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Guinness Ireland Group Ltd. / United Beverages Holdings Limited. [1998] IECA 512 (17th June, 1998)

COMPETITION AUTHORITY

Competition Authority Decision of 17 June 1998 relating to a proceeding under Section 4 of the Competition Act, 1991.

Notification No CA/17/97: Guinness Ireland Group Limited / United Beverages Holdings Limited.

Decision No. 512

Price £8.50

£9.70

Competition Authority Decision of 17 June 1998, relating to a proceeding under Section 4 of the Competition Act.

Notification No. CA/17/97 - Guinness Ireland Group Limited/United Beverages Holdings Limited.

Decision No. 512

Introduction

1. Notification was made by Guinness Ireland Group Limited (GIG), on 4 September 1997, of a share subscription agreement between GIG and United Beverages Holdings Limited (UBH), with a request for a certificate under section 4(4) of the Competition Act, 1991. On 16 January 1998 this request was amended to a request for a certificate or, in the event of a refusal by the Authority to issue a certificate, a licence.

The Facts

(a) Subject of the Notification

2. The notification concerns a share subscription agreement dated 30 May 1997 whereby GIG would acquire 69.24% of the total issued share capital of UBH, bringing its total shareholding in the company to 100%.

(b) The Parties Involved

3. GIG is a company incorporated in Ireland in 1965, which has its registered office at St James’s Gate, Dublin 8. It is a subsidiary of Guinness Ireland Holdings Limited (GIH), a company incorporated in Ireland in 1977, which also has its registered office at St James’s Gate, Dublin 8. GIH is ultimately a wholly-owned subsidiary of Guinness plc whose registered office is at 39 Portman Square, London W1 9HB. GIH is the holding company of Guinness plc’s interests in Ireland.

4. Through various subsidiaries, Guinness plc’s principal activities involve the production, sale and distribution around the world of beer and, through United Distillers, of spirits. In Ireland, the business of GIG involves the production and marketing of stout, ale, lager and cider. It also owns, through Murtagh Properties Limited, a small number of licensed premises in Dublin. Other subsidiaries include Deasy & Co Ltd and the Connacht Mineral Water Company Ltd which are primarily beer and soft drinks distributors. GIG owns 49.6% of C&C Wholesale Ltd., a subsidiary of Cantrell and Cochrane Group Limited which is involved in the wholesaling and distribution of beer and soft drinks. Allied Domecq plc, the international food and beverage company, holds the remaining 50.4%. Another GIG subsidiary is Emerald Star Line Limited which operates a fleet of luxury cruisers on the River Shannon. Guinness plc’s spirits products are sold in Ireland through various distributors, notably a joint venture company (in which it holds a 33% shareholding), Edward Dillon & Co Limited.

5. UBH was incorporated in Ireland in 1989 and has its registered office at Woods House, Blackrock, Co Dublin. It has an issued share capital of IR£8,630,000 divided into 8,630,000 shares of IR£1 each. The issued share capital of UBH is at present held as follows: GIG 2,655,000 (30.76%); James Crean plc 2,400,000 (27.81%); Fyffes plc 1,600,000 (18.54%); the remaining 22.89% of shares being held by six individuals with shareholdings ranging from 13.38% to 0.70%.

6. UBH is primarily involved in the wholesale distribution of packaged beers, soft drinks and mineral water sold under the brands of other producers. Its activities also include the production and distribution of its own ‘Finches’ and ‘Cadet’ soft drink brands and the ‘Woody’s’ range of “alcopops” or alcoholic fruit juices. To a lesser extent, it also distributes wine and cider. It has five distribution depots located in Dublin, Dundalk, Ennis, New Ross and Portlaoise and two production/bottling plants in Dublin and Dundalk. It also manufactures PET containers, both for its own use and for sale to third parties.

(c) The Products and the Market.

(i) Product Sectors

7. The following table shows the product/activity sectors of the drinks industry in which GIG, UBH and C&C, of which Guinness owns 49.6%, are involved:

Product/Activity Sector [1]

Product/Activity	Guinness	UBH[2]	C&C

Stout (P)	ü	-	-
Ale (P)	ü	-	-
Lager (P)	ü	-	-
Cider (P)	ü	-	ü
Beer/cider excl. distribution	-	ü	-
Scotch	ü	-	ü
Gin	ü	-	-
Cognac	ü	-	-
Soft drinks	ü	ü	ü
Mixers	-	ü	ü
Alcopops	-	ü	ü
Fruit juices (licensed trade)	-	ü	ü
Wine	ü	-	ü
Mineral water	-	-	ü
Wholesaling	ü	ü	ü

P = production

8. The effects of the merger will occur where there is an overlap between the current activities of Guinness and those of UBH. This occurs in the following product categories: wholesaling, production of soft drinks/mixers/fruit juices, and alcopops. These three categories will be taken as the basis for the discussion of the relevant market. The definition of soft drinks includes mixers and fruit juices.

9. However, related industry sectors, particularly the upstream brewing market, must also be considered as relevant to the merger, particularly in evaluating its vertical effects. GIG is obviously heavily involved in this market as a brewer. UBH is not a primary producer in this market but has exclusive distribution agreements for certain products. This related market is considered further below.

(ii) The Drinks Industry (Beer and Soft Drinks) in Ireland.

Brewing

10. The beer industry in Ireland may be divided into three sectors: brewing, distribution [3] and retail. Brewing is carried out both for home consumption and for export, and beer is also imported for consumption here. In 1995 the per capita consumption of beer in Ireland was 141.3 litres [4]. Beer consumption per capita rose from 58.1 litres in 1961 to 130 litres in 1974 before declining gradually to 106.4 litres in 1987. It has been rising steadily since then. The graph below shows the trends in beer consumption per capita from 1980 to 1995:

Source: CSO, quoted in “World Drink Trends”, 1996 edition

11. The following table shows the trend in total beer consumption in million hectolitres, both home-produced and imported, in Ireland from 1987 to 1996 [5]:

Year	Estimated Total mhl	Percent Change
1987	4.072	N/A
1988	4.182	2.70
1989	4.412	5.50
1990	4.632	4.99
1991	4.632	0.00
1992	4.840	4.49
1993	4.700	-2.89
1994	4.792	1.96
1995	4.962	3.55
1996	5.237	5.54

These figures show an average growth rate of 2.8% per annum over this nine-year period. According to the Monthly Panorama of European Industry for April 1998 [6], Ireland recorded the greatest percentage increase in beer consumption of any EU country between 1991 and 1996. Of the 15 EU countries, 11 recorded declining or stagnant consumption.

12. The following table shows the net duty-paid quantities of alcohol for domestically produced and imported beers for 1994 to 1996, and imports as a percentage of the total. (Note that the figures relate to the volume of pure alcohol, not to the volume of the beer). These figures indicate that imports have about 10% of the market. This is higher than the EU average of 6.9% [7]. The Monthly Panorama of European Industry [8] notes that “The costs involved in transporting beer can clearly have a negative impact on trading possibilities. Nevertheless with modern production techniques it is possible to transport beer over far larger distances than a few decades ago (although with draught beer it remains difficult) ... the largest market for Dutch beer is in Spain and not Belgium and Luxembourg or Germany as one may expect.”

Net Duty Paid Quantities of Pure Alcohol, 1994-96. [9]

Year	Domestically produced (hl of alcohol)	Imported (hl of alcohol)	Total (hl of alcohol)	Imported (%)
1994	17,921,383	2,128,485	20,049,868	10.6
1995	18,550,000	2,089,959	20,639,959	10.1
1996	19,687,260	2,112,660	21,799,920	9.7

13. The overall value of the (retail) beer market was estimated by Checkout Yearbook as £1.3bn in 1993 [10]. Particular characteristics of the beer market in Ireland include:

- a comparatively high on-trade consumption;

- high draught beer consumption; and

- high stout consumption - stout accounts for 48% of the beer market and Guinness is a “must-stock” product [11]

Home consumption of beer in Ireland was the lowest in the EU at just over 10% in 1996 [12]. Ireland had the largest percentage of consumption of draught beer in the EU, at 80%. The next highest were the UK at 65.5%, and Luxembourg at 52.3%; in Denmark, only 9.3% of beer is sold in draught form. [13]

14. The main indigenous brewers are Guinness, Murphy Brewery Ireland Ltd. (owned by Heineken) and Beamish and Crawford (formerly owned by Fosters and now owned by Scottish and Newcastle). The brewers produce both for the domestic market and for export. C&C, through its subsidiary Showerings, is involved in the production of cider. Tennents, which has brewing facilities in Northern Ireland, distributes beer in the Republic of Ireland through a sales subsidiary. There are a number of much smaller breweries producing premium beers but their market share is negligible.

Turnover and profit of major breweries, 1993-96 (approx). [14]

*NAME*	*BUSINESS*	*T/O*	*Prof*	*T/O*	*Prof*	*T/O*	*Prof*	*T/O*	*Prof*
		£m	£m	£m	£m	£m	£m	£m	£m
Guinness Ireland[15]	Brewing	703	148	668	140	632	142	696	117
C&C Group [16]	Alcoholic/ non-alcoholic beverages	342	28.1	300	35	236	31	218	27
MBIL[17]	Brewing	125	n/d	100	n/d	100	n/d	95	n/d
Beamish & Crawford [18]	Brewing	52	-.5	51	-4.9	47	-2.2	46	-.2
Tennents Ireland[19]	Beer distribution	18.6	n/d	18	n/d	16	n/d	20.3	n/d

n/d - not disclosed.

15. Guinness has a very large market share in the Irish brewing industry: in 1996, some 73.7% [20] of the Irish domestic beer sales were supplied by Guinness:

Market shares in brewing in Ireland [21]

Percentage Share	Guinness	MBIL	Beamish & Crawford	Others
DRAUGHT
- Stout	88.4%	5.1%	6.2%	0.3%
- Ale	96.4%	0.0%	0.0%	3.6%
- Lager	52.4%	38.6%	6.3%	2.7%
PACKAGED
- Stout	89.2%	5.0%	5.5%	0.3%
- Ale	87.2%	0.0%	2.7%	10.1%
- Lager	49.6%	18.4%	12.3%	19.7%
TOTAL	73.7%	16.3%	6.5%	3.5%

16. The above tables do not include cider, which represents about 5% of the Irish beer market as a whole. [

]

17. GIG provided the following estimate of market shares in the sale of packaged beers:

Sales of Packaged Beers (Bottled and Canned) by All Producers (1996) [22]:

Producer	Volume (hectolitres)	%
GIG	[	60%
Heineken		17%
Beamish & Crawford		12%
Tennents		5%
Others		6%
TOTAL	]	100

18. A feature of the market is the brewing of international brands under licence by Irish brewers. The table below [23] shows the brands which are produced in Ireland by the three main brewers and by Showerings, which produces cider.

	Product Type	Beamish & Crawford	Guinness	Murphy's	Showerings
Beamish Stout	Beer	P
Budweiser	Beer		P
Canned Draught Guinness	Beer		P
Carling Black Label	Beer	P
Carlsberg	Beer		P
Coors	Beer			P
Coors Extra Gold	Beer			P
Coors Light	Beer			P
Fosters	Beer	P
Fosters Ice	Beer	P
Guinness	Beer		P
Harp	Beer		P
Heineken	Beer			P
Hoffmans	Beer		P
Kilkenny	Beer		P
Macardles	Beer		P
Miller Genuine Draft	Beer	P
Murphy's Stout	Beer			P
Phoenix	Beer		P
Satzenbrau Pils	Beer		P
Smithwicks	Beer		P
Steiger	Beer		P
Annerville	Cider				P
Babycham	Cider				P
Bulmers	Cider				P
Coopers	Cider				P
Linden Village	Cider				P
Ritz	Cider				P
Stag	Cider				P
Strongbow	Cider				P
Woodpecker	Cider				P
Kaliber	Low Alcohol Beer		P

(P = produced)

19. Packaged beer is distributed to both the off- and on-trades. The off-trade was estimated by Checkout magazine as being worth £100m in 1993 and to have trebled in size since 1980. The total market for packaged beer was worth approximately £310m in the year to July 1997 [24]. Market shares for stout, ale and lager in the off-trade are different to those in the on-trade. The following table [25] shows estimated market shares by volume for packaged stout, ale and lager in the off- and on-trades and in total:

	On-trade	Off-trade	Total
Ale	7.5%	5%	6%
Stout	17%	18%	18%
Lager	75%	77%	76%
Total	100%	100%	100%.

Sales of packaged beer to the on-trade have also grown rapidly in recent years with the trend towards “long-neck” (330ml) bottles.

Packaged beers - Stout

20. The size of the on-trade packaged stout market in the year to August 1997 was [ ] million litres, with a retail value of [ ]. It is estimated that Guinness had [ ][26] of the packaged market in the on-trade in the year to August 1997, with Murphy’s at [ ] and Beamish at [ ]. Murphy’s state that the market shares for the overall packaged market are 89.2%, 5.0% and 5.5% respectively. The share of the market held by other parties is negligible.

Packaged beers - Ale

21. The size of the on-trade packaged ale market in the year to August 1997 was [ ] million litres, with a retail value of [ ]. Estimated market shares [27] are as follows:

Smithwicks [

Macardles

Phoenix

Total GIG

Bass

Caffreys

Total Tennents ]

This indicates that Guinness and Tennents totally control the on-trade in packaged ale. Murphy’s figures indicate the following market shares in the overall packaged ale market:

Guinness 87.2%

MBIL 0.0%

Beamish & Crawford 2.7%

Others 10.1%

Correlation with the figures above would suggest that Tennents accounts for almost all of the “Others” figure, although some other ales (e.g. Boddington’s) are also sold in off-licences.

Packaged beers - Lagers

22. The packaged lager market had a total volume of [ ] million litres in the year to August 1997. Lager therefore accounts for the lion’s share of the packaged beer market. The retail value of the market was [ ] million. This was broken down between the on- and off-trades as follows:

Volume Value

(mil. litres) (IR£million)

On-trade [

Off-trade ]

Source: [ ]

23. This market is the only one in which alternative suppliers to Guinness, Murphy’s, Beamish and Crawford and Tennents seem to have achieved market share. Even so, their market shares are small. Murphy’s give the following market shares for the various producers:

Guinness 49.6%

Murphy’s 18.4%

Beamish & Crawford 12.3%

Others 19.7%

24. The following table gives a breakdown of the packaged lager market, by brand and by on/off trade, by volume [28]:

Brand	Brand owner	% share, on-trade	% share, off-trade	% share, total
[













				]

These figures indicate that Guinness has four out of the top six brands in the packaged lager market, with a combined market share of [ ]. The GIG market share is actually higher than this, since the “All others” figure would include some GIG brands, such as Furstenberg, Stella Artois, Steiger and Hoffmans, which are not shown separately. GIG brands have higher penetration in the on-trade [ ] than in the off-trade [ ].

25. Of the lagers named in the list shown above, Tennents, Holsten, Beck’s and Labatt’s, with a combined market share of 6%, are imported. Of the lagers included under “Others”, Steiger and Hoffmans are brewed in Ireland.

26. A number of new products have been launched on the packaged beer market in the past five years, with varying degrees of success. The following table shows product launches by year, and also shows which firm is responsible for launching the product [29]:

Year	Product	“Parent”
1996	Hudson Blue (cider) Amstel Kingfisher (beer)	Guinness Murphy’s Barry & Fitzwilliam
1995	Boddington’s (beer) Coopers 500 ml cans Canned Kilkenny Caffreys Murphy’s bottled draught Coors Light Cobden’s (cider) Fenhall’s Merrydown (cider)	Barry & Fitzwilliam Showerings Guinness Tennents Murphy’s Murphy’s Barry & Fitzwilliam Barry & Fitzwilliam Woodford Bourne
1994	Bitburger Pils Royal Dutch Sol Dos Equis Hernbrau Weissbier	Coman’s Coman’s Coman’s Coman’s Coman’s
1993	Michelob Moosehead Coors	Guinness Guinness Murphy’s
1992	-	-
1991	Steinlager Rolling Rock Labatts	Tennents Coman’s Tennents

27. Of the 23 products shown here, 12 were launched by brewers located in Ireland, north or south (Guinness, Murphy’s, Showerings, Tennents) while eleven were launched by independent wholesalers. During the same period, eleven products were withdrawn (Kronenbourg, Molson Special Dry, Clausthaler and Carlton LA by Beamish & Crawford; Michelob and Moosehead by Guinness; Steinlager and Barbican by Tennents; Boddington’s by Barry and Fitzwilliam and Bitburger Pils and Hernbrau Weissbier by Comans), although Kronenbourg and Clausthaler are now again available. Distribution of five further products changed - Miller from Showerings to Beamish and Crawford, Stella Artois from Barry and Fitzwilliam to Guinness, Sol and Dos Equis from Coman’s to United Beverages and Rolling Rock from Coman’s to Tennents.

28. Despite the proliferation of brands, the major breweries retain the lion’s share of off-sales. The following analysis of the packaged beer off-trade market appears in Checkout magazine 1997:

“Volume growth in the off-trade sector of the drinks market fell slightly last year, probably as a result of poor summer weather. This means that the off-trade now has a 10% share of the overall beer market, worth an estimated £90 million. Lager dominates the off sales with a 71% volume share, almost 90% of this in cans. The popularity of different brands shows considerable regional variation, with Budweiser favourite in Dublin, where 65% of take-home sales are made, Harp in the west and Carling in Munster. Absolute figures are unavailable but it seems that Budweiser (Guinness) is the best selling take-home lager with Heineken (Murphy’s) coming second with a 20% share, and Fosters (Beamish & Crawford) third. Budweiser also claims to be the fastest growing beer in Ireland with a growth rate of 25%. Guinness has another two brands in the top five canned beers, Harp and Carlsberg, and is the major brewer in Ireland with 75% of the overall beer market, [with] Murphy at 15% and Beamish and Crawford at 10%.

“Apart from these three dominant companies, there is a wide variety of smaller premium lagers, many of which are distributed by Tennents - Labatts, Grolsch, Rolling Rock and Schlitz as well as the more mainstream Tennents. Coman’s are also involved with this end of the market, distributing Oranjeboom, Holsten Pils and Royal Dutch. This is a segment which is set to thrive because of the increasing division of the market into niches.

“Premium bottled lager (PBL) is a related sector which has flourished since its introduction to the Irish market in the early nineties. Miller claims a 45% share of the PBL segment but there are no universally agreed figures. Many PBLs are foreign imports, which establish themselves in bottles before expanding into cans, for example Becks and Coors. Amstel was added to the Murphy portfolio, packaged in a 500 ml can.

“Stout sales declined 6% last year but Guinness maintained its 87% share in spite of the strongest competition it has ever faced. Stout accounts for 23% of all off trade volume, and has a 47% share of the total Irish beer market... Murphy Brewery claims a 12% share of the off trade stout market, just above that of Beamish and Crawford.

“The low/no-alcohol beer market is declining, partly due to the advent of adult soft drinks and now accounts for only 0.5% of sales. The main brands are Buckler (Murphys) and Becks Non-Alcoholic (United Beverages) ...

“Restyling its image has worked wonders for the cider industry, which has mostly succeeded in dissociating itself from teenage drinking and attracting older, more affluent consumers. This market is now valued at £68m in both the on and off trades, with excellent growth. Showerings controls four of the well-known ciders, Bulmers, Coopers, Ritz and Stag, Bulmers claiming to be the market leader with an 85% share. Ale has also enjoyed a revival since the launch of Caffreys by Tennents, which has led to the arrival of Kilkenny (Guinness) and soon Beamish Red Ale to the Irish market. Smithwicks (Guinness) and Bass (Tennents) are also holding their own in this sector.”

Soft Drinks Production.

29. Both Coca-Cola and Pepsi-Cola have plants in Ireland which manufacture concentrate used in the production of carbonated soft drinks; however, this is almost entirely exported. Both companies use franchisees - Coca-Cola Bottlers Ireland and C&C, respectively - to service the Irish market. There are also a significant number of secondary and tertiary brands in the soft drinks industry, some of which are owned by distributors to the licensed trade. For example, Gleeson’s and Nash’s produce carbonated soft drinks and/or mineral waters. Guinness is also directly involved in the soft drinks industry through its wholly owned subsidiaries Deasy and Connacht.

30. The following are the brands produced by the various manufacturers in the soft drinks industry:

C&C Ireland: Club Orange, Diet Club Orange, Club Lemon, Diet Club Lemon, Club Lemon & Lime, Diet Club Lemon & Lime, Club Mixers, Club Rock Shandy, Pepsi, Pepsi Max, Diet Pepsi, Mi-Wadi, Schweppes, TK, Ballygowan, Ballygowan Flavours.

Coca-Cola Bottlers: 7-Up, Diet 7-Up, Coca-Cola, Coca-Cola Caffeine Free, Diet Coca-Cola, Fanta (Orange and Lemon), Diet Fanta, Kinley Drinks, Lilt, Diet Lilt, Tanora, Fruice, River Rock.

Deasy & Co: Deasy Minerals

M & J Gleeson: Gleesons Lemonade, Gleesons Orange, mineral water, fruit juices.

Glenpatrick Spring: Glenpatrick Spring Water

Kerry Co-op: Kerry Spring Mineral Water

Nash’s: Royal Mystic Juice, Nash’s Irish Spring, Nash’s Mineral Water, Royal Mystic Clear, Jolt Cola, Crown, Nashville.

Showerings: Cidona, Britvic Juices, Britvic 55.

Tipperary Spring: Tipperary Spring Water

UBH: Cadet, Corcoran, Finches, Splash Draught Soft Drinks, Finches High Juice.

31. Of the major companies involved in soft drinks production in Ireland, only Coca-Cola Bottlers Ireland is confined to the production and distribution of soft drinks. C&C also produces a range of alcoholic beverages and UBH is a drinks wholesaler. For this reason only the financial results for Coca-Cola Bottlers Ireland are given below [30]:

Name	Business	T/O £m	Prof £m	T/O £m	Prof £m
Coca-Cola Bottlers Ireland [31]	Soft Drink Distrib/ Manuf.	102	n/d	85	n/d

32. The market in Ireland for non-alcoholic drinks in 1996 was estimated at 480 million litres in total. This includes carbonates (70%), juices and nectars (8%), water (6%) and other fruit drinks (16%) [32].

33. Soft drinks are sold in supermarkets, symbol-group stores, corner shops and off-licences, for consumption off the premises; and in pubs, hotels, restaurants and cafes for consumption on the premises. The value of soft drinks (carbonated drinks, mixers and mineral waters) sold through grocery and liquor/on-trade outlets was estimated at [ ] for the year ending July 1997 [33]. This is broken down as follows:

Soft Drinks Market [34]

	Volume (litres)	Value (IR£million)
Grocery
Carbonated drinks	[
Mixers
Mineral waters
Total Grocery
Liquor/On trade
4oz mixers
7oz bottles
Under 250ml
250-499ml
500 ml bottle
500ml-1l bottle
Over 1l bottle
Total Liquor On-trade		]

Unfortunately, corresponding figures are not available for soft drinks sold through the off-trade. However, it is estimated that approximately 70-80 million litres in total is distributed through licensed wholesalers, i.e. to the on- and off-licensed trade [35].

34. The following table shows the volume share of the carbonated drinks market in the grocery sector held by the various brands for the year ended July 1997 [36]:

BRAND	MARKET SHARE
Coca-Cola (incl Diet Coke)	[
Fanta Orange
Fanta Lemon
Lilt
Sprite
7Up (incl Diet 7Up)
Tanora
CCBI Total
Club Lemon (incl Diet Club Lemon)
Club Orange (incl Diet Club Orange)
Club Lemon/Lime (incl Diet)
Other Club
Pepsi (incl Diet and Max)
TK Total
Schweppes Total
Cidona
C&C Group Total
Cadet
Finches
United Beverages total
Others
Own brands	]

GIG estimates that Coca-Cola has 48.5% of the market, C&C has 25% and UBH has 10.3%. Deasy and Connacht have 0.6% between them. [37]

35. Soft drinks are produced in a range of sizes and forms of packaging, depending on the market sector to which they are being sold. For example, sales through the grocery outlets would be largely of PET containers (plastic bottles) and cans. Soft drinks sold to the licensed trade are mostly returnables, i.e. glass bottles, and glass bottles are sold only to pubs and licensed wholesalers. They include sizes, such as 4-oz/113ml mixers and 7oz/180ml mixers, which are unique to the licensed trade. The independent wholesalers have stated that “With the Finches brands of minerals, United Beverages are the only national competitor in the licensed trade soft drinks market for C&C in the 7-oz. orange and lemon and the 4-oz. mixer market.” The following tables show market shares in the 4-oz and 7-oz mixers markets:

Market Shares in 4-oz Mixers, Liquor Trade [38].

	MARKET SHARE
4-oz mixers, Club white lemonade	[
4-oz mixers, Club other
4-oz mixers, Schweppes white lemonade
4-oz mixers, Schweppes other
4-oz mixers, Sch, slimline
4-oz mixers, other C&C
4-oz mixers, C&C total
4-oz mixers, Finches
4-oz mixers, all others	]

This shows that Schweppes dominates this market segment and that Finches’ mixers are in fact the only major competitor to C&C’s Schweppes and Club brands in the segment [39].

Market Share in 7-oz Soft Drinks, Liquor Trade [40].

	MARKET SHARE
Coca-Cola (incl Diet Coke)	[
Other CCI
Total CCI
7Up (incl Diet 7Up)
Club
Pepsi (incl Diet Pepsi)
Other C&C
Total C&C
Finches
All others	]

This shows that Coca-Cola and C&C have over [ ] of the market between them. Finches are the major competitor to Coca-Cola and C&C in this market segment, albeit with a much smaller market share than either.

Wholesaling and Distribution.

Draught Beer

36. The market for the distribution of draught beer products (which represents 80% [41] of total beer sales) is one that exhibits a high degree of vertical integration. GIG, which dominates the market for draught beer, has its own distribution system and uses del credere agents in Kerry and Donegal for mainly historical reasons. MBIL, an important competitor of GIG, especially in the lager market where it has a 38.6% market share, stated in its submission that draught beer products are distributed directly by brewers (either through their own vehicles or by agents). The degree of vertical integration in the market for the distribution of draught products may be due to the large bulky nature of the product and the varied ancillary products required with delivery (which necessitate the delivery of draught by articulated vehicles).

Soft Drinks

37. Soft drinks are distributed in a wide variety of ways: directly from the producers to some large customers such as supermarket chains, through central warehouses of symbol groups, through grocery wholesalers, through cash-and carries and through licensed wholesalers. The major brands would tend to service multiples directly rather than through wholesalers. For smaller grocery outlets which are not part of a symbol group, some larger soft drinks companies operate a telesales operation; other such outlets are served by cash-and-carries.

38. Distribution to central buying points such as multiples and symbol groups is estimated to account for 80% of soft drinks distribution [42]. However, there are numerous small corner shops and around 9,000 licensed outlets such as pubs and hotels. It would be impossible for a supplier to supply so many outlets. Hence the role of grocery wholesalers and licensed wholesalers, who supply a large number of outlets with a full range of products. It is estimated that 70-80 million litres of soft drinks are supplied annually to the licensed trade through wholesalers [43]. As mentioned above, soft drinks are supplied to the licensed trade largely in returnable glass bottles and in particular sizes which are peculiar to that trade.

Packaged beer

39. The market for the wholesaling and distribution of packaged beer is not integrated to the same degree as that for draught beer. Guinness owns two licensed trade distributors (LTDs) - Deasy and Connacht; 49.6% of C&C, one of the three largest wholesalers; and, ex ante, 30.76% of UBH, another of the three. Murphy’s owns 50% of Nash’s. All of these wholesalers distribute a full range of products, including the packaged beer products of breweries which compete with their parent or major shareholder. This is due in part to historical factors where there were many small local wholesalers who could be relied upon for their local knowledge and contacts. Also, formerly bottling tended to be carried out by wholesalers rather than brewers. In the recent past there have been moves to a more rationalised distribution system for packaged beer and consequently the number of wholesalers has more than halved in a decade.

40. There are fewer economies of scale due to the nature of packaged beer (it is immeasurably more portable than is draught beer and can be carried on trucks of all sizes depending on the amount to be delivered). There is also a much higher probability of gaining economies of scope as beer can be equally well carried along with soft drinks.

The Role of Wholesalers

41. Wholesalers supply drinks, alcoholic and non-alcoholic, to the licensed trade whether on-trade (public houses, hotels, restaurants and cafés, which are also supplied with draught product by the breweries) or off-trade (grocers and specialist off-licences). Wholesalers distribute, inter alia, packaged beer products - the area of the beer market showing most growth in recent years - and soft drinks. Their functions are summarised in one submission as follows:

“These wholesalers provide various services to the licensed trade in terms of delivery of products to the licensed premises, the warehousing and consolidation of branded drinks products from various producers, grant credit, break bulk, employ representatives who travel to premises, provide point of sales assistance, inventory advice and other related services.”

A wholesaler of alcoholic beverages must be licensed in accordance with the appropriate legislation.

42. The market for wholesaling (supply and distribution) of packaged beer and soft drinks is structured as follows:

Traditional Wholesalers: In addition to UBH, the traditional wholesalers of packaged beer and soft drinks are:

(i) M. & J. Gleeson & Co. Ltd who produce and distribute ‘Tipperary Spring’ mineral water, ‘Country Spring’ and ‘Cheers’ soft drinks and supermarket own-brand soft drinks. Gleeson also distribute ‘Anvil’ cider and ‘Mug-Shot’ alcoholic lemonade as well as Heineken draught.

(ii) C&C Wholesale Limited is a subsidiary of Cantrell & Cochrane Group Limited (C&C). GIG has a 49.6% shareholding in C&C with the remaining 50.4% being held by Allied Domecq plc . C&C produces C&C brands, Schweppes and Pepsi soft drinks. It also produces and distributes several cider brands, as well as liqueurs and whiskey and distributes wine.

(iii) GIG own two wholesale companies Deasy & Co Ltd of Cork and Connacht Mineral Water Co Ltd of Galway. Both wholesale beer, soft drinks and wine. Deasy produce own-brands soft drinks under the ‘Deasy’ and ‘Corrib’ brand names.

(iv) Coman Wholesale Ltd is a Dublin based wholesaler of beers, ciders and soft drinks. Coman’s has the ‘Holsten’ and ‘Royal Dutch’ beer agencies for Ireland.

Of the above, only C&C, in addition to UBH, has a nation-wide coverage. In addition to these main wholesalers there are approximately 40 other smaller wholesalers in the State, all of which are located outside Dublin.

43. The following table shows financial information concerning the main wholesalers [44].

Name	Business	Turnover	Profit	Turnover	Profit	Turnover	Profit	Turnover	Profit
		IR£m	IR£m	IR£m	IR£m	IR£m	IR£m	IR£m	IR£m

United Beverages Sales [45]	Soft Drinks	80	n/d	63.2	n/d	60	n/d	60	n/d
Gleeson Group [46]	Mineral Water/ Soft Drinks/ Beer Distributors	42	n/d	37	n/d	33	n/d	n/a	n/a
J Donohoe [47]	Beverage Manufacturer	27	n/d	24.2	n/d	21.4	n/d	19.4	n/d
C&C Wholesale [48]	Drinks Distribution	22	n/d	22	n/d
Barry & Fitzwilliam [49]	Wines/ Spirits/ Beer Import	12	n/d
Clada Soft Drinks [50]	Mfr of Soft Drinks/ Mineral Water/ Beer Dist.	9.2	n/d					7	n/d
Richard Nash & Co. [51]	Mineral Water Manufacture/ Distribution	8.5	n/d	8	n/d	7.5	0.02
Monaghan Bottlers [52]	Beer/Wine/ Spirit Wholesale/Import	6	n/d	6	n/d	6	n/d	8	n/d
W&J Dwan & Sons [53]	Drinks Manufacturer					16.5	n/d	10	n/d

Note (1): United Beverage Sales covers sales of soft drinks as well as wholesaling.

Note (2): C&C Wholesale results are only reported separately from year ending 1995.

Note (3): Figures shown in italics are estimates.

44. Other firms involved in the distribution of alcoholic and non-alcoholic drinks, although not necessarily in the same market, are central warehouses of multiple grocery stores and cash-and-carries. The central warehouses are Power Imports, which supplies Quinnsworth/Crazy Prices/Tesco, and Sydney Cooper, which supplies Dunnes. The main cash and carries are: (i) Musgraves, which has a network of nine Cash & Carry outlets throughout the country; (ii) BWG, a subsidiary of Irish Distillers, with 31 outlets in the State; and (iii) ADM, which supplies the “Londis” symbol group.

[ ] estimated the size of the wholesale market as [ ] per annum.

45. The submissions include slightly varying estimates of market share in the wholesaling sector. In part this arises because Guinness has provided separate estimates of market share for the bottled beer distribution and soft drinks production markets, by volume, and has included both multiples and cash-and-carries. Other submissions have provided various estimates of market share for the overall wholesale drinks market, presumably by turnover. The figures submitted by GIG and the independent wholesalers are summarised below:

Market Share Estimates for Wholesaling Market.

Name	GIG[54]	Independent wholesalers [55]
	Beer	Wholesale drinks market
1. Wholesalers
UBH	17.12%	20%
C&C W’sale	11.03%	14%
Gleeson	13.83%	14%
GIG [56]	9.54%	12%
Coman	7.37%	7%
Donohoe Gp	3.71%	4%
Nash		3%
Clada		3%
Monaghan		2%
Mulrine		2%
Kelly		2%
Others (40)	19.76%
Others ( +26)		17%
2. Multiples
Power	9.27%
Cooper	3.04%
3. Cash & Carries
Musgrave	2.33%
BWG	3.00%
TOTAL	100	100

46. Guinness include “traditional” wholesalers, cash-and-carries and multiples in their estimates of market shares. Irish Distillers contend that wholesalers are distinct from both cash-and-carries and multiples because of the type of service they provide, their locations, delivery policies and other essential attributes. They say that cash and carries do not normally deliver to premises, grant credit or employ representatives who travel to premises. Guinness, on the other hand, say that “cash and carries are increasingly providing a delivery service and selling on credit, so the distinction between the services which they provide and the services provided by traditional beer and soft drinks wholesalers is diminishing.” However, the cash-and carries do not, in general, carry the range of soft drinks products required by the licensed trade. Out of five cash-and-carries surveyed by the Authority, only one (BWG) carried 113ml and 180ml mixers and Coca-Cola in glass bottles, although all of them stocked packaged beers. The smallest size of soft drinks carried by the others was 250ml.

47. The “multiples” buy direct and service their own outlets: they do not provide wholesaling and distribution services to others.

48. A further important point is that, geographically, C&C and UBH are the only wholesalers with nation-wide distribution networks. C&C has distribution locations in counties Dublin, Waterford, Tipperary, Cork, Limerick, Tralee, Thurles, Athlone and Donegal. UBH has distribution locations in Dublin, Dundalk, Ennis, Portlaoise and New Ross. The remaining distributors are regionally based.

Regional Market Shares by Distributor - Beer Distribution

	Dublin	S. Leinster	N. Leinster	Co. Cork	Rest of Munster	Connacht	National
UBH	32%	52%	36%	0%	4%	8%	26%
C&C	20%	26%	30%	20%	26%	11%	21%
GIG	0%	0%	0%	60%	18%	16%	9%
Gleeson	8%	2%	2%	0%	7%	0%	5%
Others (17)	40%	20%	32%	20%	45%	65%	39%
Total	100%	100%	100%	100%	100%	100%	100%

Source: MBIL (1995).

Alcopops

49. This is a new product market for pre-mixed alcoholic fruit drinks. Guinness submit that they compete with a wide variety of drinks products (e.g. spirits mixed on or after purchase with fruit drinks, cola or lemonade; perries; certain ciders or beers). They are the only alcoholic drinks products which UBH produces itself. [ ] With such a new product it is difficult to estimate whether it will evolve into a distinct market segment. However, there would certainly appear to be a wide variety of close substitutes available. The Authority therefore considers that alcopops cannot at present be considered to constitute a separate market.

(iii) The Relevant Markets

50. In its submission GIG stated that the product market was defined as the market for the distribution services for all alcoholic and non-alcoholic drinks products. However, as GIG was primarily involved in the production of beer products and UBH’s activities were largely concentrated on the distribution of packaged beer and the production and distribution of soft drinks, the focus of the submission was on the latter market segment, i.e. that for the distribution services for packaged beer and soft drinks in Ireland.

51. It was argued that, given that the nature of the distribution services to suppliers of drink products was essentially the same regardless of whether the products themselves were alcoholic products or soft drinks, there appeared to be no economic justification for limiting the product market to the distribution of packaged beers and soft drinks. Such a limitation on market definition, it was contended, would be justified only if there were significant differences in the manner in which certain of the products mentioned were distributed.

52. A number of third parties made submissions to the Authority in respect of the notified agreement and, inter alia, stated that the appropriate market definition was that of the wholesale (supply and distribution) of packaged beer and soft drinks. One party argued for a wider market definition to include the wholesale of all beverages, including spirits.

53. Some submissions by third parties have pointed to the involvement of both Guinness and C&C in the spirits market. Guinness is involved in the spirits market through its parent’s ownership of United Distillers, with substantial market shares in Scotch, gin and brandy. As UBH is not involved in the production or distribution of spirits, the merger does not create any horizontal effects. The Authority does not consider that the wholesale or distribution of spirits should be included in the relevant market, for the following reasons:

(i) spirits distribution is already substantially vertically integrated; many of the leading spirit manufacturers distribute their products through joint ventures with competing suppliers;

(ii) there is some evidence that physical distribution of bottled beers and soft drinks, on the one hand, and spirits, on the other hand, are distinct, i.e. that even where a company distributes both, they are not delivered together;

(iii) UBH, the target of the acquisition, is not involved in the distribution of spirits.

54. The Authority is of the view that there may be significant differences in the manner in which packaged beers and draught beer are distributed. The Authority concurs with the notifying party’s view that draught beers be excluded from any market analysis, since own-brand delivery by the breweries directly to the retailers is the norm. While agents may be involved in the physical delivery, ownership of the product is transferred directly from the brewer to the retailer. This is in contrast to the situation with packaged beer where the wholesaler buys the product for onward sale and thus assumes a financial risk.

55. The Authority considers that there are two relevant markets: the production of soft drinks, and the wholesaling of packaged beer and soft drinks. Within the soft drinks market there are a number of market segments. Of particular interest in the context of this notification is the supply of soft drinks to the licensed trade in returnable containers, especially in 4-oz mixers and 7-oz soft drinks sizes.

56. The market for the wholesaling of packaged beers and soft drinks includes firms which engage in wholesaling only, such as the cash-and-carries, and those which engage in wholesaling and distribution, such as the traditional wholesalers. Cash-and-carries are included in the relevant market since they do supply packaged beer to the relevant retail outlets, even though they may not provide a full service including soft drinks in returnable containers. This market definition excludes the central warehouses of multiples, since their function is also distribution rather than wholesaling and since (unlike cash-and-carries) they do not make their services available to the market generally. Consumers are therefore unable to substitute their services for those of wholesalers or cash-and-carries. Neither can producers get access to this capacity as a substitute for the distribution capacity of the wholesalers. The Authority does not consider that such firms are in the same product market as UBH. The market definition also excludes the distribution networks of soft drinks companies such as Coca-Cola, for the same reason.

Both UBH and C&C, which is 49.6% owned by Guinness, are involved in the production of soft drinks. Guinness is also directly involved through its ownership of Deasy and Connacht.
UBH, C&C and Guinness are all also involved in the wholesale and distribution of packaged beer and soft drinks.
Guinness has very large market shares in a number of aspects of beer production.
UBH is the exclusive distributor of certain brands of beer and cider.

57. The merger will therefore have a horizontal effect in the first two markets detailed above. Because of the large market share of Guinness in the brewing market and the vertical links established by the merger, brewing will also be considered in the assessment as a related market.

The products involved in the wholesaling of packed beer and soft drinks are packaged beer – stout, ale and lager – as well as cider, alcopops, soft drinks, mixers and mineral water.

58. On the question of the geographic market, the Authority considers that, even though the transport costs for the products in question mean that an individual distributor can only serve a particular catchment area, any individual customer is likely to be in the catchment area of a number of competing suppliers. These areas will overlap so that while, for example, a wholesaler in the extreme north of the country is not in direct competition with one in the extreme south, neither of them could raise prices independently without losing customers to other local wholesalers. In this context, it is relevant to note the European Commission’s Notice on the Definition of the Relevant Market [57], which states that:

“In certain cases, the existence of chains of substitution might lead to the definition of a relevant market where products or areas at the extremes of the market are not substitutable. An example might be provided by the geographical dimension of a product with significant transport costs. In such cases, deliveries from a given plant are limited to a set area around each plant by the impact of transport costs. In principle, such area could constitute the relevant geographic market. However, if the distribution of plants is such that there are considerable overlaps between the areas around different plants, it is possible that the pricing of these products will be constrained by a chain substitution effect, and lead to a broader geographic market.”

In this case distribution depots are well spread around the country and there are considerable overlaps between the areas supplied by them. The Authority therefore considers that the geographic market is the State.

(d) The Notified Arrangements

59. The notified arrangements involve the acquisition by GIG of all the outstanding shares in UBH (“the company”). The company is a private limited company with an authorised share capital of £8,630,000 divided into 8,360,000 ordinary shares of £1 all of which have been issued and are fully paid up. Clause 3 states that each of the Vendors is to sell as beneficial owner (but as legal owner only in some cases) their shares as set out in the First Schedule to the Agreement. The Purchaser (GIG) is not obliged to complete the purchase of any of the shares unless the sale and purchase of a certain proportion in nominal value of the shares is completed simultaneously. The consideration payable to the vendors is set out in the First Schedule also. The vendors indemnify the purchaser against a certain proportion of any liability arising out of certain legal proceedings outstanding against the company, and the Purchaser is entitled to retain a certain amount (the Retention Sum) out of the consideration and pay it to escrow agents as security for the vendors’ liability under this indemnity. There is a separate Escrow Agreement enabling the setting up of an Escrow Account and Escrow Fund in relation to these proceedings.

60. The completion of the agreement is subject to certain conditions precedent, including clearance under the Mergers Act, there not having been prior to completion any material breach of any of the warranties representations or undertakings (relating to the legal and beneficial ownership of the shares, and to the absence of any options, charges, liens etc. on the shares) contained in Clause 8 of the agreement, and compliance with Clause 7, which relates to management pending completion. Clause 9 sets out the vendors’ dividend entitlements. Other provisions relate to publicity and miscellaneous items such as notice, non-assignability, several liability of the vendors and costs.

(e) Submissions by the Notifying Party

61. GIG stated that it did not consider that the agreement prevented, restricted or distorted competition within the meaning of section 4(1) of the Competition Act 1991. It also submitted that the proposed agreement had neither the object nor the effect of restraining trade in any goods or services and would not operate against the common good. GIG contended that the agreement complied with the Authority’s draft Category Certificate on Mergers issued in June 1997. In particular, in so far as the merger was horizontal, no party had a market share of 35% or more of the relevant market and barriers to entry into the industry were low. Also the vertical element of the merger would not have an exclusionary effect on existing or potential competitors in the market for beer products.

62. GIG stated that since the 1960’s it had a holding of 49.6% in C&C with the remaining shares held by Allied Domecq plc. GIG had a minority representation on the board where it held three directorships out of a total of nine. It had little or no influence over product strategy or the management of C&C. C&C was managed as a subsidiary of Allied Domecq and reported to that company’s divisional board. GIG and C&C actively competed in a number of areas, especially the distribution of packaged beer (most recently in the cider market) and soft drinks. In summary GIG contended that, given the corporate relationship, described above, between C&C and GIG and their active competition in the market, they should be regarded as competitors and there was no justification for attributing C&C’s share of the drinks distribution market (or any part of it ) to GIG.

Competitive Overlap

63. GIG stated that in most markets GIG and UBH had no competitive overlap and in these instances the agreement could have no adverse effects. GIG stated that the markets in which GIG and UBH were involved in were as follows:

(i) Beer Production This was GIG’s core business. UBH produced no beer.

(ii) Soft Drinks Production There was only a small overlap through the Deasy and Connacht connection to GIG. However, it stated that Deasy and Connacht only accounted for 0.6% of the relevant market so GIG contended that there was no significant overlap in this sector. After the agreement was completed the GIG group would only hold 11% of the soft drinks production market in the State.

(iii) Alcopop Production GIG was not involved in the production of alcopops and thus no competitive overlap existed.

(iv) Production of PET Containers UBH was involved in the production of PET containers whilst GIG was not. Again, there was no competitive overlap.

(v) The wholesale distribution of packaged drinks products (primarily packaged beer and soft drinks) This was the only area where there was any significant competitive overlap. The issues brought up by this, increased concentration and possible exclusionary effects, are dealt with in the following paragraphs.

Increase in Concentration: Soft Drinks

64. The notifying party did not have access to general market share data relating to the distribution of soft drinks. However, given the best available estimates, the agreement would leave GIG with 13.3% of the total market. GIG contended that this did not give rise to any concentration or competitive implications.

Increase in Concentration: Packaged Beer Distribution

65. Data submitted by GIG indicated that at present UBH controlled 17.1% of the packaged beer market and GIG (through its Deasy and Connacht subsidiaries) controlled an estimated 9.5%. The combined share was 26.6 % which indicated a low level of concentration after the agreement was completed. The position of UBH and GIG in the distribution of soft drinks market was that, combined, they controlled 13.3% of the market. This indicated that even in the “narrow” definition of the market the combined share of GIG and UBH was not large enough to warrant concerns regarding the level of concentration in the market.

Barriers to entry in the market for the distribution of packaged beer.

66. In addition to the low level of concentration in the market, GIG claimed that there were no significant barriers to entry to the market. It noted that the Authority in its decision in Scully Tyrell stated that

“If the market were highly concentrated following the merger, the Authority believes that it would be unlikely to prevent, restrict or distort competition where there were no significant impediments preventing new competitors from entering the market....” [58]

GIG stated that there were no significant barriers to entry for a number of reasons. There were no significant regulatory requirements so firms could enter the market readily. There were no impediments in terms of access to packaged beers. In Ireland there were no tied houses. Another factor which ensured ease of access to the wholesale market was the fact that there were no long term contracts with customers. Finally, there were no sunk costs (as equipment and premises could be readily converted for other uses), which would deter entry.

Competitive market

67. GIG stated that the wholesale market was highly competitive due to the restructuring of the industry over the past decade. As a result price competition was strong in the sector with the emergence of larger wholesale groups. There was also significant non-price competition in terms of the quality of the service provided. GIG contended that the competitive nature of the market was also underpinned by the significant number of competitors in the market and by the countervailing strength of the retail sector.

No likely exclusionary effect for GIG competitors

68. The acquisition by GIG of UBH would not, in the opinion of GIG, result in an exclusionary effect on existing or potential competitors in the market. This was due to the fact that in the Irish context the marketing and promotion of beer products was normally controlled by the producers and not by the wholesalers. It was to be noted that there was evidence of market entry by a significant range of new brands in recent years. Also there were no tied houses in Ireland. Given that this was the case, the agreement would not result in any reduction in the range of products available to consumers. Further, the large number of wholesalers means that there was ready access by competing brewers to effective wholesale distribution channels. To be successful wholesalers had to provide a full range of products to retain their customers and, in relation to this, continued availability of GIG products to competing distributors was guaranteed as GIG did not want to damage its core brewing business. Finally, for UBH to be successful it had to handle goods which competed with GIG products since failure to do so would mean it could not offer customers a full range of products and its business would, as a result, be adversely affected or reduced.

Other information

69. GIG did not envisage any change in the day-to-day activities of UBH. Employment levels and the management team at UBH would not be significantly affected by the acquisition. No other agreements were being entered into in connection with, or at the same time as, the notified agreement. The agreement had not been the subject of a notification to, or in any other proceedings before, the European Commission in connection with Articles 85 and 86 of the EC Treaty. However, a proposed merger between GIG’s ultimate parent, Guinness plc, and Grand Metropolitan plc had been notified to the European Commission for approval pursuant to Regulation 4064/89. The notified agreement had not been the subject of any competition law proceedings involving a national authority or court in any other EU member state.

(f) Submissions by Third Parties in response to initial advertisement of 8 September 1998.

70. A number of submissions were received from third parties in response to a notice in the Irish Times on 8 September 1997, requesting submissions from interested parties in respect of the notification of the Guinness Ireland Group Limited/United Beverages Holdings Limited share purchase agreement. These are summarised in the following section.

(i) Irish Distillers Group plc.

71. Irish Distillers Group (IDG) submitted that the proposed acquisition by GIG of the remaining shares in UBH not held by GIG would prevent, restrict and distort competition.

The Market

72. It stated that the market in question was the market for the wholesaling of drinks. The wholesale trade was vital for the delivery of beverages to the Irish licensed on-trade sector of the market. IDG took the view that cash and carries and multiples were not part of this market due to the fact that they did not deliver, grant credit, break bulk or employ representatives.

Effect on Competition of the Proposed Acquisition

73. Wholesalers accounted for virtually all the delivery of packaged beer in the State. Draught products were delivered to the licensed trade by the breweries themselves. There had been considerable consolidation in the wholesale drinks market in recent years. In terms of wholesalers of all alcoholic products, GIG was involved with five major wholesalers, C&C, UBH, Deasy, Connacht and Dillons. This number would rise to six if the Guinness-Grand Metropolitan merger was approved (Gilbeys). IDG submitted that the Competition Authority should consider this merger in making its determination on the notification. IDG also stated that the Competition Authority should be mindful when reviewing section 4 of the Competition Act, 1991 to also consider section 5 of the Competition Act, 1991.

The Strengthening of GIG’s Market Position and Abuse of Dominant Position

74. IDG submitted that GIG was dominant in the brewing and distribution of drinks in the State. It claimed that GIG’s recent consolidation of wholesalers had markedly increased its dominance in the market for alcoholic drinks. IDG stated that GIG had a strong position in the spirits and wines market and in the soft drinks production market through its equity involvement.

75. Given GIG’s dominance, IDG contended that the proposed acquisition would essentially foreclose competition. It would be regarded as an impediment to the launch or development of products by other suppliers; access for suppliers and wholesalers to the retail market would be impeded as suppliers would be reluctant to supply their goods for onward sale by a wholesaler which was owned or influenced so heavily by one single dominant supplier to the market. Foreclosure could also be achieved by GIG wholesalers favouring GIG products over competitor products by stock-outs, promotions of GIG brands, late delivery of competitor brands, delisting, credit stops and so on. IDG claimed that there was an absence of countervailing power in the licensed trade due to the relatively small size of most licensed premises (Scott’s ‘Survey of Licensed Premises’ (1994) reported that in 1994 almost 70% of Irish licensed premises reported an annual turnover less than IR£150,000). This was exacerbated by the “must-stock” nature of many GIG brands and the potential for bundling by GIG. IDG contended that the possibility of foreclosure raised already high entry barriers in the Irish drinks market.

76. Another issue raised by IDG was the possibility of GIG loading its profits into its manufacturing division to reduce the margins of non-GIG aligned wholesalers. Another strategy that might be adopted by GIG if the take-over was approved would be to distribute GIG products only through GIG wholesalers. Given the dominance of GIG in the entire drinks market this would leave so little business to the non-GIG aligned wholesalers that their activities would not be economically justified.

77. IDG stated that it could appreciate the benefits of having a one-stop-shop in terms of drink distribution in Ireland. However, it expressed serious concern that there should be only one such one-stop shop.

Conclusion

78. IDG stated that the proposed acquisition of UBH by GIG would add to GIG’s dominance in the Irish alcoholic drinks market. This dominance would be further strengthened if the proposed merger between GIG’s parent and Grand Metropolitan was approved.

79. By withdrawing from competition one of the remaining competitive wholesalers in the State, the possible competition effects may be such that GIG could abuse its dominant position in the Irish alcoholic drinks market. IDG also argued that any form of deal-doing attempted by GIG would fall short of what was required. Behavioural undertakings, in the view of IDG, were not workable/capable of being policed and had been largely abandoned by regulators such as the EU’s Merger Task Force. IDG claimed that the divesting of any part of GIG’s distribution arm would be inadequate because GIG would transfer/concentrate its distribution activities in its remaining wholesaling operations.

80. IDG argued that by permitting the take-over, GIG would be able to merge UBH, Deasy and Connacht into one company which would have a national wholesale network. IDG submitted that the take-over would permit GIG to seriously distort competition both in upstream and downstream markets. This could be achieved by portfolio management, anti-competitive pricing, unfair promotional activity, sales force incentives, stock management, stock-outs and a range of other activities. IDG stated that, in the light of the views of the Competition Authority expressed in the ‘Interim Report on the Newspaper Industry’ regarding the acquisition by Independent Newspapers plc of a stake in the Irish Press companies and other concerns over the influence of Independent Newspapers over one of the two major distributors in the sector, Newspread, the acquisition should be considered anti-competitive.

81. IDG concluded that the proposed take-over should be prohibited under the Competition Acts as being both (i) an anti-competitive arrangement; and (ii) an abuse of dominance, particularly when seen in the context of: (a) GIG’s existing dominant position in the brewing, cider and soft drinks manufacture, as well as distilling and supply sectors; (b) GIG’s dominant position in the wholesale and distribution markets; (c) GIG’s formal and informal links with publicans; and (d) the need to keep the pivotal wholesaling channels open for potential entrants to the market.

(ii) Independent Wholesalers.

82. Three independent wholesalers made a joint submission. In the following paragraphs they are referred to as ‘the parties’.

An Overview of the Irish Market

83 In terms of the distribution of draught beer, the parties stated that the breweries themselves delivered it directly. Packaged beer and other drinks were delivered by wholesalers. An important link between the draught and bottled sectors came through the launching of new products. New entrants usually entered the bottled beer market before the draught market. The parties pointed out that, in the light of this, the control of the distribution network by a single producer could foreclose the market to new entrants. The parties stated that in the last two decades the number of wholesalers had fallen from 100 to approximately 30. Of these, the six largest wholesalers controlled 71% of the market and of these GIG had a large stake in (or wholly owned) four (presently it held 30% of UBH, it owned 49.6% of C&C and it had 100% of the Deasy and Connacht operations). Given the large regional presence of UBH in Leinster, Deasy in Munster and Connacht in Connacht the GIG-UBH wholesaler would be the only wholesaler with such a comprehensive, country-wide distribution network.

Historical Background

84. The parties stated that the present round of take-overs, mergers and acquisitions in the wholesale trade began in the mid-1980’s. It was precipitated by the arrival of Heineken when Murphy’s of Cork went into receivership. Heineken decided on a strategy of appointing local wholesalers to distribute their kegs and GIG saw this as a serious threat to their own draught business because of the local knowledge and loyalty which local wholesalers could bring to bear. In a rationalisation plan proposed by GIG, local wholesalers were offered an exclusive contract to distribute GIG products in a clearly defined geographical area. In the opinion of the parties, this contract was anti-competitive in nature, and clearly showed that the intention of GIG was to control distribution in the State. No wholesaler was to be excluded from the opportunity to have such an agreement but wholesalers in the defined geographic area would have to merge or associate under the umbrella of a lead wholesaler. An important qualification for inclusion in this exclusive agreement was the agreement of the qualifying wholesaler not to handle the distribution of Heineken draught products. After a number of years of fine tuning and negotiations, the proposal by GIG was unanimously rejected by the Soft Drinks and Beer Bottlers Association in 1988.

The Proposed Transaction and its Competitive Effect.

85. The parties pointed out that the proposed transaction had horizontal and vertical elements. In terms of GIG’s presence in the distribution market, the parties indicated that they believed that GIG’s market share would be in the range of 46%-52% if the take-over went through [59]. They also noted that GIG-UBH group would have national coverage.

86. In terms of the vertical element to the proposed transaction, the parties cited the United Brands case (Case 27/76 [1978] ECR 207) to show that vertical integration was significant in the assessment of dominance in a market and the Michelin case (Case 332/81 [1983] ECR 3461) to show that well-developed integrated distribution networks had been found to be an indication of dominance. They quoted from Butterworths Competition Law ;

“vertical integration...is relevant to the application of Article 86, for a monopolist would be better able to exploit its position by charging higher prices if it is vertically integrated. Vertical integration is therefore an abuse, rather than an assessment of dominance, issue.”

Conclusions

87. It was stated by the parties that the proposed transaction between GIG and UBH would lead to the strengthening of the already dominant position of GIG in the drinks market within the State at both the supply level and the wholesale level. In their opinion, if the proposed transaction were allowed to proceed, then it would lead to the almost complete domination of the wholesale market in Ireland by GIG, which when viewed in conjunction with its unrivalled portfolio of brands, would put it in an unassailable position in the Irish market. This dominant position would be further exacerbated by the proposed merger between Guinness and Grand Metropolitan which, if approved by the European Commission, would further strengthen the position of GIG.

88. The parties believed that the proposed acquisition would have a very serious adverse effect on the wholesale drinks market in the State on both actual and potential competitors for the following reasons:

the proposed transaction would lead to an even more vertically integrated drinks group which would control all stages of the production and distribution of beverages in the State;
the control by a dominant producer of the distribution network could seriously impede the ability of less integrated and non-integrated competitors to obtain access to the market, as access could be prevented or impeded by the dominant operator which had an obvious interest in the promotion of its own products to the detriment of others;
new entrants to the wholesale market would be faced with excessively high barriers to entry and could only effectively challenge GIG if they were able to compete at both upstream and downstream levels with GIG;
the new vertically integrated entity would benefit disproportionately from its market power, as its sheer size in relation to its competitors and its access to financial and economic resources could not be matched by its competitors and customers. This would have a negative impact on the Irish alcoholic drinks market;
there would be an absence of countervailing buying power on the part of the consumers;
the manufacturer (i.e. GIG) could take profits at the manufacturer’s level and minimise profit at the wholesale level which would over time eliminate competition in the market place.

89. The parties stated that the geographical implications of the proposed transaction should also be taken into account. From the strength of UBH in Leinster allied to that of Deasy in Munster and Connacht in its own territory, it would mean that for the first time, a national geographically spread distribution system would be in place. In addition, the parties claimed that the acquisition of the ‘Finches’ brand of soft drinks would seriously affect competition in the wholesale sector. At present this UBH brand was the only alternative to ‘Schweppes’ (a C&C brand) which was 49.6% owned by GIG. If the proposed transaction proceeded, it was likely that the effort to develop the ‘Finches’ brands would fall off and GIG would control both major brands of soft drink mixers available to the on-trade.

90. It was submitted that the proposed transaction would strengthen a dominant position in a manner contrary to section 5 of the Competition Act, 1991 and would be likely to prevent or restrict competition in the relevant market in Ireland in a manner contrary to section 4 of the Competition Act 1991. In the view of the parties, the detrimental effects of this transaction could not be remedied by any undertakings which might be sought by the Minister or by the Competition Authority or offered by the parties to the transaction. For this reason the parties were of the opinion that the Competition Authority should refuse to certify or licence the proposed transaction.

(iii) Murphy Brewery Ireland Limited (MBIL)

The Parties to the Notification

(i) Guinness

91. GIG had a unique brand portfolio in the context of the Irish market with a number of “must stock” brands. MBIL claimed that GIG had such market power that it could insist on being paid first due to the fear of out stocking. GIG had a 73.7% market share of all beer sales in 1996, a fact reflected in both its sales of draught (some 80% of the market by volume) and also in the growing packaged beer market. MBIL claimed that the exclusive arrangements with Budweiser and Carlsberg were so long term that GIG was the de facto brand owner in the Irish market.

92. MBIL claimed that the Irish beer market was unusual in the dominance of a single brewer (and single beer) in the market. Guinness stout accounted for 41% of the total beer sales by itself, compared to the 7% enjoyed by the top selling brand in the UK. In terms of the share in C&C held by GIG, MBIL considered C&C de facto part of the GIG organisation, notwithstanding recent press speculation of a possible divestiture. Predicated upon that assumption, MBIL attributed the dominant position enjoyed by C&C in the cider market to GIG.

93. In the soft drinks market GIG had a large presence having substantial shares in the number two (C&C) and three (UBH) soft drinks producers by volume. Along with this there was GIG’s involvement in this sector through its Deasy and Connacht subsidiaries.

94. In the market for spirits, GIG had a major presence through United Distillers in production and through Edward Dillon & Co. in distribution (33% shareholding). If, as MBIL contended, C&C’s activities were attributed to GIG then it had an even larger presence through Grant’s of Ireland. MBIL pointed out that if the planned merger between GIG’s parent and Grand Metropolitan went through then the Gilbey’s group would be part of GIG. In terms of the Guinness-Grand Metropolitan merger, MBIL stated that on the basis of the past record of Merger Control Regulation cases the merger would be approved. In that case MBIL suggested that the Authority took this into account when making a determination.

(ii) United Beverages Holdings

95. UBH had a very strong regional presence in the east coast and Dublin city. If the notification were to be approved, given GIG’s very strong regional distributional presence in the west (through Deasy and Connacht), MBIL claimed that GIG would have a near monopoly position in the packaged beer distribution market. It also claimed that any gains due to scale economies would be earned at the expense of a fall in consumer choice.

Wholesalers

96. Wholesalers controlled virtually all the packaged beer distribution market in the State with the exception of some product delivered directly to the large multiples. The brewers themselves delivered draught or it was done by agents. The raison d’être for the wholesalers in the packaged beer market was the high transportation/distribution costs associated with small deliveries. MBIL stressed the importance of independent wholesalers in fostering competition. They were also important in serving the licensed trade which was characterised by relatively small sized premises. This necessitated the breaking of bulk packages. In addition, MBIL contended that an independent wholesale sector facilitated the entry of new brands (especially those that competed with major brands) and acted as sales and marketing assistants to the licensed trade.

97. MBIL claimed that there were significant entry barriers in the wholesale market. They stated this as a reason why MBIL had shied away from pursuing this route (except in terms of buying a 50% stake in an already established firm). While MBIL agreed that there were few formal entry barriers, it was the need to have a well developed network of local contacts that made establishing a wholesale network de novo so problematic. This was exacerbated by the need to have a large credit facility with suppliers (who themselves owned competitor wholesale firms).

98. MBIL contended that wholesalers operated in a different market from Cash & Carries due to a number of factors. Specifically, Cash and Carries did not extend credit, deliver products, service out of hours, provide sales assistance and materials or handle returnable packaging. Generally, MBIL stated that there were about 20 wholesalers operating in the State. The top four, by MBIL’s reckoning, controlled upwards of 61% of the market nationally. This was magnified to some 80% in some regional markets. In the opinion of MBIL, the intent of the GIG/UBH take-over (which would result in an estimated market share of 35%) was to provide GIG with a national platform from which competition would potentially be distorted. MBIL stressed that it would be better to utilise concentration controls at this stage rather than to rely on behavioural controls in respect of breaches which came to light at a later date. Even if, as was speculated in the media, GIG might relinquish its share in C&C it was MBIL’s contention that GIG would be in a position to prevent effective competition if the notification was approved. MBIL claimed that the take-over was consistent with a well established pattern of behaviour of GIG which had acquired, directly or indirectly, upwards of eight small wholesalers in the 1990’s.

The Case for Prohibition

99. MBIL claimed that “it is inconceivable that an arrangement which breaches Section 5 of the 1991 Act would be permitted under Section 4 of the 1991 Act.” It stated that the proposed take-over “would, or would be likely to, result in an actual diminution of competition in the market concerned.” This diminution would occur at the production level, especially in the production of alcopops and the take-over would deliver Beck’s beer to the GIG stable. There would also be a diminution of competition in the wholesale sector.

100. With a large presence in the wholesale market GIG could make entry into the beer market difficult. This could occur even in the face of the known benefits of vertical mergers through the foreclosure of markets. This was exacerbated by the fact that the parallel trade in the Irish drinks sector was very limited. This was the opinion taken by the EU’s Merger Task Force in looking at the Guinness-Grand Metropolitan proposed merger. There was the possibility that by taking the profit at the production level within the GIG organisation, GIG could cut the margins of all wholesalers. MBIL pointed out that as these arrangements would be “in-house” they would not be open to public scrutiny. MBIL contended that as a general principle the integration of the producer and wholesaler opened up possibilities for cross-subsidisation with the intention of distorting competition. It also gave the wholesaler an incentive to favour one producer’s product over another. It contended that such actions could not be easily countered by rivals due to the difficulty in gaining entry into the wholesale market in the Ireland.

101. MBIL stated that in principle they did not have objections to a one-stop-shop in terms of drink wholesale distribution in Ireland. Its objection was based on the fact that there would be only one of them in the market. In terms of any efficiency gains, MBIL contended that even though these existed, they would not be passed onto the consumer in terms of lower prices due to the dominance of GIG at every level of the market. This was because GIG had no competitive spur to share out the efficiency gains.

Conclusion

102. The essence of the MBIL submission was that the take-over should not be permitted to proceed. Further, they stated the outright refusal of a Certificate was the only logical conclusion. If the take-over was permitted, in the future GIG could merge UBH, Deasy and Connacht without any redress available to the Minister for Enterprise, Trade and Employment (under the Mergers Act) or the Competition Authority (under Section 4(1) of the Competition Act, 1991).

[ ]

(v) Others

120. An owner of on and off licensed premises and of a wholesale drinks business considered that the proposed acquisition would be detrimental to small wholesalers. He outlined difficulties he experienced in obtaining product from GIG and its related companies for his wholesale business. He claimed this as because GIG only wanted certain wholesalers to be involved in the business. He had no difficulties, at wholesale level, with other suppliers.

121. A bottling company stated that it objected to the proposed transaction under sections 4 and 5 of the Competition Act, 1991 as it would increase the already dominant position of GIG in the wholesale sector, and increase pressure on small wholesalers.

(g) Subsequent Developments - I.

122. On 5 November 1997 the Authority issued a Statement of Objections to the parties in respect of the notified transaction, giving them 28 days to reply. On 7 November 1997 the Authority advertised the fact that it had issued a Statement of Objections and invited interested third parties to send their observations within three weeks from the date of publication of the notice. Copies of the summary of the facts regarding the notification were made available and a number of submissions were received. These submissions are summarised below.

(h) Submissions by Third Parties in response to advertisement of 7 November 1997.

(i) Independent wholesalers

123. The independent wholesalers submitted that the transaction did not comply with any of the conditions for the application of the Authority’s (then draft) Category Certificate for Mergers. They presented a table showing market shares for the various competitors. Calculation of the Herfindahl-Hirschmann index on this basis showed an increase in concentration from 1048 to 1528 if the shares of UBH and C&C were not amalgamated, and an increase from 1048 to 2424 if they were. They calculated the four-firm concentration ratio post-transaction as 67% if the shares of UBH and C&C were not amalgamated, and as 71% if they were.

124. The independent wholesalers submitted that C&C Wholesale’s market share should be attributed to GIG, since it had a 49.6% shareholding in C&C and appointed three out of nine board members. They pointed out that under Irish company law a shareholder with more than a 25% shareholding could block special resolutions and stated that therefore it was not true to state that GIG had no influence over the actions of C&C Wholesale. They stated that C&C had taken over six wholesalers since 1993. The independent wholesalers submitted that the Authority should follow the same logic as in its interim report of the Study on the Newspaper Industry, where it found that due to a 24.9% shareholding in the Irish Press, the Independent Group was “in a position to exercise influence over the commercial behaviour of a competing newspaper group which they could not otherwise do.” In following this logic the Authority should not accept that there was real effective competition between GIG and C&C.

125. The wholesalers also submitted that the market share figures of C&C should be included in the estimates of market share in the soft drinks industry. They argued that the relevant market was the 4-oz. and 7-oz. market. Approximately 95% of these products were distributed through the wholesale distribution network to licensed premises. If the proposed transaction were to proceed, GIG would control 90% of the 4-oz. market and 90% of the 7-oz. orange and lemon market.

126. The wholesalers stated that, if the proposed transaction were to proceed, the market share in packaged beer which would be controlled by GIG would be between 46% and 52%. Excluding the market share of C&C Wholesale would still leave GIG with a market share of between 32% and 36%. This was still a highly concentrated market, in which both GIG and C&C were extending their distribution networks by the acquisition of independent wholesalers.

127. The wholesalers disputed GIG’s assertion that there were low barriers to entry into the market for the distribution of packaged beer. They pointed to the decline in the number of wholesalers and stated that, although capital investment barriers to entry were low, the investment in time and effort required to establish a customer base constituted a barrier to entry. The wholesalers agreed that the wholesale trade was highly competitive. They submitted that, with further concentration of the industry, this level of competition would be reduced.

128. The wholesalers pointed to a number of ways in which the vertical integration of the GIG group “from malt to mouth” could affect the market: differential pricing, discriminatory practices (favouring group distribution channels), exclusion of competing products from group distribution channels, and the possibility of exclusionary deals. They stated that a large number of small wholesalers could not provide effective competition to a large vertically-integrated group which dominated all levels of the market. They emphasised that access to a distribution chain was essential in order to sell product, and was particularly important for the launch of new products. The strategy adopted by GIG in acquiring distributors was to sell more product. Their ownership of distributors gave them an influence over the distribution and therefore the sale of products. It was likely that the sales of GIG products would increase in the areas served by the various distributors when they had been taken over by GIG. Given the dominance of GIG in all areas of the market it could not be argued that their ownership of distributors would have no effect or a limited effect on sales.

129. Finally, the independent wholesalers contrasted the wholesale distribution market in Ireland with that in Northern Ireland. In the 1970s there had been a thriving wholesale sector in Northern Ireland, which consisted of more than 20 wholesale distribution companies. Through a series of mergers and acquisitions, initially in the wholesale sector itself and subsequently by the main brand owner/manufacturers, there was now no wholesale distribution sector independent of the brand owner/manufacturers. The market was dominated by Irish Bonding (a 100% subsidiary of GIG) with 35% of the market through exclusive arrangements at retail level, and Bass with a 30% share (through a combination of soft loans, grants in aid, building subsidies etc.). This left only 35% of the market with any element of competition between these two major brand manufacturers. There was no other effective route to the market place except through these two brand manufacturers - such concentration effectively prevented entry into the market for any other company. They cited as an example of this effect Heineken, which had [ ] of the lager market in the Republic, with less than [ ] of the market in Northern Ireland. They stated that this situation was caused by Heineken having no route to market. A similar argument could be made in the case of Beamish and Crawford and a number of other indigenous manufacturers.

(ii) MBIL.

130. MBIL commented on specific assertions by GIG. They stated that the agreement breached Section 4(1) of the Competition Act, 1991. They further stated that producers were largely dependent for their wholesaling/distribution services on a Guinness-owned network of companies, and that this problem would be further compounded were Guinness to be allowed to acquire United Beverages. The same problem arose for publicans and other resellers who were equally dependent on Guinness-related business. It was inconceivable in such a situation that Guinness would not favour its own wholesalers in terms of supplies, deliveries, terms given etc. Naturally, United Beverages might stock some of the products of its parent’s competitors, but it would promote its own group products more actively.

MBIL rejected Guinness’ argument that the agreement did not operate against the common good, stating tht the “common good” concept was to be found in the Mergers and Take-overs (Control) Acts, 1978 to 1996, but not in the Competition Acts. They also pointed out that companies from all levels and sectors of the drinks industry in Ireland were concerned about the proposed take-over.

131. MBIL also rejected Guinness’ assertion that the Agreement complied with the Competition Authority’s (then draft) Category Certificate for Mergers. The level of market concentration post-merger would increase by well over 50 points or 100 points. For example, in the distribution market, the proposed take-over would increase the Guinness HHI reference point by 676 points. Following the merger then the four-firm concentration ratio test would be exceeded under any market definition. If the market was to be regarded as packaged beer then Guinness had approximately a 65% market share and it was incomprehensible that the acquisition of such a large distributor/wholesaler as United Beverages would not have an effect on the packaged beer market. In particular, by buying United Beverages, Guinness was effectively deterring others from using United Beverages as its distributor for new beer products. Under any market definition, the 35% threshold was exceeded.

132. The proposed take-over would not come within Article 2(d) of the Category Certificate for Mergers. Imports from Northern Ireland were impractical for publicans since the fiscal and commercial regimes, distribution structures of the markets and even product specifications were different. Furthermore, there were barriers to entry which prevented other firms from entering the market.

133. MBIL denied Guinness’ assertion that barriers to entry were low, adducing as proof the large number of firms leaving the market or consolidating on order to survive, coupled with the small number of new entrants and their failure to achieve substantial market shares. Certain Guinness products were must-stock products. Obtaining access to them on competitive terms was critical, but there was no way in which a new entrant could obtain Guinness products on more competitive terms than a Guinness-related wholesaler/distributor. The market was not contestable.

134. In relation to Guinness’ shareholding in C&C, MBIL argued that the only realistic approach was to include C&C in the assessment of Guinness’ market position. A minority stake might have an anti-competitive effect by giving the minority shareholder a privileged position in the marketplace to the detriment of others. Company law gave shareholders with more than 25% of the issued share capital the right to block all special resolutions. MBIL mentioned the Competition Authority’s interim report of the Study of the Newspaper Industry and its views on Independent Newspapers’ shareholding in the Irish Press. They asserted that staff from C&C went on secondment to Guinness (and vice versa).

135. MBIL rejected Guinness’ assertion that there was no competitive overlap between the various markets in which Guinness and United Beverages were involved. They stated that distribution involved the distribution of a range of products rather than the distribution of each separate type of drink. They pointed to a range of complementary products (e.g. vodka and orange, Scotch and soda, gin and tonic, stout and chaser) where Guinness had a heavy involvement with both products. For example, Guinness had 88% of the Irish vodka market with its Smirnoff brand, while both Finches (United Beverages) and Club (C&C) were leading orange brands. Moreover, resellers, whether wholesalers or publicans, did not buy a single drink product but rather a portfolio of products. MBIL pointed to Guinness’ large market shares in stout, ale, lager, cider, Scotch, vodka, orange (through UBH (Finches) and C&C (Club)), lemonade and soft drinks generally (through Deasy and Connacht, C&C, Finches and Cadet), wines (via Gilbeys) and cream liqueurs (via Gilbeys). They stated that the reseller would effectively buy all or nearly all of the products listed in paragraph 7 of the Statement of Facts from a Guinness-connected company, and that Guinness or Guinness-connected companies dominated almost every category mentioned above.

136. If United Beverages were to import and distribute more products (e.g. Becks) then it might form a competitive challenge to Guinness but if it fell into the total control of Guinness then the incentive for United Beverages to bring new non-Guinness-related products to the Irish market largely disappeared. Guinness’ competitors would find a route to market (i.e. United Beverages) effectively blocked. In any event, Guinness was able to offer discounts and rebates across a wider portfolio of products by having the United Beverages products.

137. MBIL stated that, contrary to Guinness’ assertion as summarised in paragraph 61 of the Statement of Facts, there was an overlap between its activities and those of UBH since UBH had the Beck’s Beer distribution contract in Ireland. MBIL also stated that alcopops straddled the beer and soft drinks markets and that there was an obvious anti-competitive effect given United Beverages’ strength in alcopops and soft drinks and Guinness’ “obvious dominance” in beers. If Guinness acquired United Beverages then it would have no incentive to enter the alcopop market itself, which otherwise it could easily do.

138. MBIL disputed Guinness’ claim that there were no sunk costs in the distribution business. Developing new products and brand awareness involved appreciable sunk costs. MBIL also disputed Guinness’ claim that there were no barriers to entry in the packaged beer distribution market. The amalgamation of United Beverages’ and Deasy and Connacht’s distribution depots would ensure that Guinness (and only Guinness) dominated the distribution depots. The take-over would also allow Guinness to have access to United Beverages’ PET container manufacturing business. This would allow it to control the supply of PET containers to Guinness’ competitors or, at the very least, to know their consumption patterns.

While stating that Guinness’ assertion that there were no “tied-houses” in Ireland might be true in the formal, legal sense of that term, MBIL stated that there were many arrangements concluded between Guinness and many publicans whereby Guinness products were given priority or exclusivity.

(iii) Beamish and Crawford.

139. The submissions made by Murphy Brewery Ireland Ltd and Irish Distillers Group were endorsed by Beamish and Crawford. Beamish and Crawford argued that the existence of a strong, independent wholesale and distribution market ensured that all drinks producers had fair access to retailers and consumers, and that it was unacceptable that the means of production and distribution should become concentrated in a single company, as would occur if the take-over were to proceed. Guinness would be in a position to favour their own products over competing products. Any efficiency gains would not be passed on to consumers. Beamish and Crawford further submitted that the proposed transaction would not improve the distribution of goods and would not allow consumers a fair share of the resulting benefits. On the contrary, they argued, it would afford Guinness the possibility of eliminating competition in respect of a substantial part of the products in question.

(iv) Other submissions

140. A.F. McGuinness, Managing Director, Premier Worldwide Beers (Ireland) Ltd., Enfield, Co. Meath, agreed with the proposed refusal to issue a certificate, on the grounds that, if the notified take-over were to go ahead, Guinness Group Sales and its associated companies would be “absolutely dominant” in the wholesale distribution trade in Ireland. Such a development would be anti-competitive and a further concentration of the dominant position of the Guinness group of companies in the drinks distribution trade in Ireland. Pat and Kevin Mahon, Directors of JJ Mahon and Sons Limited, Kildare, stated that GIG was already a dominant player in the beer, spirits, wines and soft drinks market, and that no individual brewer should be permitted to establish a vertical structure that would allow it to control supplies to the retail selling point. They stated that independent drinks wholesalers were gradually being absorbed into groups controlled by brewers and agents and that, if this were allowed to continue, the result would be a drinks market which would be controlled by one or two suppliers. This would result in an anti-competitive situation, from which only suppliers would benefit.

The bottling company previously mentioned confirmed its opposition to the merger.

(i) Guinness Ireland Group Limited: response to Statement of Objections.

141. On 6 November 1997 solicitors acting for GIG wrote to the Authority complaining that the version of the Statement of Objections supplied by the Authority omitted information which GIG considered essential for a proper understanding of the Authority’s assessment of the notified agreement. On 6 November the Authority responded, stating that it was willing to consider revising the Statement to include certain information which had been deleted from it on grounds of confidentiality. Further to a meeting held on 11 November between representatives of GIG and the Authority, on 13 November 1997 the Authority sent to solicitors for GIG a revised Statement of Objections which included certain information deleted from the original version, and indicated that GIG would have a 28 day period from 13 November in which to reply and, if it wished, to request an oral hearing before the Authority.

142. On 20 November 1997 solicitors for GIG wrote to the Authority indicating that it still considered that the Statement of Objections was incomplete and requesting a complete version, plus copies of all third party submissions and other data on which the Authority had relied. On 27 November, at the request of solicitors for GIG, the Authority met with representatives of Guinness plc to discuss the EU decision in the Guinness/Grand Met case and its impact on the GIG/UBH proposal, and to explore whether the Authority might consider approving the notified transaction if it were modified. On 4 December 1997 the Authority refused GIG’s request of 20 November 1997 for a complete version of the Statement of Objections, plus other information. On the same day, solicitors for GIG wrote to the Authority requesting an extension of the time limit within which GIG was to respond to the Statement of Objections, until 16 January 1998. The purpose of the extension was to allow Guinness plc to take certain decisions in relation to undertakings given by Guinness plc to the European Commission in relation to the Guinness plc/Grand Metropolitan plc merger. On 5 December 1997 the Authority replied, agreeing to an extension of the time period until Tuesday 23rd December 1997. In response to further representations from GIG and Guinness plc, on 19 December the Authority agreed a further extension until 6 January 1998.

143. On 6 January 1998, solicitors acting for GIG submitted a detailed reply to the Authority’s Statement of Objections. However, later on the same day, a letter was received from solicitors for GIG, stating that Diageo plc (the successor to Guinness plc and Grand Metropolitan plc) was prepared to reduce its shareholding in Cantrell and Cochrane below 10%. Subsequent to a letter from the Authority on 9 January 1998, setting out the conditions under which the Authority considered that a licence could be granted to the notified arrangements, and to a meeting between representatives of GIG, Diageo and the Authority, GIG confirmed in writing that it would, not later than 15 January 1999:

- reduce its shareholding in Cantrell & Cochrane Group Limited (“C&C”) to below 10% of the issued share capital of that company;

- relinquish all rights to representation on the Board of C&C and procure the resignation of any GIG/Diageo nominees on the C&C Board; and

- waive its rights under the Articles of Association of C&C to a first option to purchase any shares in C&C which might be offered for sale by Allied Domecq or any other shareholder in C&C.

(j) Subsequent Developments - II.

144. Under Section 8(1) of the Competition Act, 1991, “A licence of the Authority under section 4(2) shall be granted for a specific period subject to such conditions as may be attached to and specified in the licence.” Under Sections 2(5)(a) and (b) of the Competition Act, 1996 it is an offence for an undertaking to breach the terms and conditions of a licence. On 13 February 1998 the Authority advertised the fact that it intended to issue a licence in accordance with the above provisions, requiring that the undertakings set out in paragraph 142, above, be implemented by 15 January 1999. It issued a revised and updated version of the summary of the facts and invited interested third parties to send their observations within three weeks from the date of publication of the notice. A number of submissions were received. These submissions are summarised below.

(k) Submissions of Third Parties in response to advertisement of 13 February 1998

[ ]

(ii) MBIL

158. MBIL submitted that the Authority should prohibit the proposed acquisition. It claimed that Guinness had indicated to the Authority that Guinness had no influence over C&C so it questioned the value of Guinness divesting itself of some influence over a company over which it claimed it had no influence anyway.

159. MBIL stated that Guinness was the only company making direct sales to almost every public house in Ireland. It was the largest wholesaler in the country and the proposed acquisition would enable it to influence price, control stock availability and engage in discriminatory product promotions and compound Guinness dominance in the various markets in which it operated. Competition in the drinks market would be stifled because companies other than Guinness would have no efficient or effective way of bringing new products to the market. The proposed acquisition would prevent competition in the entire drink market because there would be no incentive to enter.

160. MBIL submitted that it had never indicated that a divestiture by Guinness of shares in C&C would solve the competition problem. It believed that the Competition Authority might be assisting Guinness/Diageo in minimising the level of divestiture which it had to undertake for the purpose of the EU merger decision. MBIL submitted that Guinness through Deasy and Connacht Mineral Water Company already had a dominant position in many local geographical markets. Publicans and other resellers tended to buy from locally based wholesalers and suppliers. The proposed acquisition would compound that local dominance.

161. [

]

162. MBIL believed that the proposed acquisition would seriously distort competition by strengthening Guinness dominance in the drinks market in ways which would reduce competition, increase its power to dictate pricing and all in an environment where there was no alternative competition from outside the State. It would lead to market concentration in the drinks wholesaling market and compound and abuse Guinness dominance at production and retail levels. There was no in-built mechanism for resolving the issue.

163. MBIL submitted that Guinness did not need UBH. Given its resources, it could build a new wholesale network. Neither would the acquisition lead to economic progress nor was it indispensable. UBH was only “needed” to unreasonably strengthen its dominance and reduce competition in the market place. It did not need other wholesalers because it had national coverage of its own network. Its dominance limited the power of independent wholesalers to negotiate with Guinness. Guinness would be able to take the margin at manufacturer’s level and therefore squeeze non-Guinness owned wholesalers out of the market.

164. MBIL said that some of the information supplied by Guinness to the Authority did not appear to be entirely accurate, e.g. the table in para 7 of the Summary of Facts where there was more competitive overlap between Guinness and UBH than the table demonstrated, and para. 41 where it was implied that Deasy and Connacht Mineral Water Company were only involved in limited activities but these companies sold almost the entire range of drink products.

165. MBIL submitted that since the completion of the Diageo transaction, Guinness had extended its portfolio considerably to include brands such as Baileys, Smirnoff, Bells whisky etc. These were very important brands in the Irish context and sold through wholesalers. It was obvious that the Diageo products would be promoted at the expense of non-Diageo products. Anybody other than Guinness seeking to launch a new product on the Irish market would need access to an independent wholesaling network. There would be little point in launching the product if all the significant wholesalers with national coverage were in the hands of Guinness. Moreover Guinness could dictate prices in the sector. In essence, brand owners and producers would be deterred from entering the Irish market because of the absence of an adequate distribution network and sunk costs/poor returns involved in establishing their own operations.

166. MBIL said the acquisition would allow cross-portfolio dealing, discounting and other tying practices. Packaged beer was a developing and growing market and it would be anti-competitive for the key channels for its sale to be in the hands of Guinness. The prohibition of the proposed acquisition would prevent expenditure of vast resources by regulators courts etc. on the monitoring and control of the behaviour of Guinness.

167. MBIL stated that horizontally, Guinness as a wholesaler would accentuate Guinness’ national dominance and local dominance to the prejudice of competition in the wholesale market. Vertically, as a leading drinks producer, it would control the route to the market and thereby prevent others from accessing the market. There was no prospect of alternative imports from outside the State and there would be no effective competition.

Regulatory Perspective

168. MBIL welcomed the Authority’s finding that the proposed acquisition breached Section 4(1). It said the HHI test demonstrated that the acquisition would be anti-competitive. The grounds for a licence were not satisfied and the Authority would be acting ultra vires to grant a licence. A licence would not be appropriate in this case and even Guinness itself when making the notification in September 1997, only sought a certificate. The proposed acquisition would not satisfy the public interest test. The proposed approach by the Authority to accept undertakings in return for a licence was without any legal foundation and could be challenged by the Courts.

169. MBIL submitted that the proposed acquisition would not improve the production or distribution of goods because Guinness dominated beverages sales in Ireland, it had already control of access to the market and the acquisition would accentuate that control. There could be a reduction in production as it was widely assumed that Guinness would discontinue its production of soft drinks at Deasy and Connacht Mineral Water Company. Consumers would be faced with less choice and higher prices and would obtain no benefit from the acquisition. The type of problems that could emerge included “stock outages”, “pricing practices” and “promotional activities”. The acquisition of UBH was not indispensable for Guinness to attain its objectives. It was part of a £24 billion company and could easily establish its own operations or expand its existing companies. The proposed acquisition would reduce competition in the Irish market at the production, wholesale and retail levels and would be an impediment to new product launches. If the Irish market was to become so uncompetitive, then domestic and foreign investors would be discouraged from investing. The fact that Guinness could raise upwards of IR£350-400 million while investing only some IR£33 million in UBH meant that Guinness could liberate huge amounts of cash and sink them into UBH or other activities. The estimate of IR£350-400 million may be an underestimate because of the amount which could be earned by Guinness were there a flotation of C&C on the stock exchange.

170. MBIL said that there was a strong possibility that the Authority’s proposed solution would be unworkable. Given the fact that C&C was a very strong competitor in the market and would at the time of the sale of part of Guinness stake still have two drinks manufacturers as shareholders (i.e. Allied Domecq and Guinness), it might be difficult to have a sale to another drinks company (the most likely purchaser) approved by the relevant competition regulators. Even if Guinness were to sell its entire stake in C&C, it might still be difficult to have the disposal approved by the relevant regulators, depending on the buyer, before 15th January, 1999. The fact that the system established by the Competition Authority might not work ought to be borne in mind in assessing the efficacy of the proposed route - a route which had been shunned by the European Commission under the equivalent provision in EC law (i.e. Article 85(3).

171. MBIL said that notwithstanding the fact that Guinness might reduce its stake in C&C, Guinness would still have an influence over C&C, because firstly Guinness products are “must-stock” products for any wholesaler. Secondly, by Guinness having even a tiny shareholding, it might frustrate another drinks company from becoming a shareholder in the C&C. Thirdly, the majority shareholder(s) in C&C could not oppress Guinness or Guinness’ interests in any way (even if it were minded to do so). Guinness indicated that it has no influence over C&C but it would certainly have an influence over UBH. Using Guinness’ reasoning, the Competition Authority’s proposed solution would be to allow Guinness acquire market power (via. United Beverages) without giving up any market power (via. C&C).

172. MBIL submitted that in the entire history of EU Competition Law, an exemption was never granted under Article 85(3) for an acquisition, because exemptions/licences were inappropriate. The conditions of a licence should not be confused with undertakings given as a pre-condition for clearance under Merger Control Regulation. The proposed acquisition was indisputably an abuse of dominance in the context of the Continental Can jurisprudence. MBIL said that when Guinness applied for a licence there was no public notice of the fact. This was a departure from well established practice and showed a lack of transparency.

173. MBIL submitted that the Competition Authority knew at the time that it made its announcement to refuse to issue a certificate about the EU’s Decision in Diageo. The Decision related to options involving Edward Dillon and C&C. Edward Dillon was less relevant to this matter than C&C. If the Competition Authority had been convinced in November that the C&C partial sale would have worked, then presumably the Competition Authority could have put that to Guinness at the time. The proposed acquisition should be prohibited notwithstanding the existence of competition controls. The proposed acquisition would be of a type which would be prohibited under US, UK and German competition law. In the light of established precedent, it was both assumed and hoped that the Irish Competition Authority would also prohibit the proposed acquisition.

(iii) Independent Wholesalers

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(iv) National Off-Licence Association (NOFFLA)

190. The National Off-Licence Association opposed the proposal to licence the transaction. They stated that, at present, there were several routes to market for breweries, spirit producers and soft drinks manufacturers. This created a dynamic market for all brands of alcohol and soft drinks, in which the purchasing power and choice of suppliers of the off-licences were important features of the trade. They believed that the proposal to licence the transaction would reduce competition in their sector of the market dramatically. They had no doubt that Guinness would try to ensure that they purchased their requirements from their 100%-owned company, which would in turn reduce their supplier numbers and leave them in a one-stop shop position. Combining the brand portfolio of Guinness and Grand Met had the ability to create a monopoly or near monopoly in the off-licence trade with resultant effects on competition. They were also concerned about their future ability to compete effectively with the major retail groups such as Tesco or Dunnes Stores if their supply chain changed.

(v) Beamish and Crawford

191. Beamish and Crawford objected strenuously to the take-over. They stated that the Guinness Group already had a dominant position within the Irish beer market, with a 75% share of volume. This situation was further exaggerated in United Beverages Holdings’ area of strength in Dublin where the Guinness Group had a share of beer volume of 82%. The Guinness Group had been prevented over the years from achieving such dominance within the packaged beer market by the relative independence of the wholesale trade which ensured that all drinks producers, including brewers, had fair access to retailers and consumers. The take-over of UBH would give GIG total control of the biggest drinks wholesaler in Ireland, while already owning the fourth largest (Deasy/Connacht). If the take-over were to proceed, then production and distribution would become even more concentrated in a single company, which would be wholly unacceptable.

192. Beamish and Crawford argued that the disposal of the majority of GIG’s shareholding in Cantrell and Cochrane in no way justified a decision to licence their take-over of UBH, since the ownership of two minority shareholdings in two of the country’s top drinks wholesalers conferred nowhere near the market power allowed by total ownership of one of these. GIG, if they owned UBH, would be in a position to de-list major competitive products and also to favour their own products over competing brands by tactics such as stock-outs, promotion of GIG brands, late delivery of competing brands, etc. In addition all other drinks producers would be forced to divulge their brand strategies, promotional plans and other confidential information to a Guinness-owned company.

193. Beamish and Crawford further argued that any efficiency gains from the merger would not be passed on to consumers because the Guinness group would be dominant at every level of the market, and accordingly would have no incentive to share out efficiency gains. They claimed that to allow GIG to take total ownership of UBH would run contrary to the recent EC decision to allow the merger between Guinness and Grand Metropolitan in the UK on condition that Guinness Group reduced its minority shareholding in C&C. In conclusion, they submitted that the proposed acquisition was unlawful under Irish and European Community Law, and was anti-competitive and anti-consumer in all respects. Their objections to the take-over were fully echoed by their parent company, which was reviewing the situation with increasing concern. They further submitted that a licence should under no circumstances be issued, and that the appropriate course of action was a refusal of such a licence.

[ ]

(vii) Other submissions

196. The Authority received submissions from each of the following:

- J.J. Mahon & Sons Limited, Kildare: Wholesale Beers, Minerals, Wines and Spirits Merchants;

- The Erne Mineral Water Company Ltd, Scotshouse, Co. Monaghan: Stout, Beer and Soft Drinks Distributor;

- G.H. Lett & Co. Ltd., Enniscorthy, Co. Wexford: Wholesale Distributor of Stout, Ales, Lagers, Soft Drinks, Wines and Spirits;

- Monaghan Bottlers Ltd., Wholesale Beer, Wine and Spirits Merchants;

- Clada, incorporating Clada Soft Drinks Ltd and Clada Fruit Company Ltd, Galway;

- Sive Mineral Waters, Cahersiveen, Co. Kerry: Wholesale Wine & Spirit Merchants;

- P. Mulrine & Sons Sales, Ballybofey, Co. Donegal: Fruit Juices & Soft Drinks;

- Kelly & Co. Ltd., Tipperary: Wholesale Beer & Soft Drinks Distributors;

- J. Kerr, Ballybay, Co. Monaghan: Wholesale Bottlers

- John Durkan & Sons Ltd., Ballyhaunis, Co. Mayo: Soft Drinks, Bottled Beers, Draught Guinness;

- Premier Worldwide Beers (Irl) plc, Enfield, Co. Meath: Beer and Soft Drink wholesaler

- G. R. Robinson Ltd., Belmont, Offaly: Wholesale Distributors of Bottled Beer and Soft Drinks

- S.A. Moran Ltd., Kilbeggan, Co. Westmeath: Wholesale Bottlers

- The Ballina Mineral Water Co. Ltd.: Mineral Water Manufacturers, Wholesale Bottled Beer, Wine and Spirits.

197. These smaller independent wholesalers all objected to the merger. Various submissions claimed, inter alia, that Guinness’s involvement at all stages of the drinks market would effectively mean that it would be impossible for competing wholesalers to compete for market share, and that it would destroy free and effective competition. They stated that the acquisition would lead to an “almost monopoly situation” in the wholesale market. They stated that GIG already had a position of market strength across all sectors of the drinks industry in Ireland, and that Guinness through Diageo would exercise such a level of control over the route to market that it would be within its power to squeeze independent wholesalers out of the market. The proposed deal would restrict competition in the trade and would create a climate where it would be no longer possible for the many independent/family firms to survive - indeed, one submission claimed that the merger would “sound the death knell” for small sized, private operators. Another claimed that, if Guinness were to stop supplies to small independent wholesalers of their bottled beer products, this would mean the closure of up to 20 independent wholesalers with a couple of hundred people losing their jobs.

198. Another submission claimed that GIG was now, for the first time, facing real competition on a number of fronts, and that in response to these market pressures, GIG had refocused its attentions on its distribution channels in order to protect its brands and keep a check on competition. Control of the distribution chain determined access to market. The creation of a dominant tied wholesaler group, controlled by the brewer, could restrict consumer choice and impact negatively on retail prices. Tied wholesale representatives would tend to favour the products of their parent company and neglect others. Even the most keenly priced of products, supported by the strongest of advertising campaigns, would fail without access to market. Competitors would effectively need to establish an alternate distribution chain to bring their products to the consumer, effectively creating a barrier to entry.

199. Another company argued that it, as a company which was non-aligned with any brewery and indeed worked by way of being able to carry lines from each brewery, would be in the “unenviable position” of trying to compete with a distributor wholly owned by a major brewery, and asked how it could cope with such formidable opposition. Various submissions also stated that the reduction by Guinness of its shareholding in C&C and the waiving of its right to board representation did not in any way offset the scale of the impact on competition.

(l) Meetings with Third Parties

200. After considering the written submissions the Authority met with a number of third parties who had expressed objections to the proposal to issue a licence. A summary of the minutes of these meetings is given below.

(i) Beamish and Crawford plc.

201. The meeting with Beamish and Crawford covered both their views on the notified agreement, and certain enforcement issues. The discussion on enforcement issues is not recorded here. Beamish and Crawford expressed their concern about the Guinness take-over of UBH, stating that this had now superseded any of their other concerns about the market. United Beverages was currently Beamish and Crawford’s biggest customer but it was expected that this situation would change after the merger. Beamish and Crawford had had problems securing business in Dublin, particularly in the bigger outlets such as rugby clubs and discos where Guinness had the greater part of the market. Guinness secured its market share through long-term agreements and discount schemes. Beamish and Crawford also offered discounts. They supplied about 700 outlets in Dublin out of a total of 1100.

202. On the subject of the launch of new products, Beamish and Crawford had launched Fosters into the market about four years previously. Distribution of packaged beers would be mainly through the wholesaler. The product was not necessarily launched first in bottled format: it could equally be launched in cans or draught. In the UK new products were launched far more frequently.

203. Beamish and Crawford said that merger would have very serious consequences for their business. United Beverages were one of their biggest customers and normally they would discuss their promotion and pricing systems two months prior to the summer period with their wholesalers: they would be reluctant to do this with a wholesaler owned by their biggest competitor. They were already cautious about releasing sensitive information to Deasy and Connacht. Because of their size, Guinness could ensure that they always had their own products displayed prominently in pubs. Beamish and Crawford pointed out that, if the merger did not take place, Guinness would have the resources to merge Deasy and Connacht and build them up to a nationwide wholesaler. The Authority pointed out that there was nothing to stop Guinness doing this already: Beamish and Crawford agreed with this point but stated that this would take a lot longer than the acquisition route.

204. Beamish and Crawford repeated the claim in their written submission that the transaction would enable Guinness to favour their products over competing products by tactics such as stock-outs, promotion of GIG brands, late delivery of competing brands, de-listing etc. If this happened, Beamish and Crawford would find out through feedback from customers and sales representatives.

Beamish and Crawford asked that their submissions, and the notes of the meeting, be placed on the record.

(ii) Irish Distillers Group (IDG)

205. IDG presented their views on the commercial and legal aspects of the acquisition. They gave an overview of the world spirits market today. The creation of Diageo was expected to lead to substantial shareholder value, brought about by cost savings, increased returns and enormous leverage in being able to raise margins and profits. Diageo sold about 108 million cases of spirits annually. Allied Domecq, the next largest producer, sold 47 million cases, Seagram 41 million cases and Pernod-Ricard 40 million cases. IDG sold about 5 million cases of wines and spirits each year. IDG stated that Diageo was the largest drinks and spirits company in the world today in terms of market capitalisation. When the Diageo merger was announced Pernod Ricard had assessed the situation and had come to the conclusion that special circumstances would be created in Ireland so they had objected to the EU. Brussels had approved the merger but had imposed conditions in Ireland as regards unbundling of business.

206. IDG were concerned that at Guinness’s “portfolio power”. They stated that the Guinness-linked companies of Edward Dillon, Gilbeys and C&C sold every category of spirits including Scotch whisky, cognac, rum, liqueur and vodka. Beer accounted for two-thirds of the Irish drinks market. Guinness controlled 74% of the beer market. It had 82% of the stout market, 88% of the ale market and 42% of the lager market. The full needs of every pub could be met by Guinness either directly or through its wholesalers (for wines and spirits) of the acquisition went through. Guinness would thus control the retail trade. IDG and Pernod Ricard felt that the Authority had failed to comprehend portfolio power. It had missed the crucial point that wholesalers would wholesale all products to the retail trade. With “must stock” brands in beer and spirits, established brand franchises were under threat and IDG feared that their products would be excluded from the market. They urged the Authority to ban the acquisition.

207. IDG stated that independent wholesalers were vital if consumers were to have a choice. This was true for all drinks but particularly for wines and spirits. Pubs and restaurants accounted for 73% of all alcoholic drinks sold. The off trade was dependent on wholesalers. IDG submitted that the merger would foreclose that market for other wholesalers and reduce the ability of the retail trade to source non-Diageo products. The prospects for new entrants were already slim and their ability to compete would be reduced if the acquisition were to take place. Most wholesalers carried a full range of drinks. Deasy and Connacht Mineral Water had a growing involvement in wine and spirits distribution. Deasy had shown a growth per year for the last three years in their sales of IDG products of over 20%. Connacht Mineral Water had shown an increase of 240% in the same period. The total market had grown by about 2%. IDG saw this as part of a planned development to extend sales. Acquisition of UBH would lead to a similar business development. It would frustrate the EU decision, which looked at the drinks industry in general and did not confine the market to spirits [60]. UBH had been specifically mentioned at the EU oral hearing. It was recognised that Guinness had some level of influence over C&C but it was not for IDG to say whether they had or had not some element of control.

208. IDG gave statistics on the pub trade in Ireland. Turnover was less than £150,000 in 50% of pubs; 70% of turnover was accounted for by 20% of the pubs. Many were unsophisticated businesses which would like suppliers to be one-stop shops. There were 650 off-licence premises with full liquor licences, with the four largest multiples accounting for 160 of these. The off-licences accounted for about 45% of the spirit business, 65% of the wine business and 18% of the beer business. IDG gave market shares for Guinness brands in the Republic of Ireland. Guinness had 74% overall of the beer market. Because of its portfolio of drinks, Guinness was in touch with every pub in the country on a weekly basis. IDG could only visit 30% of the public houses and was dependent on wholesalers for supplying the remainder. Guinness had bought at least 11 wholesalers over the past 8 years and over the past 20 years the number of wholesalers had been reduced from 100 to about 20.

209. IDG confirmed that they visited 57% of premises directly and 43% were supplied by wholesalers. They called directly to 30% of pubs and tried to visit all the off trade but this was not possible because of economies of scale. IDG used several wholesalers including C&C and Musgraves but not UBH. They drew a distinction between cash-and-carries, which they also used, and wholesalers, in terms of the services they offered. IDG agreed to provide information on the percentage of their products going through cash-and-carries and to the multiples. Deasy and Connacht Mineral Water sold all spirits to pubs for IDG.

210. On the question of the definition of the relevant market, IDG stated that the market must be seen in the context of the wholesaler function in that they could supply wines and spirits and not just packaged beer and soft drinks. As regards substitutability of brands, IDG said that the unavailability of brands could, after a while, cause the consumer to change from one brand to another. They were not saying that packaged beer and soft drinks were substitutes for spirits. Guinness carried a huge range of drinks, and small licensees tried to get their full range from a single supplier, so one had to look not just to beer and soft drinks in defining the market.

211. IDG and Gilbeys were producers and distributors. Each would use wholesalers to get to the retail trade. Dillons was an importer and distributor. Dillons and Gilbeys used wholesalers more than IDG did. IDG also imported from its parent company and distributed through its network and through wholesalers. IDG saw the distributor as an exclusive distributor for products he might import or produce. A wholesaler did not have that exclusivity but supplied and distributed whatever the retailer wanted.

212. BWG was a wholesale subsidiary of IDG, being involved in distribution generally, including 32 cash-and-carry outlets. IDG sold spirits through the cash-and-carries and also had a small direct wholesaling operation. Less than 10% of IDG products went through BWG, which accounted for less than 1% of the total alcohol market. IDG had disposed of Dillons three or four years previously. The original reason for investing in Dillons had been because IDG wanted a stake in the imported wine business. After IDG became part of Pernod Ricard it had developed its own wine subsidiary - Fitzgerald’s. Fitzgerald’s were involved in the spirit distribution market in a minor way.

213. As regards the legal concerns, IDG fully supported the conclusion of the Authority that the proposed acquisition breached Section 4(1) of the 1991 Competition Act. IDG did not know the basis of the decision, but they believed that the reason for the objection was because of Diageo’s presence in the wholesale sector through Edward Dillon, Connacht Mineral Water, Deasy, C&C, Grants and Gilbeys and the immense portfolio power in the Irish market which would lead to the prevention of competition. IDG believed that there would be foreclosure of the market, a reduction in the number of competitors, that Diageo would be able to control the terms and conditions of supply and would be able to bundle its products. It would be extremely difficult to set up a wholesaling system to compete with Diageo. Launching of products would be entirely at the behest of this powerful network of Diageo’s wholesaling interests.

214. IDG disagreed with the Authority’s proposed decision to license the acquisition. They submitted that the four tests under Section 4(2) of the Competition Act were not satisfied and that the effect of the transaction would be to restrict competition and result in no benefits to the consumer. Access to the market would be restricted given the power Diageo had in respect of its brands portfolio and this was the main concern of IDG and the wholesale trade. Diageo would control access to the market because of its “must stock” portfolio. The three bridges to the market were through C&C, UBH and Connacht Mineral Water. The market shares of the remaining distributors/wholesalers were small. In order to launch a new product it was necessary to go through one of the three main players in the market.

215. There was some debate on the issue of who would buy the Diageo stake in C&C. The Authority mentioned the alternatives which had been quoted in press speculation but pointed out that it had to take a decision on the current agreement and not on some potential future agreement.

216. The Authority questioned whether access to the market would, in fact, be restricted by the transaction given that other producers had access to C&C and other wholesalers. It pointed out that IDG had previously dealt with C&C and asked why this should not continue. IDG stated that the critical point was that UBH had national and regional coverage and retailers went to one-stop shops. If the acquisition were not to take place, the other UBH shareholders would constrain Diageo insofar as they could. IDG believed that the acquisition would lead to a more anti-competitive situation.

217. IDG stated that the vertical integration effects on the market were broader than those set out at paragraph 56 of the Statement of Facts. They referred to their second submission in which they had quoted from US anti-trust law and from the MMC in the UK. They asked whether there was any EU precedent for an exemption under Article 85(3) in the case of an acquisition. According to their own research there never had been one because it did not make logical sense.

218. IDG stated that it was illogical to state in the Statement of Facts that C&C was separate from Diageo, and then in January 1998 to accept Diageo’s offer to give up C&C. The Authority pointed out that this statement had in fact been attributed to Diageo in the summary of facts. The Authority also stated that the agreement had been modified and that a decision now had to be taken on the modified agreement. IDG still maintained that the two views were incompatible.

219. IDG put it to the Authority that, if the Authority proposed granting a licence, then the acquisition must be indispensable. They asked whether a £25 billion company needed to buy UBH. After some debate IDG agreed to produce a written submission on this point having regard to the jurisprudence of the Commission and Court precedents.

220. Assuming that it had some influence in C&C, IDG said Diageo was dominant at wholesale level as well as at the production stage. It had a dominant position in Connacht and Munster in wholesaling, and if it acquired UBH then it would also be dominant in the Dublin and Leinster markets. Publicans purchased largely on a local regional basis and from this perspective the market was regional. From the point of view of the drinks companies the market was national. The dominant position of Diageo would be strengthened by the acquisition and this would be in breach of Section 5 of the Competition Act. No licence granted under Section 4(2) could cure a breach of Section 5. In effect, they said, a licence granted would be nullified by a breach of Section 5 (Tetra Pak II case). The licence could be challenged by the court. IDG stated that, while the Authority was not obliged to consider Section 5 before granting a licence under Section 4(2), nevertheless it would be meaningless to go through the procedures under Section 4(2) and close one’s eyes to all relevant market conditions and to abuse under Section 5 when the licence could be challenged by the courts.

221. With regard to the Guinness/Grand Met decision, IDG said that the Commission had concerns about the distribution aspects of the drinks industry in Ireland with Diageo having stakes in C&C, Dillons and UBH. If the acquisition were allowed, Diageo would be reinstated in better position than its previous one: instead of having a minority stake in two companies, it would be able to liberate £350m, take a100% stake in UBH, merge that with the Deasy and Connacht Mineral Water operations and effectively control the channels to distribution in the whole country. In their opinion this would undermine the Guinness/Grand Met decision. In response to a question, IDG stated that they had not sought confirmation of this from Brussels as discussions in Brussels did not relate to UBH.

222. IDG presented their conclusions as follows:

(i) The acquisition was in breach of Section 4(1) and it was correct to refuse a certificate.

(ii) The proposed commitments to be given by Diageo would not work.

(iii) The transaction would be in breach of Sections 4 and 5 of the 1991 Act.

(iv) The transaction would also be in breach of Articles 85(1) and 86 of the EC Treaty.

(v) Diageo, the largest and dominant drinks company, was not met at retail level by any countervailing buying power. Licensees wanted to buy from one-stop shops.

(vi) There were no grounds for a licence

(vii) There was no question of imports or import substitution. Publicans tended to get supplies locally.

(viii) There had been 11 acquisitions by Guinness either directly or indirectly and there had been no improvements for consumers or reduction in prices. IDG did not believe that the conditions under Section 4(2) for a licence would be satisfied.

(ix) The scenario was analogous to RTE owning Cablelink, as UBH provided a bridge to the market for 11,000 pubs.

223. IDG agreed to make a further written submission on the legal issues and to provide figures on market volumes and shares supplied through wholesalers. A letter was received on 13 May. This letter set out Irish Distillers’ views on the meaning of the test of “indispensability” set out in Section 4(2) of the Competition Act for the granting of a licence. IDG’s view was that one of the terms of the proposed acquisition was the fact of the acquisition of United Beverages by Diageo. Given Diageo’s power in both the production and distribution sectors of the beverages market (however defined), there was no indispensability to either party of the proposed acquisition.

224. On 18 May 1998 Irish Distillers submitted a schedule of its sales in volumetric terms to the main trade categories. These indicated that [ ] by volume of its sales went to off-licence and on-licence wholesalers.

(iii) Murphy Brewery Ireland Ltd.

225. Murphy’s stated that it was involved in the production and market of beers in Ireland and overseas. They sold 900,000 hectolitres of beer per annum, which accounted for 17% of the beer market in Ireland, and they exported a volume of about 120,000 hectolitres. Their turnover in 1997 amounted to £155 million with £50 million net assets, and they contributed £18 million to the Exchequer in VAT, excise duty, etc. Murphy Brewery was a 100% subsidiary company of Heineken, which was the second largest brewer in the world.

226. Murphy’s stated that the proposal to grant a licence to the transaction was damaging to the position of their company and it endangered their prospects of growth in the Irish market. From the point of view of a foreign investor in Ireland, it would be seen as a lack of fair competition and would endanger the credibility of competition law enforcement in Ireland. It would limit the attractiveness of investment in the Irish market. They saw the deal that was being offered to Guinness as a fantastic one for Guinness. The requirement by the European Commission that Guinness divest its distribution in Ireland through their stake in C&C would, they estimated, result in a net balance of £300 million to £350 million, following the UBH acquisition. This would strengthen Guinness’s ability to compete and their dominance in the beer market and it would decrease competition in the wholesale market and in the beer market. Furthermore, it was unnecessary since Guinness already had 75% market share.

227. The proposed 100% acquisition of UBH along with Guinness’s 100% share in Connacht and Deasy would give Guinness a very strong national wholesale network of approximately 40% of the wholesale market in Ireland. This decreased Murphy’s access to the market and therefore it was anti-competitive. In explaining why Murphy’s now estimated Guinness’s market share in distribution at 40% when in their first submission to the Authority they had estimated the combined market share of UBH and Deasy/Connacht at 35%, Murphy’s explained that when their first submission had been made one year previously, their estimate had been based on 1995 information, but that since then, UBH had acquired a number of small wholesalers, one in Clare and one in the West of Ireland. They did not know the names of these firms. Their information in 1995 was based on investigations by their sales representatives and on a report by McKinsey’s. There were no definite facts available to them: these were their own best estimates of the situation.

228. The Authority referred to the definitions of the market provided by Murphy Brewery in their first and second submissions, which differed somewhat. Murphy’s stated that what was important to them was the beer distribution and wholesale market and the strength of the distribution by the wholesaler. There was no clear definition of the relevant market because it differed from the perspective of the various interests. From Murphy’s perspective, it was the market for packaged beer and cider; from the publican’s perspective, it was that for the supply of all beverages sold in pubs, and from the perspective of Diageo it was for the wider range of drinks products. For Murphy Brewery the most important thing was how to get their packaged beer to the marketplace. From the buying position of the publican, there was an opportunity to purchase all their needs from the one wholesaler. This was the concern of Murphy Brewery where there was a situation with a dominant supplier: the publican could be induced to purchase a range of products, such as the range that Diageo produced. If the key access route - the wholesalers - were owned by Diageo, they would favour their own products.

229. Murphy’s stated that, from the point of view of actual distribution, the wholesalers delivered beers, soft drinks, ciders and mineral waters in one truck. Distilled products were distributed in a different truck. There was nothing in the future to stop Diageo from combining one with the other. Only a very limited number of wholesalers did this at present. It made economic sense in some geographical areas to combine the delivery of draught beer with packaged beer. There was only a very limited number of wholesalers in beer. In the case of draught beer, the ownership of the beer and the kegs was with the brewer, who invoiced the publican, but it was an agent who distributed the beer. Packaged beer was purchased by the wholesaler from the brewers, i.e. ownership of the beer was transferred to the wholesaler, who then distributed it to his customers. One of the problems for the manufacturer was that they did not know who the wholesaler’s customers were, i.e. who purchased their beer. This was the key to the power of the wholesaler, i.e. they could favour the sale of one brand of beer over another. The wholesalers could set the prices, determine the availability of the product, and control the stocks and the promotional effort. Murphy Brewery had no influence over this situation, which they said was happening at present. They had no written evidence for this but had heard feedback from the publicans, such as a claim that Deasy’s sold Budweiser (for Guinness) at prices with which Murphy’s could not compete.

230. On the question of the regional market shares of the wholesalers, Murphy’s claimed that in South Leinster, UBH had 52% of the market (1995 figures). If Guinness were allowed to buy out all of UBH, then its position would be strengthened. In Dublin, where UBH had 32% of the market and C&C had 20%, then Diageo/Guinness could end up with 52%. They could have 78% of the South Leinster market and 66% of the North Leinster market. In Cork 60% of the market was held by Deasy and Connacht Mineral Water and the 20% by C&C. If UBH were owned by someone other than Guinness, however, it could provide some competition in that market.

231. The Authority queried the parties’ claim that Guinness would have control over C&C with a 10% stake in it. Murphy’s stated that one should look at the management control of the wholesaler, i.e. control of the operations, prices, stocks etc., as that was where the direct power resided. They stated that Guinness, at present, had important financial stakes in UBH and C&C but that it had very little management control. It had direct influence in Deasy’s operations. The Authority referred to pages 8-9 of Murphy’s second submission, which refuted claims by Guinness that it had no influence over C&C. Murphy’s said that there was evidence both ways. The issue was not whether Murphy’s believed that Guinness had influence over C&C or not: it was whether the acquisition by Guinness of 100% of UBH would prevent, restrict or distort competition. Murphy’s maintained that the situation would be aggravated if Guinness did have influence over C&C and also acquired 100% ownership of UBH. One the one hand, one should not take it that Guinness had no influence over C&C; on the other hand, they had less influence than might otherwise appear to be the case. There was a difference between a 30% shareholding in a company and a 100% shareholding in it. With a 100% shareholding there was absolute control of the company, but with only 30% or 49.6%, and where the other shareholder was a global competitor, then Guinness would be very careful about their inputs into such a company.

232. Murphy’s stated that Guinness had a 75% market share in draught beer and the same in packaged beer. The Authority referred them to paragraph 2.5 of their first submission, which did not correspond with those figures. Murphy’s stated that, independently of Guinness’s shareholding, they had enormous commercial leverage, because they represented so much of the packaged beer market.

233. With regard to Murphy’s claim in their first submission that the transaction would create or strengthen a dominant position, Murphy’s stated that, first of all, one should take as given that pubs bought their requirements from geographically local suppliers and that they very often made small purchases and last-minute purchases (e.g. in advance of a local football match). The second given was that at the moment, Guinness had a minority stake in UBH which meant that it had some influence, but not total influence. The situation was the same with C&C, and Guinness had 100% share in Deasy and Connacht. In Dublin, as a result of the acquisition, Guinness would have 100% control of a company with a market share of 32% in Dublin. Murphy’s stated that this market share was close to the 35% market share threshold mentioned in the Authority’s Category Certificate for Mergers. The European Court in Luxembourg had held that dominance could exist with a 30% to 35% market share.

234. Murphy’s stated that the problem was not just the packaged beer market, but the total dominant position of Guinness in the beer market - both draught and packaged beer. From the point of view of the control over the operation of the wholesale sector, Guinness controlled Deasy Connacht, which had 10% of the national wholesale market, although this 10% was concentrated in a number of geographical regions. If they acquired UBH, then that 10% would become 40% of the national wholesale market for bottled beer distribution which would be influenced by Guinness, leaving only 60% of that market independent of Guinness. At the moment, it was 90% independent. [

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235. Murphy’s stated that the proposed transaction was in breach of Sections 4 and 5 of the Competition Acts and also in breach of Articles 85 and 86 of the EC Treaty. They maintained that the conditions of granting a licence were not satisfied and that there were good commercial and legal grounds for prohibiting it. Murphy’s stated that there were a number of factual errors in the Statement of Facts, and in paragraph 7 in particular (in relation to UBH’s role in beer distribution). It did not matter whether a company was a manufacturer or had exclusive distribution rights for a product, as the key question was whether one had a product and could sell it. They maintained that UBH was a much more broadly based business than the Authority had been led to believe. They distributed Beck’s beer on an exclusive basis, as well as ale, lager, beer, cider and some wines, particularly in Dublin where they were strongest.

236. Murphy’s stated that Guinness had a very wide portfolio and was dominant in all segments of the market. Murphy’s had a very limited portfolio with only four products. They distributed Heineken primarily, and some Coors beer. They also distributed Amstel. but only in cans to the off-licence trade. Their fourth product was Murphy’s stout and they had only 5% of the stout market, mainly in Munster where they were strongest. Murphy’s stout had about 15% of the UK stout market, which they had built up in ten years from nil. Murphy Brewery’s strategy was based on the distribution of premium brand products, especially packaged beer, with its strong brand image. They considered it very important that they have access to the market and be able to distribute their products freely. They maintained that the proposed transaction would limit that access. Their concern was that commercial influences could be brought to bear on the wholesalers concerning newer products such as Coors and Amstel; the wholesalers could decide that these products were too small and that they did not want to distribute them. If there were no free distribution channel, it would be very difficult for these small brands to survive. Murphy’s maintained that if UBH and C&C between them sold 30% of Murphy’s packed product, they could control how well Coors did in half of the country.

237. Murphy’s stated that the 60% of the distribution channel which would remain independent of Guinness’s control after the take-over consisted mainly of regional distributors. The main distributors who operated nationally were UBH and C&C. Small wholesalers did not exist in every region. UBH and C&C had bought up many small wholesalers. Consumer choice and consumer welfare would be impaired because of this and it would be very difficult to get a new product to the marketplace. The possibility of C&C as an alternative distribution outlet depended on who became involved with C&C after the transaction was completed. Murphy’s sold product through C&C at present. Of the 60% not connected with Guinness, 25% was represented by C&C. The small wholesalers could do very little for Murphy’s in terms of reaching all their clients in every region.

238. Murphy’s claimed that, if Diageo and Allied Domecq were shareholders in a company, they would have some concerns if the third shareholder were a competing manufacturer. They maintained that this was an inevitable consequence of the proposed decision. They also referred to the possibility of Diageo remaining on as a shareholder of a company in order to exert some influence and prevent another drinks company from becoming a shareholder. They asked why Guinness had remained as a shareholder for so long in UBH and C&C, if they had no control over them. They believed that the reason was to prevent other competitors from taking over these companies. If Diageo obtained 100% control of UBH, it would increase their strength in distribution, relative to their present situation. The transaction would allow Guinness to dispose of two minority stakes and acquire a majority stake, and, as a consequence, receive a net £250 million to £300 million as well.

239. Murphy’s maintained that the Irish market was different to that in other countries in that one big competitor had 73%-74% of the market and also dominated the wholesaling sector. The fact that packaged beer was delivered by wholesalers and draught beer by the brewers themselves was also unique to the Irish market. Guinness delivered packaged beer directly to very big accounts, such as multiples.

240. Murphy’s outlined their legal perspective on the proposed acquisition. They agreed with the Authority’s view that the transaction was in breach of Section 4(1). They pointed out that they did not know on what legal basis the Authority intended to grant a licence. They felt that, in line with the Authority’s decisions in IPODEC and Cooley, all of the conditions in Section 4(2) must be satisfied in order for a licence to be granted. They did not believe that all or any of the conditions were satisfied in the present case. With regard to the first condition, indispensability, they proposed to write separately to the Authority on this issue. The second requirement, i.e. benefits to consumers, was not satisfied either. Guinness had already acquired a variety of wholesalers and distributors between 1990 and 1997 and there were no apparent benefits to consumers at either the retail level or the ultimate consumer level. There had been no reductions in prices and no increase in product choice; instead there were opportunities for wholesalers/manufacturers to engage in “price-squeezing”. Murphy’s supplied a diagram illustrating this point. They did not see any basis for economic progress resulting from the transaction, nor any improvement in distribution.

241. Murphy’s also considered that the acquisition was in breach of Section 5 of the Acts and maintained that the Authority should bear in mind, when considering the case, the market conditions or circumstances which constituted a breach of Section 5. They alleged that Guinness was dominant in both the manufacturing and the wholesaling market and their overwhelming presence at the manufacturing level compounded their presence at the wholesale level. Murphy’s referred the Authority to the ECJ case on Continental Can, concerning an abuse of dominance. They also maintained that even if Guinness were not in a dominant position ex ante, the transaction would create a dominant position in the context of the tests laid down in the merger legislation and endorsed by the Authority in the Coillte/Balcas case. It created or strengthened a dominant position not only at the level of wholesaling but also upstream, because it ensured that Diageo had a route to market which it controlled entirely. UBH had the opportunity to become a competitive challenge to Guinness, if it were removed from Guinness’s influence.

242. Murphy’s maintained that, if the acquisition were permitted to proceed, it would result in an increased potential and opportunity for control. There were a number of practices which Diageo could engage in, such as price squeezing, affecting the level of supply, stock outages, timing of supply, support for new products, etc. Murphy’s referred to a wholesaling business in which it had had a 50% stake for the past two years. Since it had acquired management control of the business, the relative sales of Budweiser and Heineken had been reversed: they now sold more Heineken than before and the business was more profitable. Murphy’s stated that the management of a wholesaler operation could influence the relative sales of competing goods.

243. Murphy’s referred to the Authority’s decision in Coillte/Balcas where it had had difficulty with Coillte becoming a dominant supplier. Murphy’s could not see how the decision to allow Guinness to compound its position as a competitor at the wholesale level squared with the decision on Coillte. Murphy’s maintained that there was no redeeming factor in the market in question as there was no interstate trade, and the publicans did not cross borders or travel far in search of supplies. There were no purchasers who had any countervailing buying power when pitted against a Diageo-owned wholesaler which could offer discounts, rebates, overriders etc, across the whole range of products which it had in its portfolio.

244. Murphy’s alleged that, as there was an abuse of dominance, the granting of a licence under Section 4(2) would be somewhat negatory because of the breach of Section 5. They stated that since the signing of the EC Treaty on 25 march 1957, no exemption under Article 85(3) had ever been granted for an acquisition, and that the grant of a licence did not make sense legally or logically. They also claimed that as Article 85(3) had not been considered to be a suitable mechanism for controlling concentrations, Regulation 4064/89 had to be adopted. They claimed that the present transaction breached four separate legal provisions and, further, that the granting of a licence under one provision did not help the situation.

245. Murphy’s stated that they had not made a complaint to the European Commission about the proposed transaction because it was a concentration (Article 22, para 1 of the Regulation). They agreed that it was open to third parties to institute proceedings in the Irish High Court. The Authority pointed out that it was not open to it to consider or take action under Articles 85 or 86 of the EC Treaty. Murphy’s claimed that Article 5 of the EC Treaty obliged the Competition Authority, as an emanation of the State, not to act in any way which was in breach of EC law and that it was not open to a Member State’s Competition Authority to grant a licence to clear a transaction which was in breach of Community law. Murphy’s had not instituted proceedings in the High Court because it would be premature to do so before the Authority had taken its decision and nothing should be read into the fact that the parties had not made such a claim as yet. Murphy’s also stated that the fact that there had been no finding of any breach of Articles 85 and 86 at present was immaterial and there was no consequence which flowed from the absence of such a finding.

246. With regard to the C&C undertakings, Murphy’s did not believe that they would be effective in introducing new competition into the marketplace. They were of the view that the result would be that, instead of having two minority stakes (in UBH and C&C), Guinness would have 100% of UBH and possibly some remaining stake in C&C as well. Legally, it was possible to have more influence than the percentage of shareholding represented, by virtue of a shareholders’ agreement or other legal rights. Murphy’s were not convinced that the C&C undertakings would either introduce or stimulate competition. They were also concerned that about who might buy a stake in C&C from Diageo. They stated that they were not party to all the correspondence from the Tanaiste, particularly not the clearance from the Tanaiste to Guinness with regard to the UBH transaction. If the transaction had been cleared by way of a letter, then the Guinness purchase of UBH must be completed by 5 October 1998, but it would still have until 15 January 1999 to sell its stake in C&C. They maintained that this was leaving too much to uncertainty and that even if Guinness were ordered to divest, it was neither a beneficent nor a satisfactory solution and it would not undo the damage. Murphy’s considered that the Authority would be playing with dice if it licensed the transaction allowing Guinness to acquire 100% of UBH, even though it had no idea what would happen to Diageo’s stake in C&C. They referred to the European Commission’s approach to the GMG case. They also referred to the possibility of there being three competing drinks manufacturers as shareholders in C&C. The licence might also have to be extended beyond 15 January 1999 by the Authority, if the transaction were not approved by that time, since otherwise the exercise by Guinness of the purchase of the shares would be a criminal offence under Section 4(1) and perhaps Section 5 also. They maintained that the Authority was making a decision where a very large consequence of that decision - who would actually buy C&C - was unknown. By the time this was known, the UBH transaction would have been completed.

247. In conclusion, Murphy’s stated that their view was that the dominant position of Guinness as a beer supplier in the domestic market would be strengthened by the proposed acquisition of UBH. It would decrease competition by restricting access to the free market for Murphy Brewery and others such as Beamish and Crawford, etc. Murphy’s stated that the transaction was anti-competitive and that the concepts of fair competition and of competition law enforcement in Ireland were at stake. They claimed that the Authority was dealing whit a company which already had 75% market share in Ireland. They pointed out that an exemption had never been granted for an acquisition, and claimed that the circumstances of the case meant that there were other breaches and other ways in which the transaction could be stopped. Their key point was that there was a breach of Section 4(1) and they also contended that the conditions for the granting of a licence under Section 4(2) had not been satisfied. Murphy’s urged the Authority to revert to its first instinct and refuse to grant a certificate or licence to the transaction.

248. In a further written submission, Murphy’s argued that there was no precedent for the licensing of an acquisition and that the European Commission had never exempted an acquisition under Article 85(3). They stated that the Authority needed to establish whether Guinness already had “control” over C&C. They argued that the disposal of C&C was a “red herring” and would make no difference to competition in the marketplace. They also argued that the proposed transaction would be an abuse of dominance contrary to Section 5(1) and that the Authority could not approve a transaction which was actually in breach of another provision of the Act. Murphy’s also argued that the acquisition was not indispensable to achieve the objectives set out in Section 4(2). Finally, Murphy’s argued that the proposed acquisition would be in breach of Articles 85 and 86 of the EC Treaty and urged the Authority to refuse a certificate or licence.

(iv) Independent wholesalers

249. The representatives of the independent wholesalers (M. and J. Gleeson, Coman Wholesalers and J. Donohoe) pointed out that the group did not in any way represent a trading association among these undertakings and that they had merely come together for the purpose of putting forward their arguments resisting the merger proposal. The independent wholesalers stated that the merger was the ultimate step in the concentration of the drinks market. They referred to previous acquisitions by Guinness in the distribution sector which had been just below the thresholds specified in the Mergers and Monopolies Act and had not therefore come to the Authority for consideration. They stated that this was the first opportunity that the Authority had been afforded to regulate competition in this sector.

250. The independent wholesalers hoped to provide an alternative route to market from non-Guinness producers. They stated that this was important in terms of ensuring the continued introduction of new brands onto the market and for competition generally at all levels of the drinks industry. Should the merger be allowed to go ahead, then Guinness would have virtual control at the distribution level of the drinks industry. Most remaining wholesalers outside the control of Guinness would have market shares around the 2% mark, or lower in many cases, as well as having limited geographical scope. It was argued that these would not be in a position to compete with those under the control of Guinness who would then control 45% of the distribution market.

251. The independent wholesalers submitted that licences were fundamentally unsatisfactory in dealing with structural changes in markets brought about by acquisitions. They argued that Section 4 of the Competition Acts and Articles 85 and 86 of the EU Treaty were designed to control agreements between competitors. They did not believe that the conditions for granting a licence could be met. In this regard they felt that the lack of access to the Authority’s reasons for believing that the conditions could be met put them at some disadvantage in making their case. They did not believe that improved production or distribution of goods was provided for by the merger. Furthermore, it was also their belief that the merger would lead to certain closures, particularly in Deasy/Connacht Mineral Water. In relation to consumer benefit. the wholesalers believed, on the basis of experience of previous acquisitions by Guinness, that no consumer benefit would arise. The independent wholesalers believed that the elimination of competition in a substantial part of the market would result from the merger; that it would create barriers to entry for producers wishing to gain access to the market; and that vertical integration by Guinness would lead to substantial monopolisation of the drinks industry in Ireland.

252. The independent wholesalers had already lodged a complaint with the Competition Authority regarding the merger, as they believed that it breached Sections 4 and 5 of the Competition Act, 1991, on the grounds that it diminished existing and potential competition in the market. They claimed that the European Court of Justice had already stated the prohibitions should apply to any behaviour which strengthened a dominant position such that the degree of control achieved substantially obstructed competition so that any undertakings left in the market were dependent on the dominant undertaking. They argued that this was very clearly the case in relation to the merger currently under review.

253. The Authority pointed out that the wholesalers’ own submission of 6th March contained figures showing that the Gleeson Group held 14% of the existing market, Coman’s 7% and Donohoe 4% and that the market share outside the control of Guinness (attributing C&C’s market share to Guinness) summed up to about 55%. They asked how, in that context, it could be said that a degree of independence could be lost as a result of the merger. The Authority also asked about the regional breakdown of market share.

254. The independent wholesalers responded that despite the large market shares held by some of them, their relative buying power vis-à-vis Diageo would be quite weak. While the market share figures were national figures, the independent wholesalers were limited to certain regions in terms of their distribution networks. In terms of regional breakdown, in South Leinster, for example, they believed that United Beverages’ share of the packaged beer market was in the region of 50-55%, that of C&C in the 10% -20% region, and that of all other wholesalers in the region around 30%.

255. The Authority asked why the 25% of the distribution market represented at the hearing could not provide an alternative route to market. The independent wholesalers responded that a producer seeking to introduce a new product with national coverage would find great difficulty in finding an individual wholesaler who could secure that coverage. However, the regionally-based nature of the trade posed no problems for Guinness as they had interests in a number of wholesalers which, taken together, represented national coverage. Deasy, for example, served the large urban market in Cork, Limerick/Galway were covered by Connacht Mineral Water Company, United Beverages’ share in the Leinster/Dublin market represented something in the order of 20-30% of the national market, and taken together these would provide a nationwide distribution network that would be very difficult for anyone to compete with. This put Guinness in a very powerful position to serve markets such as the chain hotel market, where there might be a requirement for multiple deliveries. The independent wholesalers stated that this scenario was also beginning to arise in the pub trade.

256. The independent wholesalers stated that the maximum radius within which a depot could operate economically was 45-50 miles. United Beverages had seven depots scattered along the east coast, C&C had about ten nationwide, Deasy/Connacht had five and Gleesons had six. This, they said, illustrated that the economic level of turnover for each depot was about 3-4%. Individually, these turnovers could represent 50%+ of local market shares. It was important to remember that Guinness, in purchasing United Beverages, were not just purchasing seven depots representing, between them 20% of the national market share, but seven depots with 50% of local markets in a particular part of the country.

257. The independent wholesalers stated that there was anecdotal evidence within the industry to suggest that even if Guinness did not buy United Beverages, there were others who would be happy to do so. If United Beverages were to remain independent they could act as an effective bulwark against the dominance of the Guinness-controlled wholesalers. With the resources at Guinness’s disposal, it could build up Deasy and Connacht into the national distributor which it wanted, without United Beverages. Placing United Beverages in the hands of Guinness would either create or strengthen a dominant position. Guinness/Diageo would then, they claimed, be in a position to monopolise the bridge to the retail market.

258. The independent wholesalers’ first submission had defined the relevant market as “... the market for the wholesale distribution of packaged beers to the licensed trade.” The Authority queried the definition of the market which appeared to be used in the wholesalers’ latest submission, where Guinness’s direct supply of its products was included in market share figures for the wholesale distribution of packaged beers. They asked whether there was a difference between wholesale and distribution, and whether it was consistent with the original market definition to include Guinness’s distribution of its own products in the relevant market. The independent wholesalers responded that, whether or not Guinness fell within the strict definition of a wholesaler, they did have a role at the distribution level of the market. They added that there was no consistent definition or understanding in the drinks industry of what was meant by terms such as wholesale, distribution, agency and direct supply. What the figures supplied illustrated beyond doubt, they claimed, was the dominant influence of Guinness or Guinness-controlled companies at all levels of the Irish drinks industry. The share of the market for cash-and-carries was included by virtue of the fact that, by and large, cash-and-carries were supplied either by Guinness or by wholesalers. However, there were a number of reasons why cash-and-carries were not a viable alternative to wholesalers. Firstly, most cash-and-carries were supplied by wholesalers. Secondly, their combined market share accounted for less than 3% of the national market. Thirdly, very few cash-and-carries sold to the trade. Rather, they sold to consumers to used cash-and-carries to supply their grocery outlets.

259. One of the wholesalers outlined his experiences in gaining access to the market in Northern Ireland for a particular product. This wholesaler had begun exporting the product in question to Northern Ireland in 1987/88, initially through local wholesalers. At that time there were approximately 20 individual wholesalers operating in the Northern Ireland drinks market. Today, none of those remained. The trade was now dominated by Bass, on the one hand, and by a Guinness-controlled company, Irish Bonding, on the other. The wholesaler stated that Bass and Irish Bonding had achieved this position through a combination of owning some pubs and having exclusivity deals and soft loans with others, and the buying up of independent wholesalers.

260. The wholesaler stated that the main Northern Ireland wholesaler for the product in question at the time he had started exporting to Northern Ireland also had a bottling licence from Guinness and therefore bottled and sold Guinness as one of his own products. When he was obliged to open a new bottling facility due to technical changes, Guinness had provided him with the equipment to do so for a very small consideration. Guinness, however, through Irish Bonding, had begun to distribute a competing product. Irish Bonding had insisted that the Northern Ireland wholesaler distribute the competing product and had therefore taken exception to his distribution of the original product. In response, Guinness had withdrawn the bottling equipment which the Northern Ireland wholesaler required for his new bottling facility. Irish Bonding had then sent representatives into this wholesaler’s business catchment area to deal directly with the outlets which he supplied. The clear implication, according to the wholesaler, was that Irish Bonding were unhappy with the Northern Ireland wholesaler’s distributing the original product. As a result, the wholesaler claimed, the Northern Ireland wholesaler was forced to discontinue his deal with the Republic of Ireland producer and instead distribute the Guinness-promoted product.

261. Bass had then become the original product’s exclusive distributor to the licensed trade in Northern Ireland, around 1990/91. In March 1998, however, Bass had opted to promote another competitor. Effectively, because there were no remaining independent wholesalers in Northern Ireland, this wholesaler now found that his products were excluded from the Northern Ireland market. The wholesaler claimed that this was also the case with an alcoholic fruit drink which was manufactured by his company, and that Heineken had found themselves in the same position. He alleged that there was no longer a route to market for his products in Northern Ireland as a consequence of the lack of independent wholesalers. It was his strong feeling that if the merger of Guinness and United Beverages were allowed to proceed then a similar situation would prevail in the Republic of Ireland within a few years.

262. The Authority asked how the number of wholesalers in Northern Ireland had been reduced from 20 to none within the last ten years, in terms of the processes at work - i.e. whether they had gone out of business, been taken over, etc. The independent wholesalers replied that some profitable wholesalers had simply been taken over and that others had been taken over because they were not viable.

263. The Authority asked how the situation in Northern Ireland, as described above, was analogous with the situation that would be likely to prevail here, given that 50%-60%+ of the distribution trade would remain independently owned even in the event of Guinness purchasing United Beverages, according to the wholesalers’ own figures. The independent wholesalers stated that it was their belief that many of the independent wholesalers making up that 50%-60% of the market would not survive in the aftermath of a Guinness/United Beverages merger because Guinness already controlled 73% of the brand market and would, in the event of the merger, control 43% of the distribution mechanism. They said that through differential pricing, deals, favouritism, promotions etc., Guinness would be in a position to put its reps and those of the wholesalers it controlled at such a competitive advantage that they would eliminate the competition over time. They stated that they could see a mirror-image of the Northern Ireland wholesale market beginning to emerge here, in that the number of independent wholesalers had declined from over 100 some 20-25 years ago to roughly 35 now. Twenty to thirty of those leaving the market had, they claimed, been taken over by United Beverages, C&C and Guinness. They further claimed that in the wake of such a merger, many existing independent wholesalers would probably try to sell up immediately.

264. The Authority made the point that some efficiencies might arise from the merger in that Guinness-controlled wholesalers would be able to offer Diageo products at a better rate. The independent wholesalers responded that, while there might well be some efficiencies resulting from the merger, these would be achieved at the cost of reduced product choice for the consumer. One representative argued that no efficiencies would result as there would be no effective difference between a Guinness-controlled wholesaler and any other wholesaler transporting stock from A to B, and the only efficiencies which could arise would be if Guinness or Guinness-controlled wholesalers opted to temporarily maintain certain prices in order to push other wholesalers out of the market. They described the current scenario as “an end-game” on the part of Guinness aimed at the rationalisation of the wholesale industry in such a way as to give them control over it. They also maintained that the price of £52 million being paid by Guinness for United Beverages was a premium price considering that United Beverages had assets of just £10 million.

265. On the subject of distribution channels for spirits, the wholesalers stated that the distribution of spirits by independent wholesalers was largely a rural phenomenon. They also stated that wholesalers did not put a mark-up onto spirits, i.e. that producers sold to wholesalers and retailers at the same price, and therefore that, where wholesalers did distribute spirits, they did so largely in order to provide an additional service to their customers.

266. The Authority stated that the proposal being considered by the Authority would involve Guinness selling the bulk of its shareholding in C&C. There had been a lot of comment on the future of C&C in the news media, and rumours of interest from many financial institutions and from other non-drinks companies. The Authority asked how this could be explained if independent wholesaling would have no future in the event of the Guinness/UBH merger proceeding. The independent wholesalers responded that there was also a very profitable manufacturing side to the operation which would provoke an interest from non-drinks companies.

267. The independent wholesalers expressed concern that the Authority had advertised its intentions in relation to the merger by official notice in the Irish Times in January of this year without having recourse to the views of interested parties. They queried whether the principles of natural justice had been observed in following such a procedure. Again, they asked for a response from the Authority in relation to this concern.

268. The independent wholesalers expressed similar concerns about the procedure by which the Authority had stated its initial intentions by official notice in the Irish Times and invited the views of interested parties, without allowing them access to the rationale behind that initial view. They stated that it was impossible for interested parties to make an effective case in relation to a stance taken by the Authority without seeing the basis on which the Authority had taken that initial view. Again, they asked that the Authority issue a response in relation to that concern.

269. The independent wholesalers stated that the Authority was correct in its view that a certificate should not be granted in respect of the proposed Guinness/UBH merger, and furthermore that a licence should not be issued. They argued that the proposal by Guinness to dispose of some of its interest in C&C was a smoke-screen designed to distract attention from the very real distortions which would occur if the Guinness/UBH merger were allowed to proceed. They stated that, in their view, the issue of Guinness’s stake in C&C was immaterial to the proposal currently under review.

270. The independent wholesalers claimed that, in blocking the merger, the Authority would be consistent with the spirit and the logic of its previous decisions on referrals such as Coillte/Balcas, David Allen and Cooley. They stated that, in their view, the merger would breach Sections 4 and 5 of the Competition Act, 1991, and that it had the potential to restrict trade between member states of the European Union and was therefore also potentially in breach of Articles 85 and 86 of the EC Treaty. They urged the Authority not to issue a certificate or licence in respect of the proposed merger. The independent wholesalers also stated that they would be happy to make additional submissions to the Authority drawing analogies with previous merger referrals to the Authority and illustrating how the precedents set by some of these made it logical that the merger should not be allowed to proceed. They undertook to have any additional submissions with the Authority within 21 days of the date of the hearing.

(v) National Off-Licence Association

271. The Authority met representatives of the National Off-Licence Association (NOFFLA). NOFFLA stated that there were approximately 500 independent off-licence outlets, of which 300 were members of the National Off-Licence Association (NOFFLA). They characterised independent off-licensees as those persons who operated off-licence outlets on a stand-alone basis and were not connected in any way with the on-licence trade. Because of the licensing regime, there was an effective cap on the number of independent off-licences, but on-licensees could easily open an off-licence if they so wished. In recent years on-licensees had formed, through their associations, a franchise-type off-licence outlet trading under the name of “Cheers” and “Next Door”. Independent off-licensees had developed their business over the years to the extent that they now carried a very broad range of products including wine, beer, ale etc.

272. NOFFLA said that they were concerned that if GIG acquired UBH there would be fewer beer distributors and inevitably a reduced range of beer products. This would upset recent trends whereby an increasing range of beer (and other) products were being made available through off-licences. One off-licensee estimated that there were about 40 different suppliers to his own outlet, of which 6 would be primarily beer/soft drink distributors including Comans, UBH. C&C, Gleesons and Premier Worldwine. The main wine distributors were Grants, Dillons, Gilbeys, Findlaters, Allied Drinks, Southern Counties and Northeast Quality Wines. The principal spirit distributors were IDG, Grants, Gilbeys, Dillons and Seagrams (Remy). NOFFLA wanted to see more competition in the market as, in recent years, this had lead to greater benefits to the off-licence trade and ultimately to the consumer with a greater choice of products available and more competitive prices.

273. Another off-licensee said that in his business he retailed a range of German and Czech beers but they represented less than 1% of the market. He dealt a lot with Premier Worldwide. He sourced a lot of his wine purchases himself and dealt with one-man outfits who would have the agency for a particular brand. His main worry was that with GIG acquiring UBH the already small number of important beer distributors would be drastically reduced.

274. NOFFLA said that if GIG acquired UBH, the likelihood was that UBH would stop carrying their own-sourced beers in preference to GIG products or at least not promote their own-sourced beers as intensively as they had in the past with the net result that the range of products would contract rather than continue to expand. GIG, with UBH and Deasy & Connacht, would be the only national avenue for new product entry and could effectively control the market. NOFFLA noted that GIG did not effectively promote their own products for which they had licences from abroad, such as Budweiser Ice and Stella. Off-licensees imported these brands direct because GIG were nor interested in promoting them. They suspected that GIG had a policy of acquiring licences for competing brands and then not developing them.

275. NOFFLA said that wholesalers gave discounts to multiples but not to off-licensees. GIG set their recommended prices at the level of multiples’s prices and treat off-licensees unfairly in this regard. They said that ten years ago there were 120 wholesalers but constant pressure from GIG has reduced this number to only 31 at present. GIG associated companies now had over 50% of the wholesale trade.

276. NOFFLA said that recent increases in, for instance, the 17 1/2 fl. oz. were considerably in excess of the rise in inflation but no one could do anything about it because of the market power of GIG. They said that GIG expected off-licensees to fund merchandising and other activities by way of accepting reduced margins. They noted that Budweiser should be retailed at 143p per can, but could only be sold by them at 139p; GIG’s recommended price was 129p. They considered that if the multiples were being treated as wholesalers by GIG, they should be forced to act like wholesalers and deal with the trade.

277. NOFFLA said that off-licensees used cash and carries as a fall back outlet for some supplies but their terms were not favourable, as their name implied. They said that it must be remembered that other distributors, such as Coman’s and Gleesons, actually needed GIG as they must stock GIG products. If GIG acquired UBH, GIG’s position would be even stronger.

278. In respect of new product launches, NOFFLA said that in the volume beer market (low-priced product) wholesalers sourced their own supplies from abroad. Some off-licensees also sourced supply from abroad or from small Northern Ireland based distributors. At present there was a wide range of good value beers. He expected that the acquisition of UBH by GIG would result in a curtailment of market development as GIG would appear to prefer to have a small brand portfolio on which it maximised profits.

279. In respect of pricing NOFFLA said GIG suggested retail prices; market pressures would not allow off-licensees to charge uncompetitive prices. They presented to the Authority a copy of NOFFLA’s submission to GIG in November 1997 on pricing.

280. NOFFLA summarised by saying that they opposed the acquisition by GIG of UBH on the grounds that would reduce existing levels of competition in the market with detrimental effects on consumers.

Assessment

(a) Section 4(1)

281. Section 4(1) of the Competition Act 1991 states that “all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State or in any part of the State are prohibited and void”.

(b) The Undertakings and the Agreement

282. Section 3(1) of the Competition Act 1991 defines an undertaking as “a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service.” GIG and UBH are undertakings within the meaning of the Act as they are engaged for gain in the production, supply or distribution of goods or the provision of a service. The agreement is therefore an agreement between undertakings and has effect within the State.

(c) The Applicability of Section 4(1)

283. Section 4(1) of the Competition Act 1991 prohibits and renders void all agreements between undertakings which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State or in any part of the State. The Authority considers that the notified agreement is an agreement within the meaning of Section 4(1) of the Act.

(d) The Views of the Authority on the Agreement.

(i) Introduction

284. While the Authority has consistently held that mergers are not automatically excluded from the scope of Section 4(1) of the Competition Act, it nevertheless recognises that many mergers occur for quite legitimate reasons and do not have any anti-competitive effects. Mergers may be prompted by a desire to achieve economies of scale or other efficiencies. Economies of scale arise where unit costs are reduced due to an increase in firm size. Mergers can also achieve efficiencies in respect of administration, marketing and other ancillary activities, since the size of such operations in the merged firm may well be less than the combined size of such operations in the two firms prior to the merger. As against this, however, larger firms may well suffer from increased levels of internal bureaucracy with consequent negative effects on performance. The perspective emerging from US studies is that the motivations for most mergers are financial synergies and cost rationalisation. [61]

285. However, while many mergers do not pose any threat to competition, some may be established in order to lessen competition or indeed to establish a dominant if not an outright monopoly position. Firms may attempt to reduce the degree of competition in the market by eliminating competitors (horizontal mergers) or through take-overs of suppliers/customers (vertical mergers) may attempt to deny competitors access to raw materials or distribution outlets [62]. As with any other type of agreement, any merger agreement which has as its “object or effect the prevention, restriction or distortion of competition in the State or in any part of the State” is prohibited and void under Section 4(1) of the Competition Act.

286. The notified agreement involves a share purchase agreement whereby GIG, which already owns 30.76% of the shares in UBH, is acquiring outright control of the company. It is relevant, in assessing the agreement, that GIG’s 30.76% shareholding already allows it to exercise some degree of control.

(ii) Provisions of the Authority’s Category Certificate for Mergers.

287. There is considerable scope for debate on the extent to which mergers affect competition. For example, some economists feel that vertical mergers should be presumed lawful. Others believe that there are some circumstances under which vertical mergers will have anti-competitive effects, but that such effects are not automatic. The Authority’s thinking on the competition effects of mergers has been set out clearly in its Category Certificate for Mergers, published on 2 December 1997 [63]. This identifies circumstances in which a merger or sale of business would not, in the Authority’s view, contravene Section 4(1) of the Competition Act, 1991. Mergers which do not comply with the terms of the category certificate would not be automatically prohibited, but would require closer investigation.

288. The Category Certificate deals with both horizontal and vertical mergers. On horizontal mergers , it states that:

“Among the factors which the Authority believes need to be considered in order to decide whether a merger would have the effect of preventing, restricting or distorting competition is the actual degree of competition in that market, the degree of market concentration and how it is affected by the merger, the ease with which new competitors may enter the market and the extent to which imports may provide competition to domestic suppliers.”

289. Market concentration is measured using the Herfindahl-Hirschmann Index (HHI - the sum of the squares of the market shares of all firms in the market) and the four-firm concentration ratio (the sum of the four largest market shares). Since the purpose of the certificate is to provide automatic clearance for mergers which do not contravene Section 4(1), the Authority has set out thresholds below which it considers that the merger is unlikely to have any adverse effect on competition:

“In the Authority’s opinion a merger is unlikely to have any adverse effect on competition where:

(i) The HHI post-merger is below 1000; or

(ii) The HHI post-merger is between 1000 and 1800 but has increased by less than 100 points as a result of the merger; or

(iii) The HHI post-merger is above 1800 but has increased by less than 50 points as a result of the merger.

Where a merger satisfies the above criteria, in the Authority’s opinion, it does not contravene Section 4(1).”

290. Where the four-firm concentration ratio rather than the HHI is used to calculate market concentration levels, the Authority considers that if the post-merger four-firm concentration ratio is 40% or less, a merger would be unlikely to have any adverse effect on competition. Thus in the Authority’s opinion a merger or sale of business does not contravene Section 4(1) of the Competition Act, 1991, if the four-firm concentration ratio in the relevant market following the merger is below 40%.

291. In the Authority’s opinion any merger which could potentially create or strengthen a dominant position in a relevant market would require a careful analysis. For this reason the Authority believes that a horizontal merger between two firms where either firm has a market share of 35% or more should be subjected to individual scrutiny. Consequently such a merger is excluded from the coverage of this category certificate.

292. Where post-merger concentration levels exceed the thresholds set out [above], the Authority believes that other factors must also be taken into account. The Authority considers, for example, that , even in highly concentrated markets, a merger will not have any adverse effect on competition in the absence of any barriers to entry or where there is a significant level of competition from imports.

293. The category certificate then deals with barriers to entry, potential competition from imports and the actual level of competition in the relevant market: “Where there is evidence that competition in the relevant market is relatively weak, the Authority believes that a more detailed analysis of any proposed merger would be required in order to establish whether or not it might have an adverse effect on competition. Consequently this certificate would not apply to mergers in such circumstances.”

294. On the subject of vertical mergers, the Authority’s category certificate states that:

“Mergers between firms which operate at different stages in the production or distribution process, i.e. between a firm and its suppliers or a firm and its distributors or retailers, generally pose less risks to competition than mergers between actual or potential competitors. In certain circumstances, however, vertical integration resulting from vertical mergers could have anti-competitive effects. Such a merger could, for example, be designed to block access either to sources of raw materials or to distribution outlets. Nevertheless the Authority believes that in general such mergers would not contravene Section 4(1). A vertical merger would be regarded as anti-competitive where it was considered likely to result in market foreclosure. Any merger between firms which had the effect of foreclosing entry to one or more markets would, in the Authority’s opinion, contravene Section 4(1) and would therefore not be covered by this category certificate.”

295. The agreement under consideration has both horizontal and vertical aspects. This analysis will therefore consider the effects of the merger under six headings:

HHI

Four-firm concentration ratio

Barriers to entry

Potential competition from imports

Actual level of competition

Vertical effects.

(iii) Treatment of shareholding in C&C.

296. Since the 1960’s Guinness has held a 49.6% shareholding in C&C. The remaining shares are held by Allied Domecq plc, an international food and drinks company. In the Annex to Form CA, Guinness described this shareholding as “an investment”. It stated that C&C was managed as a subsidiary of Allied Domecq plc, with management reporting to an Allied Domecq plc divisional board. GIG has three directors on the board, out of a total of nine (the articles of association allow for up to twelve). GIG stated that its involvement with C&C was limited, that board meetings were held quarterly and that GIG had little or no influence over product strategy or the management of C&C. It pointed to a number of areas in which GIG and C&C competed in the Irish market (wholesaling, cider, bottled beer), and said that there was no justification for attributing C&C’s share of the drinks distribution market (or any part of it) to GIG.

297. The Authority does not accept this argument. Three directors of Guinness are also directors of C&C, and one of the three is also a director of UBH. Guinness holds almost half of the shares in C&C and has a first option on the remaining 50.4%, according to the Articles of Association of C&C. Through its shareholding and its board membership Guinness has access to commercial information related to C&C and can influence its commercial conduct. It is also able to prevent any other potential competitor from taking over C&C.

298. In the case of the Irish Musical Rights Organisation [64], the Authority objected to a clause in the Articles of Association of IMRO allowing the UK-based Performing Rights Society to appoint three of the fifteen directors to IMRO over the first two years and two directors thereafter. Special provisions were also included in other Articles in relation to the PRS nominated directors. IMRO had until a short time before been a subsidiary of PRS. The Authority objected to the fact that PRS, a potential competitor of IMRO, retained powers to nominate directors to IMRO, which was by then an independent company. The Authority stated that “Through their nominee directors in IMRO, PRS were therefore in a position to obtain information related to the internal affairs of IMRO and possibly influence their decisions.” Following the Authority’s objections the Articles of Association of PRS were amended to remove the power of PRS to nominate directors to IMRO and the special provisions relating to PRS nominated directors were deleted. In addition the PRS nominee directors were removed by a Resolution of the company. As a result of these amendments the arrangements were licensed by the Authority. It is clear that, in the case of IMRO, the Authority took the view that it was not necessary to have a majority on the board of a company in order to influence its decisions.

299. In its decision on Woodchester [65] the Authority quoted the European Court of Justice decision in the Phillip Morris case [66]:

“Although the acquisition by one company of an equity interest in a competitor does not in itself constitute conduct restricting competition, such an acquisition may nevertheless serve as an instrument for influencing the commercial conduct of the companies in question so as to restrict or distort competition on the market in which they carry on business.”

300. The judgement (points 38 and 39) implies that where the acquisition gave the purchaser legal or de facto control, or indeed where it created the possibility of it doing so at a later stage, the agreement would be in breach of article 85(1) of the Treaty of Rome. The authority, commenting on this decision in Woodchester, stated:

“The judgement also makes important statements about the scope of Articles 85 and 86. Agreements on the acquisition of shareholdings in competitors fall within Article 85 where they influence the market behaviour of the firms concerned so that competition between them is restricted or distorted. For this to occur it is not necessary for the agreement specifically to provide for or to facilitate commercial co-operation between the competitors. It is sufficient if the result of the acquisition is to give one company legal or de facto control over the commercial policy of the other company. It does not matter whether the holding necessary for control is acquired in one go or successively in a series of operations.”

In this case the reverse transaction to that in the Phillip Morris case is being carried out - a company with a minority shareholding in one company is acquiring 100% of another - but the end result in terms of its effect on the market is the same.

301. In its 1995 Study of the Newspaper Industry [67], the Competition Authority found that the arrangements whereby Independent Newspapers plc purchased a 24.9% shareholding in Irish Press and extended loans of £2m to those newspapers amounted to an agreement between undertakings which had, as its object or effect, the prevention, restriction or distortion of competition contrary to Section 4 of the Competition Act. This was because the arrangements were designed to prevent the Press newspapers being acquired by an undertaking which would provide greater competition to Independent Newspapers plc. The Authority quoted the European Court of Justice decisions in Phillip Morris in support of its view.

302. The specific issue of GIG’s shareholding in C&C has, in fact, recently been analysed by the EU Commission in the context of the merger of Guinness plc and Grand Metropolitan plc. In October 1997 the Commission adopted a decision declaring the merger to be compatible with the Common Market subject to compliance by the parties with certain undertakings. The Authority has seen the Commission’s decision on a confidential basis. However, pending the publication of the text of the decision, it has been asked not to disclose details of the Commission’s reasoning to third parties. References to, or summaries of parts of, the decision have therefore been excised. [

]

303. The Authority therefore considers that GIG’s shareholding in C&C is indeed relevant to the assessment of the effect on competition of the transaction. While the market shares of C&C are not necessarily ascribed to Guinness in the calculations of HHI and four-firm concentration ratio, the overall effect of the cross-shareholding must be taken into account in the analysis.

In the Statement of Objections sent to the parties on 5 November 1997, the Authority stated its view that the problems of increased concentration in the wholesaling market, and of the substantial vertical link between Guinness’s interests in the brewing and wholesaling markets, were compounded by Guinness’s links with C&C. The Authority considered that it was an anti-competitive situation for a company with Guinness’s strength in the brewing market to own 100% of companies with 30.4% [68] of the wholesale market while simultaneously owning 49.6% of a company with 12.58% [69], these being the only two nationwide wholesalers. Further, GIG would have full control of the largest and fourth-largest wholesalers, and 49.6% of the third-largest, with a first option on the purchase of the remaining shares. There would be only one other wholesaler of comparable size left in the market.

GIG has now undertaken to reduce its shareholding in Cantrell and Cochrane below 10%, to relinquish its rights to board representation and to waive its right to a first option on the shares of C&C. The Authority considers that these measures will effectively remove C&C from the control of Guinness and leave it as an independent competitor to UBH in the marketplace. As, however, these measures are not yet in place, the following analysis considers the effects of the transaction both with and without UBH and C&C under common control.

(iv) Herfindahl-Hirschmann Index.

Production of Soft Drinks

304. Market shares by volume are used, based on GIG’s submission.

Producer	% (Before)	HHI (Before)	% (After)	HHI (After)
CCBI	48.5	2352.25	48.5	2352.25
C&C	25.0	625.0	25	625
UBH	10.3	106.09	10.9	118.81
GIG	0.6	0.36	-	-
Others	15.6	??	15.6	??
TOTAL	100	> 3083	100	> 3096

305. The HHI before the merger is greater than 3083, indicating that the market is very highly concentrated. If the market share of C&C is treated separately from that of GIG and, after the merger, UBH, the increase in concentration (which arises from the consolidation of the market shares of UBH and of Deasy/Connacht) is very slight. If the market shares of C&C and GIG are aggregated, the figures are as follows:

Producer	% (Before)	HHI (Before)	% (After)	HHI (After)
CCBI	48.5	2352.25	48.5	2352.25
C&C/GIG	25.6	655.36	35.9	1288.81
UBH	10.3	106.09	-	-
Others	15.6	??	15.6	??
TOTAL	100	> 3113	100	> 3641

306. This shows a market highly concentrated both pre-and post-merger, with an increase of 528 in the HHI. However, to concentrate on the effect on the overall soft drinks market is perhaps misleading as the effect would be greatly more marked in certain market segments, particularly in the supply of 4-oz mixers and 7-oz soft drinks to the liquor trade:

4-oz Mixers, Liquor Trade

Producer	% (Before)	HHI (Before)	% (After)	HHI (After)
C&C	[
Finches
All others				]
Total	100	>7726	100	>8761

7-oz Soft Drinks, Liquor Trade

Producer	% (Before)	HHI (Before)	% (After)	HHI (After)
CCBI	[
C&C
Finches
Others				]
TOTAL	100	> 3326	100	> 4636

307. These HHIs are extremely high both pre- and post-merger. The net effect of the merger would be to give GIG, through C&C and Finches, a virtual monopoly in the 4-oz mixers segment, and to bring the first- and third-largest competitors in the 7-oz drinks market under common control. If, on the other hand, C&C and Finches remain separate, the transaction has only a very slight concentrative effect due to the combination of the soft drinks interests of UBH and Deasy/Connacht.

Wholesaling of Packaged Beers and Soft Drinks

308. As stated in Section (c), “The Relevant Market”, the Authority considers that one relevant market is that for the wholesaling of packaged beers and soft drinks, combined. The GIG figures for wholesaling relate to packaged beer only; the figures supplied in their submission on the soft drinks market relate to production only and do not show the volume of soft drinks distributed by the various wholesalers. For the sake of completeness both HHI and four-firm concentration ratios are calculated using both GIG’s and the independent wholesalers’ figures.

As explained in Section (c), Coca-Cola and the central warehouses of multiples are not included in the relevant market. Hence the market shares according to GIG’s figures are slightly different to those in paragraph 45.

Distribution of Packaged Beers by Wholesaler 1996 - GIG’s figures.

Wholesaler	Volume (hectolitres, pkgd beer)	Market Shares	HHI ex ante	HHI ex post
UBH	[	19.52%	381.03	924.16
Gleeson		15.77%	248.69	248.69
C&C		12.58%	158.26	158.26
GIG		10.88%	118.37	-
Coman		8.40%	70.56	70.56
Donohoe		4.23%	17.89	17.89
Cash & Carries
Musgrave		2.66%	7.08	7.08
BWG		3.42%	11.70	11.70
Others (40)		22.53%	??	??
Total	]	100%	>1013	>1438

309. Under the assumption that UBH and C&C are not under common control, the post-merger HHI is over 1,400, reflecting an intermediate degree of concentration, and it has increased by more than 400 points as a result of the merger. The merger would not be exempted under the Category Certificate. If the market shares of UBH and C&C are amalgamated, the HHI increases from over 1,500 to over 2,200 (highly concentrated) as a result of the transaction.

Wholesale Drinks Industry by Wholesaler - Independent Distributors’ Figures

Wholesalers	% (Before)	HHI (Before)	% (After)	HHI (After)
UBH	20	400
C&C	14	196	14	196
GIG	12	144	32	1024
Gleeson	14	196	14	196
Coman	7	49	7	49
Donohoe Group	4	16	4	16
Nash	3	9	3	9
Clada	3	9	3	9
Monaghan	2	4	2	4
Mulrine	2	4	2	4
Kelly	2	4	2	4
Lett	1	1	1	1
Mahon	1	1	1	1
Erne	1	1	1	1
West Cork	1	1	1	1
Others ( +22)	13	??	13	??
TOTAL	100	> 1035	100	>1515

310. The market shares supplied by the independent wholesalers give much the same result. Under the assumption that UBH and C&C are not under common control, the post-merger HHI is over 1,500, again an intermediate degree of concentration, and it has increased by more than 450 points as a result of the merger. The merger would not be exempted under the Category Certificate. If the market shares of UBH and C&C are amalgamated the HHI increases from over 1,590 to over 2,500 (highly concentrated) as a result of the transaction.

(v) Four-firm concentration ratio

Production of Soft Drinks - Total [70]

Producer	% (Before)	% (After)
CCBI	48.5	48.5
C&C	25	25
UBH	10.3	10.9
GIG	0.6	-
Others	15.6	15.6
TOTAL	100	100

Before: 83.8 + n1

After: 84.4 + n1

(n1 = market share of next largest firm after Coca-Cola, C&C and UBH/ GIG).

311. The four-firm concentration ratio is well over 40, whether UBH and C&C are treated together or separately. The merger would not be exempted under the category certificate.

Production of Soft Drinks: 4-oz Mixers - Liquor Trade

Producer	% (Before)	% (After)
C&C	[
Finches
All others		]

Production of Soft Drinks: 7-oz Soft Drinks, Liquor Trade

Producer	% (Before)	% (After)
Coca-Cola	[
C&C
Finches
All others		]

312. In 4-oz mixers, the four-firm concentration ratio is in excess of 97.6 both before and after the merger. In 7-oz mixers, the four-firm concentration ratio is in excess of 95.7 both before and after the merger. This is true whether the market shares of UBH and C&C are treated together or separately.

313. However, if UBH and C&C are not under common control the concentrative effect of the merger (brought about by the amalgamation of the soft drinks interests of UBH and Deasy/Connacht) in the overall soft drinks market and in the particular market segments reviewed above is very slight.

Wholesaling of Packaged Beer (GIG Figures)

314. Four-firm concentration ratio:

Before: 58.75

After: 67.15

The post-merger four-firm concentration ratio is well over 40 in each case, whether or not the market shares of GIG and C&C are aggregated. The merger would not be exempted under the Category Certificate.

(vi) Barriers to entry.

Soft drinks

315. In the market for the production of soft drinks, barriers to entry would appear to be low. No great investment in technology is needed. New products may be developed by indigenous producers on their own behalf (e.g. Finches), by indigenous producers under licence, or by large retail multiples selling own-brand products. Own-brand products now have [ ] [71] of the market.

Wholesaling

316. GIG has submitted that the barriers to entry in the market for the distribution of packaged beers are low. Guinness further submitted that there are no sunk costs, as entrants who choose to leave the market can convert their equipment and premises to other uses almost immediately and at hardly any cost.

317. Murphy’s stated, also in relation to the wholesale market, that “it can be quite difficult (due to the economies of scale) to enter the Irish wholesale market in a way where one could compete successfully against the top wholesalers because they have such strong links with a drinks manufacturer ( in casu , Guinness).”

318. The Authority considers that the arguments put forward by Guinness are correct in relation to the market for wholesaling of packaged beer and/or soft drinks. Barriers to entry are low and sunk costs are minimal. However, the Authority considers that any consideration of the market for wholesale distribution of packaged beer must take account of barriers to entry in the upstream market - that of brewing or beer production.

Brewing

319. The structure of the brewing industry would indicate that large-scale investment is required in order to brew on an economic scale. The existence of large capital requirements, of itself, does not constitute an entry barrier, as long as there are well-developed capital markets which ensure that viable projects can be financed. However, barriers to entry may take many other forms, depending on the market structure. Particular features of the market in Ireland which require examination to see whether they constitute barriers to entry are (i) the portfolio effect and (ii) distribution and marketing.

The Portfolio Effect.

320. [

]

321. The portfolio effect has also been recognised in two recent cases in the soft drinks sector [72].

322. [

]

In packaged beers, Guinness has the brand leaders in the stout and ale markets, and four out of the six leading brands in the lager market. The market shares of the various brands and their competitors are analysed in detail in Section (c) “The Product and the Market”. Guinness has the leading brand or brands in all product sectors in the brewing market: stout, ale, lager, draught and packaged.

Canadean the survey company, stated in its 1996 Beer Market Survey that “Guinness held on to its massive share of the beer market through a successful brand portfolio strategy”.

323. The Authority considers that, given the strength of Guinness’s brands in all sectors of the packaged beer market, a portfolio effect exists and is likely to act as a barrier to entry in the supply of packaged beer.

Distribution and Marketing.

324. A third-party submission claimed that barriers to entry were high because of the highly concentrated nature of the market and the need to negotiate several distribution agreements with local and regional suppliers rather than one with a national operator. These were virtually irretrievable costs. Consequently, they claimed that only fully resourced enterprises could afford to undertake this course of action. [

]

325. The Authority considers that the situation in the brewing market in Ireland is analogous to a degree. The current level of vertical integration is far less. However, the portfolio effect may be even stronger since in many cases Guinness’s market share in the various sectors of the beer market is higher than the Guinness/Grand Met combined shares in the spirits market which gave rise to concern. The Authority considers that, where vertical integration exists, a new entrant’s product is likely to be marketed less vigorously than a brand which the distributor owns or for which he has the agency. The Authority therefore considers that the structure of the distribution market post-merger could create a barrier to entry into the brewing market for new entrants, and that the height of the barrier increases with the degree of vertical integration. This factor is more closely examined under the heading, “Vertical effects”, below.

(vii) Potential competition from imports.

Soft drinks

326. In the market for the production of soft drinks, there would be scope for some competition from imports from Northern Ireland, at least in border areas. However, it would appear that the economics of bulk shipping of pre-bottled soft drinks, which contain more than 90% water, would mitigate against potential competition from elsewhere. Moreover, the sector is dominated by multinational companies which presumably co-ordinate their production and distribution on an international basis, and would have little interest in promoting parallel imports. Therefore the scope for potential competition from imports would appear to be low.

Wholesaling

327. The nature of the market for the wholesaling of packaged beers and soft drinks is such that the possibility of significant competition from wholesalers outside the State does not arise, due to the licensing and excise (for packaged beers) and currency issues involved. Nevertheless, some evidence has emerged of off-licences sourcing supply from abroad or from small Northern Ireland-based distributors (see report of meeting with NOFFLA). Any potential significant competitor from outside the State would be likely to proceed through acquisition. If GIG were to retain its shareholding in C&C, then following the completion of the notified arrangements, the only two national distributors would be owned or partly owned by Guinness, and as GIG have first option on the remaining C&C shares which they do not already own, the Authority considers that there would no possibility of any outside competitor acquiring a nation-wide distributor other than through a series of acquisitions and therefore little possibility of competition from imports. If, on the other hand, Guinness relinquishes its control in C&C, the latter company would be available as a vehicle through which outside competitors could launch new products and the prospect of competition from imports would improve.

Brewing

328. There is some, limited potential for competition from imports. Revenue figures indicate that about 10% of beer on which duty is paid in Ireland is imported. This figure may have fallen in recent years, although the data are inconclusive due to changes in the way they are calculated. GIG’s own figures indicate that 5% of the packaged beer market is held by Tennents, and 6% by “Others”, both of which would consist of imports. It should be noted that some of the imports are controlled by the major brewers, e.g. Furstenberg, Stella Artois, Carlsberg Special Brew and Carlsberg Ice are all imported under the aegis of Guinness.

329. Within the packaged beer market, some sectors are obviously more prone to competition from imports than others. In particular, brands not controlled by the four main brewers have a higher share in the lager market than in other sectors. Overall the potential competition from imports is limited by the nature of the product and the costs of bulk shipping. However, according to the Monthly Panorama of European Industry for April 1998 [73], “with modern production techniques it is possible to transport beer over far larger distances than a few decades ago (although with draught beer it remains difficult).” This implies that there is potential for competition from imports to increase in the future.

(viii) Actual level of competition in the market.

Soft drinks

330. Approximately 86% of soft drinks are sold through the retail channel, with the remainder sold through hotels, restaurants and cafés [74]. Coca-Cola and C&C have over 70% [75] of the market for carbonated soft drinks between them. UBH is the most successful new entrant in recent years, having achieved a 10.3% [76] market share with its Cadets and Finches brands. The major brand names (Coca-Cola, Pepsi, 7Up, Club Orange, Club Lemon) tend to be long established. Own brands account for approximately [ ] of the market [77].

331. There have been a number of new entrants to the overall carbonated soft drinks market in recent years. St Bernard Cola and Virgin Cola were expected to provide stiff competition for Coca-Cola and Pepsi. However, the threat did not materialise and in 1996 they achieved less than 1% of the market [78]. New carbonates launches in 1996 included Lucozade NRG (SmithKline Beecham), Ribena Spring (SmithKline Beecham) and a re-launch of Lucozade (SmithKline Beecham). Cidona Light (Showerings) was launched in 1995 and St Bernard Cola (Dunnes Stores), Virgin Cola (Virgin) and Snapple (New Age Beverages) in 1994. It is noticeable that many of the launches involve either a re-launch of, or a variation on, an existing brand. Apart from UBH, these new entrants have not succeeded in gaining substantial market share.

332. The market segments which are particularly concerned with the licensed trade are even more concentrated. Kinley, a brand of mixers distributed by CCBI, has not gained any significant market share in the 4-oz segment. C&C products dominate this segment with more than [ ] of the market and Finches are their only major competitor. The market segment for 7-oz soft drinks is dominated by CCBI, with [ ], and C&C, with [ ]. Again, Finches is the only significant competitor, although it has a much smaller market share than either.

Wholesaling

333. Guinness claims that the wholesaling market is highly competitive, that there is strong price and non-price competition, that there is a significant number of competitors and that the retail sector has countervailing strength. Other submissions point to the decline in the number of wholesalers (Murphy’s estimate that the number of wholesalers has fallen in the last 20 years from around 100 to around 20). They point out that there has not been a significant number of new entrants in the Irish market in recent years. Guinness point to an alleged expansion of the activities of cash-and-carries (e.g., by providing a delivery service and stocking returnable products) and a move by them towards supplying the on-trade as evidence of increased competition. The independent distributors claim that cash-and-carries do not provide a full service and in any case currently account for less than 5% of the wholesale drinks market.

334. It certainly appears that the market is undergoing a period of consolidation. Evidence provided by the independent distributors shows how the current players in the market were formed out of the amalgamation of smaller entities. For example, United Beverages was formed in 1989 out of the amalgamation of ABC Ltd. Dundalk, Corcorans of Carlow, Byrnes of Kilkenny, Bergins of Portlaoise and Savage Smyth. It subsequently acquired J. & E. Smyth, Delahunts of Wicklow, Nicholas Doyle, New Ross, Cavan Mineral Water Co. and Kells Bottling Co. C&C Wholesale purchased Dwans in 1986, J.J. Lennon, Athlone in 1991, Allied Bottlers, Dublin, in 1993, M. O’Sullivan, Waterford, in 1994, Dunnes, Ennis in 1995, Mulligan’s Sligo in 1996 and Faherty’s Oughterard, in 1997. Deasy/Connacht was acquired by Guinness in the 1960’s.

335. The Authority does not consider that such a wave of mergers and acquisitions is, in itself, evidence of a lack of competition in the market. Indeed, it may indicate vigorous competition in that less efficient companies are being taken over by more vigorous rivals.

336. While trends in market shares for all the leading wholesalers are not available, the evidence concerning UBH shows that its market share has been declining since 1992:

UBH Share of Total Beer Distribution 1992-96 in hectolitres

	Packaged Beer Consumption, hl	UBH Distribution hl	UBH as % of Total
1992	[
1993
1994
1995
1996			]

Brewing

337. The beer market grew at an average rate of 2.8% per annum over the last nine years. Beer consumption per capita in Ireland is already high by EU standards. There is a large number of brands and competition appears to take place among the major players by brand proliferation, although Beamish competes in the stout market on price.

Figures supplied by Murphy’s indicate that the beer market as a whole is dominated by the three major indigenous breweries:

Market Perspective on Brewing in Ireland

(1996 Market Shares by Volume).

BREWER	MARKET SHARE
Guinness	73.7%
MBIL	16.3%
Beamish & Crawford	6.5%
Others	3.5%

GIG’s figures indicate that, in the packaged beer market, GIG has 60%, MBIL 17%, Beamish & Crawford 12%, Tennents 5% and others 6%. The top four firms have 94% of the market between them.

338. The three Irish-based breweries have almost 100% of the packaged stout market. The three Irish-based breweries plus Tennents have almost 100% of the packaged ale market. In the packaged lager market, the top nine brands (accounting for 82% of the market) are all controlled by the “Big 4”. Guinness have at least [ ] of this market and have three of the top four brands. In bottled lagers for the on-trade (the largest section of the on-trade), Guinness have [ ] of the market and four of the top six lagers. In canned lagers for the off-trade (the largest section of the off-trade), Guinness have [ ] of the market and three of the top six brands.

339. Independents, for example wholesalers who have acquired the exclusive rights to distribute an imported lager in Ireland, have achieved some share of the market in packaged lager. However, of the brand names controlled by the independents, Holsten (Coman’s) has only [ ] of the lager market and Beck’s (UBH) has [ ].

(ix) Vertical effects

340. There are many sound economic arguments showing the positive welfare effects of vertical integration. These positive effects generally arise from the gains in efficiency achieved through economies of scale and scope. However, threats to consumer welfare may arise, including foreclosure of access by rivals to the market and the facilitation of collusion by firms which remain in the market. Hamilton and Lee (1986) have shown that if vertical integration raises entry barriers or facilitates collusion, it reduces social welfare. [79] It is therefore important to examine the vertical effects of the proposed transaction.

Size of vertical link

341. The vertical effects arise from the common ownership by Guinness Ireland Group of considerable interests in the beer brewing market, as summarised in the table on page 9, above, of its existing wholly-owned subsidiaries Deasy & Co. Ltd. and the Connacht Mineral Water Company Ltd., of a 49.6% shareholding in Cantrell & Cochrane Group Limited, of a 30.76% shareholding in UBH and, if the transaction were to proceed, of 100% in the latter company.

342. The structure of the beer market at upstream level is extremely concentrated, with Guinness having an estimated 73.7% share, MBIL 16.3% and Beamish and Crawford 6.5% [80]. The level of concentration of the downstream market, assuming that UBH and C&C are not under common control, is currently low to intermediate and would be intermediate post-merger with a CR ₄ of 67 and a HHI of 1438, an increase of over 400. If the market shares of UBH and C&C are amalgamated the level of concentration would go from intermediate to high. The size of the vertical link between Guinness’s upstream and downstream activities is considerable, given Guinness’s 73.7% [81] share of the brewing market and its (post-acquisition and including C&C) 43% share in the wholesaling market. Excluding C&C, GIG’s share in the downstream market is approximately 32%, leaving 68% of wholesaling capacity outside the control of GIG.

Possibility of foreclosure

343. Foreclosure may be a concern in an acquisition if the vertical link creates “competitively objectionable barriers to entry” [82]. Such a concern might arise, in this case, if, after completion, either non-GIG wholesalers found difficulties in obtaining access to Guinness products, or brewers competing with Guinness found it difficult to get GIG-owned distributors to carry their product.

344. Given the fact that through UBH and C&C Guinness would control both wholesalers with nation-wide coverage, it could be profit-maximising for Guinness to gradually move towards channelling all its distribution through this company and refuse to supply independent wholesalers. This would reduce the transaction costs incurred by Guinness in dealing with a large number of smaller wholesalers.

345. The net effect of a consolidation by Guinness of its wholesaling activities through its subsidiaries would be to reduce the number of wholesalers in the market (since Guinness products are “must-carry” items, some would go out of business if they lost the right to distribute Guinness products) and thus reduce the channels available to competitors of Guinness in the brewing market. In the absence of a nationwide wholesaler independent of GIG, such competitors would be forced to use GIG/UBH to distribute an increased share of their products.

346. Similarly, the question must be asked whether it could be profit-maximising for Guinness through its wholly- and partly-owned distributors to foreclose access to new products from competitors in the brewing industry in order to protect and increase their market share. This is particularly relevant in view of the characteristic type of competition in the brewing market, i.e. through brand proliferation.

347. Guinness have made the point in their submission that “As at present, GIG would want UBH’s business to be successful and to be able to serve as many retailers as possible. It would not be in GIG’s interests to refuse to handle competing goods since failure to handle goods competing with GIG products would mean that UBH would be unable to offer customers a full range of products and its profitability would, as a result, be adversely affected.”

348. The Authority sees a distinction between the short-term and the long-term fallout from the transaction. In the short term, it is certainly true that Guinness would lose profits if UBH refused to handle competing goods. In the longer term, however, it is difficult to see why Guinness management would approve of UBH spending time and energy promoting products which could take market share from Guinness products. It seems likely that, over time, UBH would begin to concentrate on gaining market share from competitors of Guinness through promotion of its existing and new products to retailers. This would be facilitated by their access to the promotional strategies and pricing information of competitors of Guinness through their role as wholesalers. Failing competitor products would be replaced by Guinness products and the effect, over time, would be one of foreclosure. The seriousness of this effect depends on the share of the market which would be foreclosed to rival producers.

349. The Authority has given careful consideration to what the vertical effects of the transaction would be in the absence of the link with C&C. In this it is guided not only by the letter, but also by the spirit of the 1991 Competition Act, as expressed in its long title: “An Act to prohibit, by analogy with articles 85 and 86 of the Treaty establishing the European Economic Community, and in the interests of the common good , the prevention, restriction or distortion of competition and the abuse of dominant positions in trade in the state, to establish a Competition Authority,” etc. (Emphasis added). It is not the Authority’s business to predict the effects of the merger on other suppliers or competitors of Guinness or UBH, but rather to assess the effect on competition and thereby on the common good. This concept is neatly expressed in a speech given by an official of the Antitrust Division of the US Department of Justice in 1996 [83]:

“This Division only challenges mergers that hurt consumers - that is, hurt consumers by raising prices, or by reducing product output quality, service or innovation. This is true whether the merger involved parties that are horizontal competitors, or parties with a vertical relationship. Our reviews of mergers are not driven by concerns about the market positions of particular competitors, or protecting existing supply relationships.”

350. The Authority considers that the effects of a vertical merger would be serious enough to warrant blocking the merger if the size of the vertical link and the degree of foreclosure were such as to eliminate competition in respect of a substantial part of the products or services in question. The US Department of Justice’s 1984 merger guidelines provide a framework for examining such effects. These guidelines state that, in certain circumstances, the vertical integration resulting from vertical mergers could create “competitively objectionable barriers to entry”, and that that three conditions are necessary (but not sufficient) for this problem to exist. Firstly, the degree of vertical integration between the two markets must be so extensive that entrants to one market (“the primary market”) also would have to enter the other market (“the secondary market”) simultaneously. Second, the requirement of entry at the secondary level must make entry at the primary level significantly more difficult and less likely to occur. Finally, the structure and other characteristics of the primary market must be otherwise so conducive to non-competitive behaviour that the increased difficulty of entry is likely to affect its performance.

351. The Department of Justice measures the need for two-level entry by looking at the amount of unintegrated capacity in the secondary market. If there is sufficient unintegrated capacity in the secondary market, new entrants to the primary market would not have to enter both markets simultaneously. According to its guidelines, the Department is unlikely to challenge a merger on this ground where post-merger sales or purchases by unintegrated firms in the secondary market would be sufficient to service two minimum-efficient-scale plants in the primary market.

352. In this context, the primary market is the market in which the competitive concerns are being considered, and the term “secondary market” refers to the adjacent market. In the context of the notified agreement, the primary market is the market for the wholesale of packaged beer and soft drinks, and the secondary market is the beer production market. The DOJ guidelines note that ownership integration does not necessarily mandate two-level entry by new entrants to the primary market. Such entry is most likely to be necessary where the primary and secondary market are completely integrated by ownership and each firm in the primary market uses all of the capacity of its associated firm in the secondary market. Neither of these conditions is true in the present case. Only 35% of the market is vertically integrated (32% through the GIG-UBH link and 3% through the Murphy’s-Nash’s link), and all wholesalers deal with all brewers, so that the extent of vertical integration is less than would be suggested by the ownership integration.

353. The Authority has, however, considered the “worst-case” scenario, where following the merger GIG sells all its products through UBH and only through UBH. The minimum efficient scale of a wholesaler may not be easily determined, since the market is changing rapidly with the consolidation of smaller wholesalers in to larger entities such as C&C and UBH. However, it seems likely that at least C&C, with 12% of the market, and Gleesons, with 14%, are operating at or above the minimum efficient scale. The amount of unintegrated capacity in the secondary market is 40% as Guinness has 60% of the packaged beer market. There is therefore more than sufficient unintegrated capacity in the secondary market to service two minimum-efficient-scale plants in the primary market. In other words, a beer producer who wishes to launch a new product on the Irish market would find plenty of wholesale capacity which is not integrated with existing producers - 68% of the total wholesale market - to sell his wares. For this reason, and because of both the relatively low level (as measured by market share) and the incompleteness of vertical integration, the Authority does not consider that the transaction creates competitively objectionable barriers to entry.

Guinness/Grand Met decision

354. [

] The Commission did not, however, block the merger on those grounds, but accepted undertakings from the parties whereby they would divest certain of their interests in Irish distributors. The proposed divestitures still left GMG with substantial interests [

] in the distribution of spirits in Ireland.

(x) Conclusions

Production of Soft Drinks.

355. Given the highly concentrated nature of the market, the limited number of significant competitors, the existence of some sunk costs, the limited nature of potential competition from imports and the link between GIG and C&C, the Authority considers that the effect of the notified arrangements would be to prevent, restrict or distort competition in the market for the production of soft drinks within the State, and particularly in the market segment of 4-oz and 7-oz soft drinks for the liquor trade. Section 4(1) prohibits an agreement which has as its object or effect the prevention, restriction or distortion of competition within the State. In Mars/HB, Keane J made clear that the term “object or effect” in Article 85(1) of the Treaty of Rome was to be read disjunctively [84]. Thus, once it is shown that an agreement has as its effect the prevention, restriction or distortion of competition, it contravenes Section 4(1).

356. If, however, the market share of C&C is treated separately from that of GIG and, after the merger, UBH, the increase in concentration due to the merger, which arises from the consolidation of the market shares of UBH and of Deasy/Connacht, is very slight - of the order of 13 points in terms of the HHI. There would be little or no concentrative effect in the market segments of particular concern, namely the supply of 4-oz. mixers and 7-oz. soft drinks to the liquor trade. The increase in the four-firm concentration ratio would also be minimal. Although potential competition from imports is limited, barriers to entry are low. The Authority considers that if Guinness were not associated with C&C other than to the extent of being a shareholder with less than a 10% stake, then this transaction would not be anti-competitive, and indeed that it might well have the effect of increasing competition in the market by improving the ability of UBH brands to compete against the two large incumbents, Coca-Cola and C&C. The Authority considers that, in the absence of GIG control over C&C, the agreement would not contravene Section 4(1).

Wholesaling of Packaged Beers and Soft Drinks.

357. The Authority considers that the problems of increased concentration in the wholesaling market, and of the substantial vertical link between Guinness’s interests in the brewing and wholesaling markets, are compounded by Guinness’s links with C&C. The Authority considers that it is an anti-competitive situation for a company with Guinness’s strength in the brewing market to own 100% of companies with 30.4%-32% of the wholesale market while simultaneously owning 49.6% of a company with 12.58%-14%, these being the only two nationwide wholesalers. Further, GIG would have full control of the largest and fourth-largest wholesalers, and 49.6% of the third-largest, with a first option on the purchase of the remaining shares. There would be only one other wholesaler of comparable size left in the market.

358. In view of the level of market concentration which would result from the notified arrangements, the lack of potential competition from imports, the existence of barriers to entry in the brewing market, the lack of successful new entrants into the brewing market, the possibility of foreclosure arising from the vertical effects of the transaction and the link between GIG and C&C, the Authority considers that the effect of the notified arrangements would be to prevent, restrict or distort competition in the market for the wholesaling of packaged beers and soft drinks within the State. The Authority therefore considers that the notified arrangements contravene Section 4(1) of the Act.

359. If the market shares of C&C and GIG are disaggregated, the effect of the transaction is to increase the HHI from the region of 1013 to 1035 points, to the region of 1438 to 1515 points. While the increase is such that the merger would not be exempted under the Category Certificate, the level of concentration in the market ex-post is still only intermediate. The four-firm concentration ratio would increase from 58.75% to 67.15%. This represents a significant increase in concentration. However, it treats UBH as if it were wholly independent of GIG before the transaction, which it was not. The market share of UBH and GIG combined would be 30.40%, according to GIG’s figures, or 32%, according to the independent wholesalers’ figures. This would make UBH/GIG the largest single firm in the market, with Gleesons (with 14%) and C&C (with 12%) the next largest. Over 68% of the wholesaling capacity in the country would remain independent of GIG. Thus there would be more than adequate wholesaling capacity available to rivals of Guinness, either those already operating in the Irish market or potential new entrants. This wholesaling capacity would include a nationwide distributor, C&C. The Authority considers that, in the absence of GIG control over C&C, the agreement would not contravene Section 4(1).

Overall conclusions

360. In sum, the Authority’s view is that GIG’s increase in shareholding from 30.76% to 100% restricts or distorts competition by virtue of the fact that it has a 49.6% shareholding in UBH’s major rival in the packaged beer and soft drinks distribution market, while the two firms are also competitors in the soft drinks production market. Consequently, in the Authority’s opinion, the notified agreement contravenes Section 4(1) of the Competition Act, 1991, as amended.

(e) The Applicability of Section 4(2).

361. Section 4(2) of the Competition Act states that:

“The Competition Authority ... may in accordance with Section 8 grant a licence for the purposes of this section in the case of -

(a) any agreement or category of agreements,

(b) any decision or category of decisions,

which in the opinion of the Authority, having regard to all relevant market conditions, contributes to improving the production or distribution of goods or provision of services or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit and which does not -

(i) impose on the undertakings concerned terms which are not indispensable to the attainment of those objectives;

(ii) afford undertakings the possibility of eliminating competition in respect of a substantial part of the products or services in question.

362. Section 4(3) of the Act provides that “A licence under subsection (2) shall, while it is in force, and in accordance with its terms, permit the doing of acts which would otherwise be prohibited and void under subsection (1).” Section 8(1) provides that “A licence of the Authority under section 4(2) shall be granted for a specified period subject to such conditions as may be attached to and specified in the licence.”

363. Since the original request for a certificate was made, GIG has amended its original request to one for a certificate or, in the event of a refusal by the Authority to issue a certificate, a licence.

Contributes to improving the production or distribution of goods or provision of services.

364. In general the presumption is that vertical integration is welfare-enhancing. It can create economies of scope and reduce transaction costs. In this case the downstream market has historically been fragmented, with a large number of locally-based wholesalers. The number of wholesalers has been reduced as larger companies such as UBH and C&C have bought them out. This seems to imply that there are economies of scale in wholesaling itself. The economies of scope from vertical integration are likely to arise from the merged entity’s improved ability to plan its deliveries and from the reduced transaction costs in dealing with a reduced number of wholesalers.

365. The Authority notes that a number of parties who objected to the merger did so on the grounds that it would create a “one-stop shop” for retailers. That this is seen as a competitive threat argues that it is something the retailers would welcome and which would provide them with benefits. Two parties argued that what they objected to was not the creation of “one-stop shops” in general, but the creation of one “one-stop shop”. However, if what the purchasers want is a one-stop shop, it is likely that the trend towards consolidation in the industry will continue, with the possible integration of spirits distribution into the operations of more wholesalers, or indeed the merging of wholesalers and spirits distributors. It would seem perverse to penalise Guinness for providing their customers with the opportunity to reduce their transaction costs.

366. Another third-party submission claimed that barriers to entry in the brewing market were high because, inter alia , of the need to negotiate several distribution agreements with local and regional suppliers rather than one with a national operator. However, these costs would apply equally to incumbents in the market. It would appear a rational response for a brewer to integrate forward into distribution, thereby reducing its transaction costs. The Authority therefore considers that the agreement creates efficiencies both for customers (the licensed trade) and for Guinness.

Allows consumers a fair share of the resulting benefit

367. The Authority is of the opinion that consumers would receive a fair share of the resulting benefits. It considers that the agreement will strengthen the position of UBH as a producer of soft drinks in competition with C&C and CCBI, thus creating greater competition in this market with the attendant benefits of lower costs and wider consumer choice. In the market for the wholesaling of bottled beers and soft drinks, the Authority considers that the agreement will tend to reduce transaction costs and increase efficiency for the parties and their customers, the vintners and off-licences, and that these benefits will filter through to consumers.

Does not contain terms which are not indispensable

368. The Authority considers that the agreement does not contain terms which are not indispensable to the attainment of the objectives of improving the production or distribution of goods or the provision of services, and of allowing consumers a fair share of the resulting benefits. It rejects the argument made by a number of parties that this agreement does not satisfy this condition. As stated in paragraphs 364-366 above, the Authority believes that the agreement will give rise to efficiencies and that the acquisition is indispensable to achieve such efficiencies.

Does not eliminate competition in respect of a substantial part of the products or services in question

369. The Authority has very carefully considered the effect of the notified transaction on competition in respect of the products and services in question. It has come to the conclusion that the transaction would eliminate competition in respect of a substantial part of the products or services in question, if GIG were to retain any degree of control over C&C, and that the arrangements would only satisfy this requirement of Section 4(2) provided that GIG ceases to exercise any such degree of control. In particular, with regard to the market for the wholesaling of bottled beers and soft drinks, it considers that such cessation would result in ample wholesaling capacity remaining in the market to form a competitive check on the ability of UBH/GIG to raise prices or otherwise harm consumers.

Applicability of a Licence

370. The Authority has concluded that the agreement as notified contravenes Section 4(1), because of the GIG shareholding in C&C. GIG has provided certain undertakings in respect of the reduction of this shareholding to below 10% and the waiving of its rights to appoint a director and of its pre-emption rights. If those undertakings were to have immediate effect, the Authority considers that they would make the transaction eligible for a certificate. In many previous cases where, in response to objections from the Authority, the parties have amended terms in the agreement which were found to be offensive, a certificate has been granted. In this case, however, the arrangements which GIG has undertaken to make in relation to C&C involve complex financial transactions which must, of necessity, take time to complete. As noted above, under section 4(3) of the Act, a licence permits the doing of acts which would otherwise be prohibited and void under Section 4(1). The Authority considers it appropriate in this case to grant a licence, on condition that the aspect of the transaction which the Authority finds offensive, namely GIG’s influence over C&C, is removed as soon as possible and at any rate within a certain specified time frame.

(f) The Decision

371. In the Authority’s opinion, GIG and UBH are undertakings within the meaning of the Competition Act, 1991, as amended. The notified share subscription agreement is an agreement between undertakings. Because GIG also holds 49.6% of Cantrell and Cochrane (“C&C”), the agreement contravenes Section 4(1) of the Act. Nevertheless, the Authority is of the opinion that all the conditions set out in Section 4(2) of the Competition Act have been fulfilled in respect of the agreement.

The Authority therefore grants a licence under Section 4(2) in respect of the notified agreement. Professor McNutt has requested the recording of the fact of his dissent.

The licence shall apply from the date of this decision, that is, 17 June 1998. It appears appropriate that the expiry date for the licence should be 31 December 1999.

372. Under Section 8(1) of the Competition Act, 1991, as amended, the Authority may grant a licence subject to such conditions as may be attached to and specified in the licence. Accordingly, the licence is issued subject to the conditions that Diageo plc and GIG shall, not later than 15 January 1999:

- reduce their shareholding in Cantrell and Cochrane Group Limited (“C&C”) to below 10% of the issued share capital of that company;

- relinquish all rights to representation on the Board of C&C and procure the resignation of any GIG/Diageo nominees on the C&C Board; and

- waive their rights under the Articles of Association of C&C to a first option to purchase any shares in C&C which might be offered for sale by Allied Domecq or any other shareholder in C&C.

The Licence

373. The Authority therefore grants the following licence to the agreement notified by Guinness Ireland Group Limited (GIG):

Article 1

The Competition Authority grants a licence to the share subscription agreement dated 30 May 1997 whereby GIG would acquire 69.24% of the total issued share capital of United Beverages Holdings Limited, notified to the Competition Authority on 4 September 1997, on the grounds that, in the opinion of the Authority, all the conditions of Section 4(2) of the Competition Act have been fulfilled. This licence shall apply from 17 June 1998 to 31 December 1999.

Article 2

Diageo plc and GIG shall, not later than 15 January 1999:

- reduce their shareholding in Cantrell and Cochrane Group Limited (“C&C”) to below 10% of the issued share capital of that company;

- relinquish all rights to representation on the Board of C&C and procure the resignation of any GIG/Diageo nominees on the C&C Board; and

- waive their rights under the Articles of Association of C&C to a first option to purchase any shares in C&C which might be offered for sale by Allied Domecq or any other shareholder in C&C.

For the Competition Authority,

Isolde Goggin,

Member

17 June 1998.

[1] Source: [ ] and others

[2] UBH has exclusive rights to distribute Beck’s beer, St John’s ale, Stonehouse cider and Inch’s cider.

[3] In this context “distribution” refers to the physical movement of the product from the producer to the retailer, rather than to exclusive distribution arrangements of the type referred to in footnote 2.

[4] Source: CSO, quoted in “World Drink Trends”, 1996 edition, published by Produktschap voor Gedistillerdedranken in association with NTC Publications.

[5] Source: Revenue Commissioners

[6] Issue 4/98 of Monthly Panorama of European Industry, Statistical Office of the European Communities, Luxembourg.

[7] Source: Ibid.

[8] op. cit.

[9] Source: Revenue Commissioners. On 2 October 1993 the basis for charging duty was changed from an early stage in the production process to an “end-product” basis, i.e. the point where the final product is moved out of the warehouse for distribution to retailers. Hence figures for 1993 and previous years are not directly comparable to those for later years. Moreover, the figure for domestically produced alcohol in 1994 may be a slight under-estimate due to the change from barrels to hectolitres as the unit of measurement.

[10] Source: Checkout Yearbook 1994.

[11] Source: [ ]

[12] Source: Issue 4/98 of Monthly Panorama of European Industry, Statistical Office of the European Communities, Luxembourg.

[13] Source: Ibid.

[14]Source: Business and Finance Top 1000 Companies.

[15] Figures relate to years ending 31/12/95, 31/12/94, 31/12/93 and 31/12/92.

[16] Figures relate to year ending 31/08/96, eighteen months ending 31/08/95 and years ending 28/02/94 and 28/02/93.

[17] Figures relate to years ending 31/12/95, 31/12/94, 31/12/93 and 31/12/92.

[18] Figures relate to years ending 01/07/95, 25/06/94, 26/06/93 and 27/06/92

[19] Figures relate to years ending 28/09/96, 30/09/95, 30/09/94 and 28/09/93

[20] Source: Murphy Brewery Ireland Limited

[21] Source: Murphy Brewery Ireland Limited

[22] Source: GIG estimates using data from IBA, Nielsen and Revenue Commissioners. The above figures include imports.

[23] Source: Checkout yearbooks, 1993-97, verified with producers.

[24] Source: [ ], Checkout yearbooks 1991-97, various.

[25] Source: [ ], Checkout yearbooks 1991-97, various.

[26] Source: [ ].

[27] Source: [ ]

[28] Source: [ ]

[29] Source: Checkout yearbooks, 1993-97.

[30] Source: Business & Finance Top 1000 Companies

[31] Figures relate to years ending 31/12/96 and 31/12/95.

[32] Source: Checkout magazine, 1996 & 1997.

[33] Source: [ ]

[34] Source: [ ]

[35] Source: [ ]

[36] Source: [ ]

[37] Source: GIG.

[38] Source: [ ]

[39] Source: Independent wholesalers’ submission.

[40] Source: [ ]

[41] Source: Monthly Panorama of European Industry, op. cit.

[42] Source: [ ]

[43] Source: [ ]

[44] Source: Business & Finance Top 1000 Companies.

[45] Figures relate to years ending 30/5/96, 30/5/95, 30/5/94 and 31/5/93.

[46] Figures relate to years ending 30/6/96, 30/6/94 and 30/6/93.

[47] Figures relate to years ending 31/12/95, 31/12/94, 31/12/93 and 31/12/92.

[48] Figures relate to years ending 31/8/96 and 31/8/95.

[49] Figures relate to year ending 31/12/96.

[50] Figures relate to years ending 28/2/96 and 28/2/93.

[51] Figures relate to years ending 31/1/96, 31/12/94 and 31/12/92.

[52] Figures relate to years ending 31/1/96, 31/1/95, 31/1/94 and 31/1/93.

[53] Figures relate to years ending 28/2/94 and 28/2/93.

[54] Guinness provided an estimate for the distribution of packaged beer alone.

[55] The independent wholesalers do not give a precise market definition but refer to the distribution of alcoholic beverages to on-trade and off-trade outlets. They also refer to the fact that some wholesalers are involved in the resale of spirits and other drink products.

[56] Through Deasy/Connacht

[57] Commission Notice on the definition of relevant market for the purposes of Community competition law, 97/C 372/03, OJ 9.12.97.

[58] Decision no. 12, Scully Tyrell & Co/Edberg Ltd, 29.1.93.

[59] In this calculation the parties attribute C&C’s market share to GIG.

[60] The EU decision is in fact confined to spirits.

[61] Competition Authority, “Discussion Paper No. 1: Submission to the Merger Review Group, February 1997.”

[62] Massey, P. and O’Hare, P., “Competition Law and Policy in Ireland”, 1996.

[63] Competition Authority, “Category Certificate in respect of Agreements involving a Merger and/or Sale of Business”, Decision No. 489, 2 December 1997: amended version published 21 January 1998.

[64] CA/2/95 - Irish Musical Rights Organisation/Writers; CA/3/95 - Irish Musical Rights Organisation/Publishers (Non-corporate); CA/4/95 - Irish Musical Rights Organisation/Publishers (Limited Company), Decision No. 445, 18 December 1995.

[65] CA/10/92 - Woodchester Bank Ltd./UDT Bank Ltd., Decision No. 6, 4 August 1992.

[66] BAT and Reynolds V Commission, cases 142 and 156/84, (1987) ECR 4487

[67] Competition Authority, “Interim Report of Study on the Newspaper Industry”, 30 March 1996.

[68] See paragraph 308

[69] See paragraph 308

[70] Source: GIG

[71] Source: [ ]

[72] Commission decision 97/540/EC of 22 January 1997, case no. IV/M.794 - Coca-Cola Enterprises/Amalgamated Beverages GB, OJ No L218, 9.8.1997, p.15; case IV/M.833 - Coca-Cola Company/Carlsberg AS.

[73] See footnote 6.

[74] Source: [ ]

[75] Source: GIG

[76] Source: GIG

[77] Source: [ ]

[78] Source: Checkout yearbook, 1997.

[79] Martin, op. cit., p.275.

[80] Source: MBIL

[81] Source: MBIL

[82] “Antitrust Policies and Guidelines: Merger Guidelines”, US Department of Justice.

[83] “Recent Developments in Merger Enforcement”, Address by Lawrence R. Fullerton, Deputy Assistant Attorney General, Antitrust Division, US Department of Justice, before the Conference Board of the Council of Chief Legal Officers, February 9, 1996

[84] Masterfoods Ltd trading as Mars Ireland v. HB Ice Cream Ltd, judgement of 28 May 1992, unreported.