The Australian Competition and Consumer Commission today announced it will oppose the proposed acquisition of P&N Beverages Australia Pty Ltd by Asahi Holdings (Australia) Pty Ltd.
"At the heart of the ACCC's concerns is that the proposed acquisition will remove a vigorous and effective competitor in the markets for the supply of carbonated soft drinks (CSDs) and cordial," ACCC chairman Graeme Samuel said.
Asahi owns Schweppes Australia Pty Ltd, the second largest manufacturer of CSDs in Australia and the largest manufacturer of cordial. Its products include the Schweppes and Pepsi range of CSDs, as well as the Cottee's range of cordial.
P&N is the third largest manufacturer of both CSDs and cordial. P&N manufacturers CSDs under a number of brands and is the largest supplier of private label soft drinks in Australia. P&N's CSDs play an important role as low priced alternatives to the CSDs supplied by Asahi and Coca-Cola Amatil.
The ACCC has conducted an extensive investigation of the proposed acquisition. It considered information from a wide range of sources, including beverage manufacturers, supermarket retailers, input suppliers, industry groups and other market participants. In addition, the ACCC conducted meetings and interviews and scrutinised a substantial number of internal company documents of the merger parties.
Mr Samuel said the ACCC concluded that P&N's CSDs constrain the price of Schweppes CSDs.
"The proposed acquisition would remove P&N as a vigorous and effective competitor in the CSD market and would result in Asahi and Coca-Cola Amatil being the only remaining significant competitors in the CSD market."
"Following its extensive investigation, the ACCC concluded that no other CSD supplier is likely to expand sufficiently to replace the lost competitive constraint in the foreseeable future. In particular, other smaller suppliers of CSDs lack the scale, infrastructure and brands to act as a competitive constraint on Asahi post acquisition."
"Since Asahi will face little competition from other suppliers in relation to the lower priced value CSDs, Asahi would have the ability and incentive to increase the price of P&N's branded and private label CSDs post acquisition.
"The proposed acquisition would weaken the constraint provided on the Schweppes range of CSDs, allowing Asahi to also increase the price of its Schweppes range of CSDs," Mr Samuel said.
Further, following the acquisition, Asahi will lose the incentive to supply private label CSDs in competition with P&N.
Mr Samuel said the ACCC concluded that the acquisition would remove a strong competitive constraint in the cordial market.
"P&N has been successful in growing its market share through discounting and product innovation. While there are other sources of competition in the cordial market such as Golden Circle and private label cordial, the ACCC concluded that these constraints would be insufficient to replace the competition lost from the removal of P&N.
"The ACCC considered that the proposed acquisition will allow Asahi to increase the price of its Cottee's cordial product."
The ACCC has given consideration to whether the competition concerns can be resolved, and has concluded that the appropriate decision is to oppose the acquisition.