The European Commission has approved under the EU Merger Regulation the proposed acquisition of the industrial chocolate business of Archer Daniels Midland ('ADM') by Cargill, subject to conditions. Both US-based businesses supply industrial chocolate as well as fat-based coatings and fillings. Industrial chocolate, sold in both liquid and solid form, is used by customers in the food processing industry to produce consumer foodstuffs such as biscuits, ice-cream and chocolate confectionery.
The Commission's investigation showed that the transaction as notified would reduce competition in the already concentrated market for industrial chocolate and risked increasing industrial chocolate prices for customers located near the parties' German plants, especially for small and mid-sized customers. The Commission's approval is therefore conditional upon Cargill divesting ADM's industrial chocolate plant in Mannheim (Germany) to a suitable purchaser so as to address the Commission's concerns.
Commissioner Margrethe Vestager, in charge of competition policy, commented: "Chocolate is a sweet yet serious business and we want to ensure that consumers will not have to pay more for their favourite chocolate sweets, biscuits and ice cream. With Cargill's divestment of ADM's industrial chocolate plant in Mannheim the Commission is confident effective competition will continue."
The Commission's investigation
The transaction was notified to the Commission on 19 January 2015. The Commission opened an in-depth investigation in February 2015. The Commission focussed its investigation on competition in industrial chocolate markets. The Commission also looked at the effects of the transaction in the markets for cocoa products and chocolate compound.
Competition in industrial chocolate markets after the transaction
The Commission found that Cargill and ADM are important suppliers of industrial chocolate to customers based around their plants in Germany. The parties' most important competitor in those areas is Barry Callebaut, albeit with a smaller market share. The investigation revealed that several smaller competitors have a more limited presence and would not pose a sufficient competitive constraint on the parties. The proposed transaction would eliminate an important competitor and reduce the choice of suitable suppliers in already concentrated markets, which could lead to price increases especially for small and mid-sized customers.
The Commission's investigation also showed that the market structure is different in the areas around the parties' plants in Belgium, France and the United Kingdom. In these areas, the parties' combined market position is more moderate and Barry Callebaut is a much more important competitor. The Commission therefore did not identify any competition concerns in those geographical areas.
The effects of the transaction in the markets for cocoa products and chocolate compound
In addition, the Commission investigated whether the proposed acquisition could have any effects on Cargill's activities in the production and sale of cocoa products which are used as a raw material for industrial chocolate. However, the Commission concluded that Cargill's position in the cocoa markets was not significant enough to make any such effects likely and that there are a sufficient number of alternative suppliers to ensure the supply of cocoa products.
The Commission also did not find competition concerns in the markets for fat-based coatings and fillings and in particular for chocolate compound, which is sometimes used instead of chocolate in the production of end-consumer products. In these markets, the parties' combined market position is moderate and there are a number of alternative suppliers.
To address the Commission's concerns, Cargill submitted commitments according to which it would divest ADM's industrial chocolate plant in Mannheim to a suitable purchaser. The Mannheim plant is the largest of ADM's industrial chocolate plants in Europe and is ADM's only industrial chocolate plant in Germany.
The commitments ensure that an important alternative supplier will remain available. They address in full the competition concerns raised by the acquisition on the market for industrial chocolate sold to customers located around the parties' German plants.
Companies and products
Cargill is a US-based company active in the international production and sale of food, agricultural and risk management products and services. Cargill's businesses include the production and sale of industrial chocolate and fat-based coatings and fillings as well as the production and sale of semi-finished cocoa products which are used in the production of industrial chocolate.
The industrial chocolate business of ADM, also US-based, processes, sells and distributes industrial chocolate and fat-based coatings and fillings globally.
The proposed transaction does not include the activities of ADM in cocoa products, as ADM has decided to sell its activities in cocoa products to Olam of Singapore (see MEX/15/5167).
Merger control rules and procedures
The Commission has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the EEA or any substantial part of it.
The vast majority of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has a total of 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II).
There are currently three other on-going phase II merger investigations:
- General Electric's proposed acquisition of Alstom's energy business, with a decision deadline of 11 September 2015;
- the proposed joint venture between the Danish operations of TeliaSonera AB and Telenor ASA with a decision deadline of 2 September 2015 and;
- the proposed acquisition of the Greek gas transmission system operator DESFA by the State Oil Company of Azerbaijan Republic (SOCAR).