The Australian Competition and Consumer Commission will not oppose the proposed acquisition of Swedish Match AB by Scandinavian Tobacco Group A/S after competition concerns were resolved by a court enforceable undertaking.
The undertaking proposed by Scandinavian Tobacco Group offers to sell certain Australian cigar assets, including the Wee Willem and Willem II cigar brands, to an independent purchaser.
"The ACCC is satisfied, taking into account the divestiture undertaking in relation to cigars, that the proposed acquisition of Swedish Match by Scandinavian Tobacco Group is unlikely to substantially lessen competition," ACCC chairman Graeme Samuel said.
Scandinavian Tobacco Group and Swedish Match, both global companies involved in the manufacture and supply of tobacco products, entered into an agreement under which Scandinavian Tobacco Group proposed to acquire Swedish Match. In Australia, Scandinavian Tobacco Group and Swedish Match compete in relation to the wholesale supply of cigars and pipe tobacco.
After consultation with a range of market participants, including the Australian representatives of international tobacco manufacturers, importers, wholesalers, distributors and retailers of tobacco products, the ACCC formed the view that divestitures were required in relation to the market for the wholesale supply of cigars to address competition concerns.
The ACCC concluded that the proposed acquisition would significantly increase concentration in the market for the wholesale supply of cigars, due to the limited number of current wholesale suppliers. Without the proposed divestitures, there would be only two significant suppliers, including Scandinavian Tobacco Group, in the market for the wholesale supply of cigars in Australia.
"The ACCC found that new entrants and imports were unlikely to effectively constrain the merged firm due to significant barriers represented by regulatory restrictions on the advertising and display of tobacco products, strong customer brand loyalty and other barriers associated with the manufacture, marketing and supply of cigar products," Mr Samuel said.
Further, the ACCC concluded that retail customers were limited in their ability to bypass the merged firm for the wholesale supply of cigars by sponsoring the new entry of an overseas cigar manufacturer (or expansion by a cigar manufacturer already present in Australia), or by directly importing cigar products from an overseas manufacturer. This was mainly due to the significant barriers to entry and expansion, which were likely to limit the extent to which any new or unestablished cigar brand would be able to capture sales volumes in Australia.
Generally, market participants did not raise competition concerns in relation to the market for the wholesale supply of pipe tobacco and the ACCC did not identify any further competition concerns in this market. For this reason, the ACCC decided not to accept additional divestiture undertakings in which the merger parties offered to divest certain pipe tobacco assets should substantial competition concerns be identified by the ACCC in relation to the wholesale supply of pipe tobacco.
In conducting its review, the ACCC closely coordinated with the New Zealand Commerce Commission, which was also reviewing the transaction.
The undertaking will be available on the ACCC’s public register.
A Public Competition Assessment outlining the ACCC’s reasons for its decision will be available on the ACCC’s website in due course.