID YEAST MARKETS........................................................................................................................ 77
6.5 DRY YEAST MARKETS ............................................................................................................................. 78
7 COMMITMENTS SUBMITTED BY THE NOTIFYING PARTY ...................................................................... 79
7.1 PROCEDURE................................................................................................................................................ 79
7.2 DESCRIPTION OF THE COMMITMENTS ................................................................................................ 80
7.2.1 First alternative remedy ................................................................................................................................. 80
7.2.2 Second alternative remedy............................................................................................................................. 81
7.3 EVALUATION OF THE PROPOSED COMMITMENTS ........................................................................... 82
7.3.1 Effectiveness.................................................................................................................................................. 82
90
7.3.2 Independence, viability, and competiveness of the divested business........................................................... 83
7.3.2.1 Transport Costs will not prevent the suitable purchaser in the first alternative from effectively competing......... 84
7.3.2.2 The transitory supply agreement ensures that the suitable purchaser can adapt production facilities to the needs of
the Spanish and Portuguese market....................................................................................................................... 85
7.4 CONCLUSION ON THE COMMITMENTS................................................................................................ 85
8 CONDITIONS AND OBLIGATIONS..................................................................................................................... 86
9 OVERALL CONCLUSION...................................................................................................................................... 86
TABLE OF CONTENTS .................................................................................................................................................... 89
COMMITMENTS TO THE EUROPEAN COMMISSION
..……………...……………………………………………92
87
-91Case
M.4980 - ABF/GBI Assets
COMMITMENTS TO THE EUROPEAN COMMISSION
By hand and by fax: 00 32 2 296 4301
European Commission - Merger Task Force
DG Competition
Rue Joseph II 70 Jozef-II straat
B-1000 BRUSSELS
Pursuant to Articles 8(2) and 10(2) of Council Regulation (EC) No. 139/2004 (the “Merger Regulation”),
Associated British Foods plc and GBI Holdings BV (the “Parties”) hereby provide the following
Commitments (the “Commitments”) in order to enable the European Commission (the “Commission”) to
declare the acquisition of certain parts of the yeast business belonging to GBI Holdings compatible with the
common market and the EEA Agreement by its decision pursuant to Article 8(2) of the Merger Regulation, of
the Merger Regulation (the “Decision”).
The Commitments shall take effect upon the date of adoption of the Decision.
This text shall be interpreted in the light of the Decision to the extent that the Commitments are attached as
conditions and obligations, in the general framework of Community law, in particular in light of the Merger
Regulation, and by reference to the Commission Notice on remedies acceptable under Council Regulation
(EEC) No 4064/89 and under Commission Regulation (EC) No 447/98.
Section A. Definitions
For the purpose of the Commitments, the following terms shall have the following meaning:
Affiliated Undertakings: undertakings controlled by the Parties and/or by the ultimate parents of the
Parties, whereby the notion of control shall be interpreted pursuant to Article 3 Merger Regulation and in the
light of the Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No. 139/2004.
Closing: the transfer of the legal title of the First Alternative Divestment Business or the Second Alternative
Divestment Business to the Purchaser.
Divestiture Trustee: one or more natural or legal person(s), independent from the Parties, who is approved
by the Commission and appointed by Associated British Foods plc (“ABF”) and who has received from ABF
the exclusive Trustee Mandate to sell the Second Alternative Divestment Business to a Purchaser at no
minimum price.
Effective Date: the date of adoption of the Decision.
First Alternative Divestment Business: has the meaning set out in paragraph 5 below.
First Divestiture Period: the period of […]* months from the Effective Date.
-92Hold
Separate Manager: the person appointed by ABF for the First Alternative Divestment Business and
the Second Alternative Divestment Business to manage the day-to-day business under the supervision of
the Monitoring Trustee.
Key Personnel: all personnel necessary to maintain the viability and competitiveness of the First Alternative
Divestment Business, as listed in Schedule A and all personnel necessary to maintain the viability and
competitiveness of the Production Facility, as listed in Schedule B.
Monitoring Trustee: one or more natural or legal person(s), independent from the Parties, who is approved
by the Commission and appointed by ABF, and who has the duty to monitor ABF’s compliance with the
conditions and obligations attached to the Decision.
Personnel: all personnel currently employed by the First Alternative Divestment Business and all personnel
currently associated with the Production Facility, including Key Personnel as listed in Schedules A and B.
Production Facility: has the meaning set out in paragraph 7 below.
Purchaser: the entity approved by the Commission as acquirer of either the First Alternative Divestment
Business or the Second Alternative Divestment Business in accordance with the criteria set out in Section D.
Second Alternative Divestment Business: has the meaning set out in paragraphs 6 - 10 below.
Trustee(s): the Monitoring Trustee and the Divestiture Trustee.
Trustee Divestiture Period: the period of […]* months from the end of the First Divestiture Period.
ABF, Associated British Foods plc incorporated under the laws of England, with its registered office at 10
Grosvenor Street, London W1K 4QY and registered with Companies House number 293262.
Section B. The Business being divested
Commitment to divest
1 In order to restore effective competition, ABF commits to divest or procure the divestiture of either:
(a) The businesses of GBI Bakery Ingredients Spain, S.L, (“GBI Spain”) and GBI
Unipessoal, Lda (“GBI Portugal”) (“The First Alternative Divestment Business”) as
described in more detail in paragraph 5 below; or
(b) The production facility located in Setúbal, Portugal, together with all activities associated
with the production of yeast at the Setúbal factory and the businesses of GBI Spain and
GBI Portugal (together “the Second Alternative Divestment Business”) as described in
more detail in paragraphs 6 to 10 below.
Either of these divestments will guarantee effective competition on a permanent basis.
2 In order to restore effective competition, AFB commits to divest, or procure the divestiture of the
First Alternative Divestment Business or the Second Alternative Divestment Business by the end
of the Trustee Divestiture Period as a going concern to a purchaser and on terms of sale approved
by the Commission in accordance with the procedure described in paragraph 22. To carry out the
divestiture, ABF commits to find a purchaser and to enter into a final binding sale and purchase
agreement for the sale of either the First Alternative Divestment Business or the Second
Alternative Divestment Business within the First Divestment Period. If ABF has not entered into
such an agreement at the end of the First Divestiture Period, ABF shall grant the Divestiture
Trustee an exclusive mandate to sell the Second Alternative Divestment Business in accordance
with the procedure described in paragraph 32 in the Trustee Divestiture Period.
-93-
3 ABF shall be deemed to have complied with this commitment if, by the end of the Trustee
Divestiture Period, ABF has entered into a final binding sale and purchase agreement, if the
Commission approves the Purchaser and the terms in accordance with the procedure described in
paragraph 22 and if the closing of the sale of either the First Alternative Divestment Business or
the Second Alternative Divestment Business takes place within a period not exceeding […]*
months after the approval of the purchaser and the terms of sale by the Commission.
4 In order to maintain the structural effect of the Commitments, the Parties shall, for a period of 10
years after the Effective Date, not acquire direct or indirect influence over the whole or part of the
business that is divested, unless the Commission has previously found that the structure of the
market has changed to such an extent that the absence of influence over the business that is
divested is no longer necessary to render the proposed concentration compatible with the common
market.
Structure and definition of the Divestment Business
The First Alternative Divestment Business
5 The First Alternative Divestment Business consists of all of GBI’s current activities in relation to the
sale of yeast products in Spain and Portugal which are currently operated by GBI Spain and GBI
Portugal respectively, further details of which are set out in Schedule A. The present legal and
functional structure of the First Alternative Divestment Business as operated to date is described in
Schedule A. The First Alternative Divestment Business, described in more detail in the Schedule,
includes:
(a) all tangible and intangible assets including intellectual property rights which contribute to
the current operation or are necessary to ensure the viability and competitiveness of the
First Alternative Divestment Business, including if necessary information on strains and
recipes used to manufacture products currently sold by GBI Spain and GBI Portugal;
(b) all licences, permits and authorisations issued by any governmental organisation for the
benefit of the First Alternative Divestment Business;
(c) all contracts, leases, commitments and customer orders of the First Alternative
Divestment Business and all customer, credit and other records of the First Alternative
Divestment Business;
(d) the personnel of GBI Spain and GBI Portugal;
(e) all trade marks (whether through transfer of the trade mark or a perpetual licence for the
territory of Spain and Portugal) associated with products sold by GBI Spain and GBI
Portugal in Spain and Portugal; and
(f) the benefit at the option of the Purchaser, for a period of 1 year after Closing of supply
arrangements under which ABF or Affiliated Undertakings will continue to supply
products or services to the First Alternative Divestment Business, on the basis of the key
terms set out in the Schedule, unless otherwise agreed with the Purchaser.
The Second Alternative Divestment Business
6 The Second Alternative Divestment Business consists of:
(a) The First Alternative Divestment Business together with;
(b) the production facility currently owned by ABF and located in Setúbal, Portugal (“the
Production Facility”)
-94-
7 The Production Facility includes:
(a) all tangible and intangible assets (including intellectual property rights), which contribute
to the current operation or are necessary to ensure the viability and competitiveness of
the Product Facility;
(b) all licences, permits and authorisations issued by any governmental organisation for the
benefit of the Production Facility;
(c) all contracts, leases and commitments of the Production Facility; all other records of the
Production Facility except insofar as excluded in paragraph 10 below;
(d) all personnel associated with the manufacture and production of yeast at the Production
Facility excluding those employees associated with the sale and distribution of yeast
referred to in paragraph 10 below; and
(e) at the option of the Purchaser the benefit of supply arrangements including waste water
treatment services and raw material supply arrangements.
8 A more detailed description is set out in Schedule B.
9 ABF and the purchaser of the Second Alternative Divestment Business will enter into transitional
supply arrangements for a period of 1 year after Closing to allow both parties to migrate their
business, in the case of ABF away from the Setúbal Production Facility, and in the case of the
Purchaser, from the production site(s) serving GBI Spain and GBI Portugal to the Setúbal
Production Facility.
10 For the avoidance of doubt, the Second Alternative Divestment Business does not include any of
ABF’s existing sales operations and activities, and in particular, does not include:
(a) all existing AB Mauri Portugal (whether written or oral) contracts for the supply of yeast;
(b) all AB Mauri Portugal trade marks, including for example, the Mauri brand and all other
trade marks currently used by AB Mauri Portugal; and
(c) all personnel associated with AB Mauri’s sales operations in Portugal.
Section C. Related commitments
Preservation of Viability, Marketability and Competitiveness
11 From the Effective Date until Closing, ABF shall preserve the economic viability, marketability and
competitiveness of the First Alternative Divestment Business and the Production Facility, in
accordance with good business practice, and shall minimise as far as possible any risk of loss of
competitive potential of the First Alternative Divestment Business and the Production Facility. In
particular ABF undertakes:
(a) not to carry out any act upon its own authority that might have a significant adverse
impact on the value, management or competitiveness of the First Alternative Divestment
Business and the Production Facility or that might alter the nature and scope of activity,
or the industrial or commercial strategy or the investment policy of the First Alternative
Divestment Business and the Production Facility;
(b) to make available sufficient resources for the development of the First Alternative
Divestment Business and the Production Facility, on the basis and continuation of the
existing business plans;
-95(c)
to take all reasonable steps, including appropriate incentive schemes (based on industry
practice), to encourage all Key Personnel to remain with the First Alternative Divestment
Business and the Production Facility.
Hold-separate obligations of Parties
12 ABF commits, from the Effective Date until Closing, to keep the First Alternative Divestment
Business and the Production Facility separate from the businesses it is retaining and to ensure
that Key Personnel of the First Alternative Divestment Business and the Production Facility including
the Hold Separate Manager - have no involvement in any business retained and vice
versa. ABF shall also ensure that the Personnel do not report to any individual outside the First
Alternative Divestment Business and the Production Facility other than the Hold Separate
Manager.
13 Until Closing, ABF shall assist the Monitoring Trustee in ensuring that the First Alternative
Divestment Business and the Production Facility is managed as a distinct and saleable entity
separate from the businesses retained by the Parties. ABF shall appoint a Hold Separate
Manager who shall be responsible for the management of the First Alternative Divestment
Business and the Production Facility, under the supervision of the Monitoring Trustee. The Hold
Separate Manager shall manage the First Alternative Divestment Business and the Production
Facility independently and in the best interest of the business with a view to ensuring its continued
economic viability, marketability and competitiveness and its independence from the businesses
retained by the Parties.
14 To ensure that the First Alternative Divestment Business and the Production Facility is held and
managed as a separate entity the Monitoring Trustee shall exercise ABF’s rights as shareholder in
the First Alternative Divestment Business (except for its rights for dividends that are due before
Closing) and the Production Facility, with the aim of acting in the best interest of the business,
determined on a stand-alone basis, as an independent financial investor, and with a view to
fulfilling ABF’s obligations under the Commitments. Furthermore, the Monitoring Trustee shall
have the power to replace members of the supervisory board or non-executive directors of the
board of directors, who have been appointed on behalf of ABF. Upon request of the Monitoring
Trustee, ABF shall resign as member of the boards or shall cause such members of the boards to
resign.
Ring-fencing
15 ABF shall implement all necessary measures to ensure that it does not after the Effective Date
obtain any business secrets, know-how, commercial information, or any other information of a
confidential or proprietary nature relating to the First Alternative Divestment Business and the
Production Facility. ABF may obtain information relating to the First Alternative Divestment
Business and the Production Facility which is reasonably necessary for the divestiture of the First
Alternative Divestment Business and the Production Facility or whose disclosure to ABF is
required by law.
Non-solicitation clause
16 The Parties undertake, subject to customary limitations, not to solicit, and to procure that Affiliated
Undertakings do not solicit, the Key Personnel transferred with the business that is divested for a
period of 3 years after Closing.
-96Due
Diligence
17 In order to enable potential purchasers to carry out a reasonable due diligence of the First
Alternative Divestment Business or the Second Alternative Divestment Business, ABF shall,
subject to customary confidentiality assurances and dependent on the stage of the divestiture
process:
(a) provide to potential purchasers sufficient information as regards the First Alternative
Divestment Business and the Second Alternative Divestment Business;
(b) provide to potential purchasers sufficient information relating to the Personnel and allow
them reasonable access to the Personnel.
Reporting
18 ABF shall submit written reports in English on potential purchasers of the First Alternative
Divestment Business or the Second Alternative Divestment Business and developments in the
negotiations with such potential purchasers to the Commission and the Monitoring Trustee no later
than 10 days after the date of every month following the Effective Date (or otherwise at the
Commission’s request).
19 The Parties shall inform the Commission and the Monitoring Trustee on the preparation of the data
room documentation and the due diligence procedure and shall submit a copy of an information
memorandum to the Commission and the Monitoring Trustee before sending the memorandum out
to potential purchasers.
Section D. The Purchaser
20 In order to ensure the immediate restoration of effective competition, the Purchaser, in order to be
approved by the Commission, must:
(a) be independent of and unconnected to the Parties;
(b) have the financial resources, proven expertise and incentive to maintain and develop the
First Alternative Divestment Business or the Second Alternative Divestment Business as
a viable and active competitive force in competition with the Parties and other
competitors;
(c) neither be likely to create, in the light of the information available to the Commission,
prima facie competition concerns nor give rise to a risk that the implementation of the
Commitments will be delayed, and must, in particular, reasonably be expected to obtain
all necessary approvals from the relevant regulatory authorities for the acquisition of the
First Alternative Divestment Business or the Second Alternative Divestment Business
(the before-mentioned criteria for the purchaser hereafter the “Purchaser
Requirements”).
21 In the case only of the First Alternative Divestment Business, ABF understands that the
Commission will approve a purchaser provided that purchaser meets the criteria set out in
paragraph 20 and has acquired the former GBI production facility located in Felixstowe, UK, which
is the subject of commitments in Case M.5020 Lesaffre/ GBI UK. The Purchaser should
demonstrate to the Commission’s satisfaction that it will deploy the necessary capacity from
Felixstowe, on a long lasting basis, to supply the GBI Spain and GBI Portugal businesses.
-97-
22 The final binding sale and purchase agreement shall be conditional on the Commission’s approval.
When ABF has reached an agreement with a purchaser, it shall submit a fully documented and
reasoned proposal, including a copy of the final agreement(s), to the Commission and the
Monitoring Trustee. ABF must be able to demonstrate to the Commission that the purchaser
meets the Purchaser Requirements and that the business divested is being sold in a manner
consistent with the Commitments.
23 For the approval, the Commission shall verify that the purchaser fulfils the Purchaser
Requirements and that the business divested is being sold in a manner consistent with the
Commitments. The Commission may approve the sale of the business being divested without one
or more assets or parts of the Personnel, if this does not affect the viability and competitiveness of
the business being divested after the sale, taking account of the proposed purchaser.
Section E. Trustee
I. Appointment Procedure
24 ABF shall appoint a Monitoring Trustee to carry out the function specified in the Commitments for a
Monitoring Trustee. If ABF has not entered into a binding sales and purchase agreement one
month before the end of the First Divestiture Period or if the Commission has rejected a purchaser
proposed by ABF at that time or thereafter, ABF shall appoint a Divestiture Trustee to carry out the
functions specified in the Commitments for a Divestiture Trustee. The appointment of the
Divestiture Trustee shall take effect upon the commencement of the Extended Divestment Period.
25 The Trustee shall be independent of the Parties, possess the necessary qualifications to carry out
its mandate, for example as an investment bank or consultant or auditor, and shall neither have
nor become exposed to a conflict of interest. The trustee shall be remunerated by the parties in a
way that does not impede the independent and effective fulfilment of its mandate. In particular,
where the remuneration package of a Divestiture Trustee includes a success premium linked to
the final sale value of the Second Alternative Divestment Business, the fee shall also be linked to a
divestiture within the Trustee Divestiture Period.
Proposal by the Parties
26 No later than one week after the Effective Date, ABF shall submit a list of one or more persons
whom ABF proposes to appoint as the Monitoring Trustee to the Commission for approval. No
later than one month before the end of the First Divestiture Period, ABF shall submit a list of one or
more persons whom ABF proposes to appoint as Divestiture Trustee to the Commission for
approval. The proposal shall contain sufficient information for the Commission to verify that the
proposed trustee fulfils the requirements set out in paragraph 17 and shall include:
(a) the full terms of the proposed mandate, which shall include all provisions necessary to
enable the Trustee to fulfil its duties under these Commitments;
(b) the outline of a work plan which describes how the Trustee intends to carry out its
assigned tasks;
(c) an indication whether the proposed Trustee is to act as both Monitoring Trustee and
Divestiture Trustee or whether different trustees are proposed for the two functions.
-98Approval
or rejection by the Commission
27 The Commission shall have the discretion to approve or reject the proposed Trustee(s) and to
approve the proposed mandate subject to any modifications it deems necessary for the Trustee to
fulfil its obligations. If only one name is approved, ABF shall appoint or cause to be appointed, the
individual or institution concerned as Trustee, in accordance with the mandate approved by the
Commission. If more than one name is approved, ABF shall be free to choose the Trustee to be
appointed from among the names approved. The Trustee shall be appointed within one week of
the Commission’s approval, in accordance with the mandate approved by the Commission.
New proposal by the Parties
28 If all the proposed Trustees are rejected, ABF shall submit the names of at least two more
individuals or institutions within one week of being informed of the rejection, in accordance with the
requirements and the procedure set out in paragraphs 16 and 19.
Trustee nominated by the Commission
29 If all further proposed Trustees are rejected by the Commission, the Commission shall nominate a
Trustee, whom ABF shall appoint, or cause to be appointed, in accordance with a trustee mandate
approved by the Commission.
II. Functions of the Trustee
30 The trustee shall assume its specified duties in order to ensure compliance with the Commitments.
The Commission may, on its own initiative or at the request of the Trustee or ABF, give any orders
or instructions to the Trustee in order to ensure compliance with the conditions and obligations
attached to the Decision.
Duties and obligations of the Monitoring Trustee
31 The Monitoring Trustee shall:
(i) propose in its first report to the Commission a detailed work plan describing
how it intends to monitor compliance with the obligations and conditions
attached to the Decision.
(ii) oversee the on-going management of the First Alternative Divestment Business
and the Production Facility with a view to ensuring its continued economic
viability, marketability and competitiveness and monitor compliance by ABF
with the conditions and obligations attached to the Decision. To that end the
Monitoring Trustee shall:
(a) monitor the preservation of the economic viability, marketability and
competitiveness of the First Alternative Divestment Business and the
Production Facility, and the keeping separate of the First Alternative
Divestment Business from the business retained by the Parties, in
accordance with paragraphs 11 and 12 of the Commitments;
(b) supervise the management of the First Alternative Divestment
Business as a distinct and saleable entity, in accordance with
paragraph 13 of the Commitments;
(c) (i) in consultation with ABF, determine all necessary measures to
ensure that ABF does not after the Effective Date obtain any
business secrets, know-how, commercial information, or any other
information of a confidential or proprietary nature relating to the First
Alternative Divestment Business and the Production Facility, in
-99particular
strive for the severing of the First Alternative Divestment
Business’ and the Production Facility’s participation in a central
information technology network to the extent possible, without
compromising the viability of the First Alternative Divestment
Business or the Production Facility, and (ii) decide whether such
information may be disclosed to ABF as the disclosure is reasonably
necessary to allow ABF to carry out the divestiture or as the
disclosure is required by law;
(d) monitor the splitting of assets and the allocation of personnel
between the Production Facility and the business retained by ABF or
Affiliated Undertakings as specified in paragraph 10 above;
(iii) assume the other functions assigned to the Monitoring Trustee under the
conditions and obligations attached to the Decision;
(iv) propose to ABF such measures as the Monitoring Trustee considers necessary
to ensure ABF’s compliance with the conditions and obligations attached to the
Decision, in particular the maintenance of the full economic viability,
marketability or competitiveness of the First Alternative Divestment Business
and the Production Facility, the holding separate of the First Alternative
Divestment Business and the non-disclosure of competitively sensitive
information;
(v) review and assess potential purchasers as well as the progress of the
divestiture process and verify that, dependent on the stage of the divestiture
process, (a) potential purchasers receive sufficient information relating to the
First Alternative Divestment Business or the Second Alternative Divestment
Business and the Personnel in particular by reviewing, if available, the data
room documentation, the information memorandum and the due diligence
process, and (b) potential purchasers are granted reasonable access to the
Personnel;
(vi) provide to the Commission, sending ABF a non-confidential copy at the same
time, a written report within 15 days after the date of every month. The report
shall over the operation and management of the First Alternative Divestment
Business and the Production Facility so that the Commission can assess
whether the business is held in a manner consistent with the Commitments and
the progress of the divestiture process as well as potential purchasers. In
addition to these reports, the Monitoring Trustee shall promptly report in writing
to the Commission, sending ABF a non-confidential copy at the same time, if it
concludes on reasonable grounds that ABF is failing to comply with these
Commitments;
(vii) within one week after receipt of the documented proposal referred to in
paragraph 22, submit to the Commission a reasoned opinion as to the
sustainability and independence of the proposed purchaser and the viability of
the First Alternative Divestment Business or the Second Alternative Divestment
Business after the Sale and as to whether the business divested is sold in a
manner consistent with the conditions and obligations attached to the Decision,
in particular, if relevant, whether the Sale of the First Alternative Divestment
Business or the Second Alternative Divestment Business without one or more
Assets or not all of the Personnel affects the viability of the business divested
after the sale, taking into account of the proposed purchaser.
-100Duties
and obligations of the Divestiture Trustee
32 Within the Trustee Divestiture Period, the Divestiture Trustee shall sell at no minimum price the
Second Alternative Divestment Business to a purchaser, provided that the Commission has
approved both the purchaser and the final binding sale and purchase agreement in accordance
with the procedure laid down in paragraph 22. The Divestiture Trustee shall include in the sale
and purchase agreement such terms and conditions as it considers appropriate for an expedient
sale in the Trustee Divestiture Period. In particular, the Divestiture Trustee may include in the sale
and purchase agreement such customary representations and warranties and indemnities as are
reasonably required to effect the sale. The Divestiture Trustee shall protect the legitimate financial
interests of ABF, subject to the Parties’ unconditional obligation to divest at no minimum price in
the Trustee Divestiture Period.
33 In the Trustee Divestiture Period (or otherwise at the Commission’s request), the Divestiture
Trustee shall provide the Commission with a comprehensive monthly report written in English on
the progress of the divestiture process. Such reports shall be submitted within 15 days after the
end of every month with a simultaneous copy to the Monitoring Trustee and a non-confidential
copy to the Parties.
III. Duties and obligations of the Parties
34 ABF shall provide, shall cause its advisors and shall procure that GBI Holdings provide the Trustee
with all such co-operation, assistance and information as the Trustee may reasonably require to
perform its tasks. The Trustee shall have full and complete access to any of ABF’s or the Second
Alternative Divestment Business’ books, records, documents, management or other personnel,
facilities, sites and technical information necessary for fulfilling its duties under the Commitments
and ABF and the Second Alternative Divestment Business shall provide the Trustee upon request
with copies of any document. ABF and the Second Alternative Divestment Business shall make
available to the Trustee one or more offices on their premises and shall be available for meetings
in order to provide the Trustee with all information necessary for the performance of its tasks.
35 ABF shall provide the Monitoring Trustee with all managerial and administrative support that it may
reasonably request on behalf of the management of the Second Alternative Divestment Business.
This shall include all administrative support functions relating to the Second Alternative Divestment
Business which are currently carried out at headquarters level. ABF shall provide and shall cause
its advisors to provide the Monitoring Trustee, on request, with the information submitted to
potential purchasers, in particular give the Monitoring Trustee access to the data room
documentation and all other information granted to potential purchasers in the due diligence
procedure. ABF shall inform the Monitoring Trustee on possible purchasers, submit a list of
potential purchasers, and keep the Monitoring Trustee informed of all developments in the
divestiture process.
36 ABF shall grant or procure Affiliated Undertakings to grant comprehensive powers of attorney, duly
executed, to the Divestiture Trustee to effect the sale, the Closing and all actions and declarations
which the Divestiture Trustee considers necessary or appropriate to achieve the sale and the
Closing, including the appointment of advisors to assist with the sale process. Upon request of the
Divestiture Trustee, ABF shall cause the documents required for effecting the sale and the Closing
to be duly executed.
37 ABF shall indemnify the Trustee and its employees and agents (each an Indemnified Party”) and
hold each Indemnified Party harmless against, and hereby agrees that an Indemnified Party shall
have no liability to ABF for any liabilities arising out of the performance of the Trustee’s duties
under the Commitments, except to the extent that such liabilities result from the wilful default,
recklessness, gross negligence or bad faith of the Trustee, its employees, agents or advisers.
-101-
38 At the expense of ABF, the Trustee may appoint advisors (in particular for corporate finance or
legal advice), subject to ABF’s approval (this approval not to be unreasonably withheld or delayed)
if the Trustee considers the appointment of such advisors necessary or appropriate for the
performance of its duties and obligations under the Mandate, provided that any fees and other
expenses incurred by the Trustee are reasonable. Should ABF refuse to approve the advisors
proposed by the Trustee the Commission may approve the appointment of such advisors instead,
after having heard ABF. Only the Trustee shall be entitled to issue instructions to the advisors.
Paragraph 37 shall apply mutatis mutandis. In the Trustee Divestiture Period, the Divestiture
Trustee may use advisors who served ABF during the First Divestiture Period if the Divestiture
Trustee considers this in the best interest of an expedient sale.
IV. Replacement, discharge and reappointment of the Trustee
39 If the trustee ceases to perform its functions under the Commitments or for any other good cause,
including the exposure of the Trustee to a conflict of interest:
(a) the Commission may, after hearing the Trustee, require ABF to replace the Trustee, or
(b) ABF, with the prior approval of the Commission, may replace the Trustee.
40 If the Trustee is removed according to paragraph 39, the Trustee may be required to continue in its
function until a new Trustee is in place to whom the trustee has effected a full hand over of all
relevant information. The new Trustee shall be appointed in accordance with the procedure
referred to in paragraphs 24 - 29.
41 Beside the removal according to paragraph 39, the Trustees shall cease to act as Trustee only
after the Commission has discharged it from its duties after the Commitments with which the
Trustee has been entrusted have been implemented. However, the Commission may at any time
require the reappointment of the Monitoring Trustee if it subsequently appears that the relevant
remedies might not have been fully and properly implemented.
-102Section
F. The Review Clause
42 The Commission may, where appropriate, in response to a request from ABF showing good cause
and accompanies by a report from the Monitoring Trustee:
(i) Grant an extension of the time periods foreseen in the Commitments; or
(ii) Waive, modify or substitute, in exceptional circumstances, one or more of the
undertakings in these Commitments.
Where ABF seeks an extension of a time period, it shall submit a request to the Commission no
later than one month before the expiry of that period, showing good cause. Only in exceptional
circumstances shall ABF be entitled to request an extension within the last month of any period.
…………………………………………
duly authorised for and on behalf of
Associated British Foods plc
-103SCHEDULE
A
Introduction
1. The First Alternative Divestment Business constitutes the business operated by the following
companies:
42.1 GBI Bakery Ingredients Spain, S.L. (“GBI Spain”); and
42.2 GBI Unipessoal, Lda (“GBI Portugal”)
43 The sale of GBI Spain and GBI Portugal includes all the operations which ABF is acquiring from
GBI in Spain and Portugal and therefore constitutes a structural divestment which removes
altogether the overlaps between ABF and GBI in Spain and Portugal. A description of each the
Divestment Business is set out below in Parts A (for GBI Spain) and B (for GBI Portugal).
44 ABF has also agreed, at the option of the purchaser, to supply yeast to the purchaser of the First
Alternative Divestment Business on a transitional basis for a period of up to 1 year.
Part A - GBI Bakery Ingredients Spain, S.L.
GBI Bakery Ingredients Spain, S.L. (“GBI Spain”) is a separate legal entity within the GBI Holdings BV group
and constitutes the entirety of the GBI Business’ yeast activities in Spain. This business currently continues
to operate as an independent stand-alone business, ownership of which has been retained by the Vendor.
Accordingly, the shares in GBI Spain are still owned by GBI Holdings BV. The entirety of this business will
be sold to the purchaser of the Divestment Business.
GBI Spain’s business consists of the distribution and sale of yeast and bakery ingredients for the bakery
industry. GBI Spain’s revenue during the 2006 financial year was EURO [5-10]* million. The total volume of
sales during the 2006 financial year was [10-15 thousand]* tonnes of yeast (fresh yeast equivalent) and in
2007 [10-15 thousand]* tonnes.
Corporate organisation and employees
A structure diagram setting out the organisation of GBI Spain is set out below:
[…]*
The structure diagram set out above includes all of GBI Spain’s employees, all of whom will be transferred
with the Divestment Business.
GBI Spain operates from premises which are leased from GB Plange Spain S.L. (“GB Plange”). GB Plange
is the Spanish bakery ingredients company formerly owned by GBI Holdings BV which was sold to
Wehrhahn Muhlen in July 2006. Prior to this time, GBI Spain and GB Plange had operated jointly.
Following the sale of the bakery ingredients businesses to Wehrhahn Muhlen, appropriate arrangements
were put in place between GBI Spain and GB Plange as regards the services that had previously been
operated jointly by these companies.
Support services
GBI Spain’s operations are headquartered in offices leased from GB Plange as explained above. GBI Spain
has contracts in place in relation to the provision of the following services:
-104•
Office space and related support services such as administrative and IT related services, with GB
Plange as well as car rental agreements and corporate credit card agreements with GB Plange and
the relevant service providers.;
• Supply of yeast testing services, support services relating to analysis of quality issues, feasibility
studies for product changes and developments;
• Supply of warehouse storage space and related services for GB Plange’s warehouse located in
Barcelona. This storage facility is the depot to which yeast is delivered from GBI Spain’s yeast
supplier;
• Supply of cold storage container facilities in which to store yeast at the Barcelona warehouse and
related technical support services. These services are provided by CIMAT, S.A.; and
• Supply of logistical services for the distribution services to transport yeast from the depot to
individual customers. These services are provided by Martínez Solera Hermanos, S.L..
The warehouse, cold storage and logistical services arrangements described above are the core operations
of GBI Spain which form the basis of GBI’s sales operations in Spain. The benefit of all of these
arrangements will be transferred as part of the sale of GBI Spain.
Arrangements in relation to the supply of yeast products to GBI Spain are dealt with in further detail below.
Licences/permits
GBI Spain has been granted the following licences for the distribution of biological yeast:
• Spanish Health Ministry on 14 June 2006. The health registration number provided by the
authorities is 31.02305/B; and
• Health Department of the Catalonian Administration on 3 May 2006 which is valid though until 3 May
2011.
These permits have both been granted to GBI Spain and accordingly will transfer with the business.
-105Intellectual
property rights
GBI Spain does not own any trade marks and nor does it own any patent rights. GBI Spain sells a variety of
yeast products in Spain:
Brand / Product
Description
Format Type
(Compressed, Liquid,
Dry)
Activity
Duo Cubes 25 g x 2 Compressed Standard
Experta Red 20 x 500g blocks Compressed Standard
Fermipan Brown 20 x 500g blocks Dry Osmo
Fermipan Liquid 8 x 1.5kg packs Liquid (Tetrapack) Standard
Fermipan Red 500 g Dry Standard
Fermipan Sobres 60 envelopes of 11g /
15 and 10 kg boxes
with 500g packs
Dry Standard
Fermipan Soft Brown 20 x 500g Dry Osmo
Fermipan Soft Red 20 x 500g Dry Standard
Fermipan Super 20 x 500g Dry Standard
Hollandia 10 kg box with 500g
packs
Dry Slow
La Parisienne 500g blocks Compressed Standard
La Parisienne Granulada
Industrial
25kg Compressed Standard
La Parisienne Osmo 500g blocks Compressed Osmo
Levadura Liquida Estable 950 kg container Liquid Standard
Levareal 500g blocks Compressed Standard
-106Parisienne
15 kg / 10 kg box with
500g packs / 11g
envelopes
Dry Slow
Sablon de Levure 2.5 kg Compressed Standard
GBI Spain sells the products listed above, certain of which are protected by trade marks.
ABF will transfer ownership or grant exclusive licences (on a perpetual basis) of all marks relating to Spain
acquired from GBI Holding as part of its acquisition such that the purchaser will be the only person entitled
to sell products using such marks in Spain.
Distribution contracts and customer goodwill
The GBI Spain corporate entity is being sold and accordingly all customer lists, customer databases,
customer relationships and goodwill will transfer to the purchaser as part of the sale of GBI Spain.
In addition, the benefit of all of GBI Spain’s distribution contracts with direct/industrial customers and
distributors would also transfer with the sale of GBI Spain. These include the following written contracts:
[…]*
Transitional supply arrangements
In order to allow the purchaser of GBI Spain and GBI Portugal to migrate the supply of yeast to those
businesses to the purchaser’s own production facilities, ABF will provide a transitional supply agreement for
a period of up to 1 year.
Part B - GBI Unipessoal, Lda
GBI Unipessoal, Lda (“GBI Portugal”) is a separate legal entity within the GBI Holdings BV group and
constitutes the entirety of the GBI Business’ yeast activities in Portugal. This business currently continues to
operate as an independent stand-alone business, ownership of which has been retained by the Vendor.
Accordingly, the shares in GBI Portugal are still owned by GBI Holdings BV. The entirety of this business
will be sold to the purchaser of the Divestment Business.
GBI Portugal’s business consists of the distribution and sale of yeast and bakery ingredients for the bakery
industry. GBI Portugal’s revenue during the 2006 financial year was EURO [5-10]* million. The total volume
of sales during the 2006 financial year was [5-10 thousand]* tonnes of yeast (fresh yeast equivalent) and [5-
10 thousand]* tonnes in 2007.
Corporate organisation and employees
GBI Portugal obtains management services from GBI Spain. Accordingly, the General Manager of GBI
Spain is also the General Manager of GBI Portugal. GBI Portugal also operates on a similar structural basis
as GBI Spain, comprised of:
• a Commercial Manager;
• 2 sales office employees;
• 1 sales administration employee; and
-107•
3 sales force employees.
Support services
GBI Portugal’s operations are managed and headquartered from GBI Spain’s offices in Barcelona. GBI
Portugal local operations are based in premises which are leased from GB Plange Portugal (“GB Plange
Portugal”). GB Plange Portugal is the Portuguese bakery ingredients company formerly owned by GBI
Holdings BV which was sold to Wehrhahn Muhlen in July 2006. Prior to this time, GBI Portugal and GB
Plange Portugal had operated jointly. Following the sale of the bakery ingredients businesses to Wehrhahn
Muhlen, appropriate arrangements were put in place between GBI Portugal and GB Plange Portugal as
regards the services that had previously been operated jointly by these companies.
GBI Portugal has contracts in place in relation to the provision of the following services:
• Office space and related support services such as administrative and IT related services, with GB
Plange Portugal as well as car rental agreements and corporate credit card agreements with GB
Plange Portugal and the relevant service providers.;
• Supply of yeast testing services, support services relating to analysis of quality issues, feasibility
studies for product changes and developments;
• Supply of warehouse storage space and related services for GB Plange Portugal’s warehouse
located in Lisbon together with appropriate cold storage container facilities in which to store yeast at
the Lisbon warehouse and related technical support services; and
• Supply of logistical services for the distribution services to transport yeast from the depot to
individual customers which is operated together with the distribution operations of GB Plange
Portugal.
The warehouse, cold storage and logistical services arrangements described above are the core operations
of GBI Portugal which form the basis of GBI’s sales operations in Portugal. The benefit of all of these
arrangements will be transferred as part of the sale of GBI Portugal.
Arrangements in relation to the supply of yeast products to GBI Portugal are dealt with in further detail
below.
Intellectual property rights
GBI Portugal does not own any trade marks and nor does it own any patent rights. GBI Portugal sells a
variety of yeast products in Portugal:
Brand / Product
Description
Format Type
(Compressed,
Liquid, Dry)
Activity
Activa 500g blocks Compressed Standard
Duo Cubes 25 g x 2 Compressed Standard
Fermipan 12 x 1.5 lt Liquid 2/3 of standard-
-108Cremapack
block yeast
Fermipan Dry
Jacto 20 x 500g blocks Compressed Standard
La Parisienne
Osmo
500g blocks Compressed Osmo
GBI Portugal sells the products listed above, certain of which are protected by trade marks.
ABF will transfer ownership or grant exclusive licences (on a perpetual basis) of all marks relating to
Portugal acquired from GBI Holding as part of its acquisition such that the purchaser will be the only person
entitled to sell products using such marks in Portugal.
Distribution contracts and customer goodwill
The GBI Portugal corporate entity is being sold and accordingly all customer lists, customer databases,
customer relationships and goodwill will transfer to the purchaser as part of the sale of GBI Portugal.
In addition, the benefit of all of GBI Portugal’s distribution contracts with direct/industrial customers and
distributors would also transfer with the sale of GBI Portugal. These include the following written contracts:
[…]*
Transitional supply arrangements
In order to allow the purchaser of GBI Spain and GBI Portugal to migrate the supply of yeast to those
businesses to the purchaser’s own production facilities, ABF will provide a transitional supply agreement for
a period of up to 1 year.
-109SCHEDULE
B
1. The Production Facility as operated to date forms part of Mauri Fermentos, S.A. a subsidiary of
Associated British Foods plc.173
2. The Production Facility is currently used to produce yeast which is sold by Mauri Fermentos in
Portugal and other ABF group companies elsewhere in the world. The Production Facility has a
capacity of approximately [25-50]* KT. In terms of current output, approximately […]* of production
is currently used to produce fresh yeast in liquid or compressed format and the remaining […]* is
used to produce dry yeast.
3. Following paragraph 7 of these Commitments, the Production Facility includes, but is not limited to:
(a) The following main tangible assets including Mauri Fermentos’ interests in the Setúbal
factory building, associated administrative offices and all:
(i) fermenters located at the Production facility capable of producing […]* tonnes
yeast per 8 hour shift;
(ii) ancillary equipment including extruders, transformers, air compressors, boilers;
(iii) packaging lines capable of producing yeast in 25g cube format, 500g
compressed yeast blocks and in small and large bagged dry yeast formats
together with associated palleting equipment;
(iv) drying plant comprised of vacuum filters, extruders, emulsifier mixers, dryers
and silos;
(v) cold room storage facilities;
(vi) natural gas fueled boilers;
(vii) underground water wells; and
(viii) effluent treatment and discharge facilities.
(b) All licences, permits and authorisations associated with the production of yeast at the
Production Facility;
(c) All contracts, agreements, leases (including the lease for the Setúbal Production
Facility), commitments and understandings for the supply of raw materials, goods and
services associated with the manufacture of yeast at the Production Facility;
(d) All credit records and other records associated with suppliers to the Production Facility;
(e) All personnel associated with the production and manufacture of yeast and related
administrative and support services at the Production Facility, excluding those referred to
in paragraph 4;
(f) The following Key Personnel:
[…]*.
173 ABF owns 96% of the shares in Mauri Fermentos, SA with the remaining small local shareholders owning 4%.
-110(g)
The following transitional supply arrangements for a period of 1 year from Closing:
(i) The supply of fresh and dry yeast produced at the Production Facility to ABF
and Affiliated Undertakings to allow ABF to purchase and install equipment,
increase production and migrate such supplies to ABF’s other yeast production
facilities;
(ii) The supply by ABF and Affiliated Undertakings of fresh and dry yeast to the
Purchaser of the Second Alternative Divestment Business to ensure continuity
of supply for GBI Spain and GBI Portugal pending the migration of production
from ABF’s production facilities to the Production Facility.
(h) The benefit at the option of the Purchaser of supply arrangements including waste water
treatment services and raw material supply arrangements.
4. The Production Facility shall not include any of ABF’s existing commercial sales operations and
activities and in particular shall not include:
(a) any of Mauri Fermentos’ (or any other ABF group companies’) customer, credit or
other records;
(b) any of Mauri Fermentos’ contracts (whether written or oral) for the supply of yeast to
customers in Portugal or elsewhere in the world and any goodwill associated with Mauri
Fermentos’ customers;
(c) any of Mauri Fermentos’ trade marks and brands used to sell products, including
(but not limited to) the following: Mauri and Mauripan;
(d) all personnel associated with AB Mauri’s commercial sales operations in Portugal,
including (but not limited to) […]*; and
(e) all current and historic financial records in relation to Mauri Fermentos, SA.