Hillsdown Holdings PLC and enterprises belonging to Associated British Foods PLC: A report on the merger situation

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On 27 February 1992 the Secretary of State for Trade and Industry referred to us the acquisition by Hillsdown Holdings PLC (Hillsdown) from Associated British Foods PLC (ABF) of the latter's interests in canning fruit and vegetables and in the production of ambient stored meals, carried on through its subsidiary division, Anglia Foods (Anglia) (see Appendix 1.1). The agreement for the sale of the businesses had been completed on 13 September 1991. We found that a merger situation qualifying for investigation had been created.

The United Kingdom market for canned fruit and vegetables has been declining. Over the last ten years, during which consumption of canned vegetables has fallen by 15 per cent and of canned fruit by about 30 per cent, a number of United Kingdom canners have left the market and several with well-known brands have been acquired by Hillsdown.

Both Hillsdown and Anglia canned a complete range of seasonal vegetables and fruit of types grown in the United Kingdom, notably peas, carrots, green beans, potatoes, soft fruits and rhubarb, and non-seasonal products such as baked beans, processed peas, other pulses and prunes. The market also includes substantial sales of imported canned vegetables such as tomatoes and sweetcorn. Sales of canned fruit are dominated by imported products including peaches, pears and pineapple.

We examined the market position for United Kingdom types of canned vegetables and fruit as broad groups and for individual products within these groups. On either basis the market share of the merged business is substantial. In 1990 the Hillsdown and Anglia market shares taken together accounted for just over half of total United Kingdom sales of canned seasonal vegetables (including processed peas) of almost £130 million, and their shares for individual vegetables such as peas, green beans and carrots were substantially higher. (For those vegetables Anglia's share of sales lay in the 10 to 15 per cent range.) The two businesses together also held high shares of sales of some types of canned fruit, particularly raspberries. Although these form only a small part of total sales of canned fruit, Anglia held 60 per cent of sales of canned raspberries by value and together the two businesses held 90 per cent.

In considering the effects of the merger we accepted that, if the sale to Hillsdown had not taken place, the Anglia business would have closed and that some reduction in competition would in any event have taken place with the withdrawal of an important supplier. There are now only five canners of seasonal fruit and vegetables in the United Kingdom and new entry is unlikely. Hillsdown's ability to exploit its high market share is nevertheless limited by a number of factors. The buying power of the multiple retailers is large and their bargaining power is increased by their proportion of high-volume own-label sales. Generally they were satisfied that there remained sufficient alternative suppliers. None of Hillsdown's major customers objected to the merger situation and most were unconcerned by the change. The remaining United Kingdom canners are together substantial enough to provide competition across the Hillsdown range and most United Kingdom canners thought the acquisition would lead to increased business from customers wishing to avoid dependence on a single supplier. Although imports are currently small, customers generally saw no difficulty in sourcing competitive supplies from abroad.

We concluded that Hillsdown was unlikely to be able to raise prices on most types of seasonal fruit and vegetables as a result of the merger situation. We recognised, nevertheless, that Hillsdown was in a position to raise prices for canned raspberries and that there might be some scope for modest increases on a few low-volume products. We did not think, however, that the adverse effects arising in this part of Hillsdown's business were sufficient to support an adverse finding on the merger as a whole.

We identified special concerns about the position of raspberry growers in Tayside, who have for a number of years been facing serious problems in securing satisfactory returns from raspberries. We concluded, however, that their position would not be materially worsened by the effects of the merger.

Closure of two Anglia canning plants following the acquisition has led to the loss of over 400 jobs. However, if the acquisition had not taken place ABF would have withdrawn from canning and the loss of jobs would have been at least as great.

Ambient stored meals have been developed over the last five years and compete mainly with frozen and chilled meals. The market has grown rapidly and is led by the substantial suppliers of branded products. In 1991 Hillsdown and Anglia together supplied about 28 per cent of the market, of which Anglia supplied 9 per cent; both firms sold only own-label products. Given the structure of this growing market we saw no likelihood of any adverse effects on the public interest from this aspect of the merger situation.

Accordingly we conclude that the merger situation does not, and may not be expected to, operate against the public interest.

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