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EC approves Sysco's acquisition of Brakes

The European Commission has cleared under the EU Merger Regulation the proposed acquisition of Brakes, the largest UK food distributor, by Sysco, the largest US food distributor. The Commission found that the takeover would not adversely affect competition in Europe.

Commissioner Margrethe Vestager, in charge of competition policy, said: "Consumers, hospitals, schools and other food-service customers must be able to rely on competition to deliver affordable prices and good service. Our investigation has confirmed that this would be the case also after the merger, so I am pleased that the Commission has been able to clear the takeover quickly."

Proposed transaction

Both companies are full range distributors, delivering a broad variety of chilled, frozen and ambient food across all product categories and across all sectors of the foodservice industry. They focus their activities on “delivered wholesale” distribution which means that they purchase food from manufacturers, stock it in warehouses and sell it on to the foodservice customers.

Sysco's activities in the European Economic Area (EEA) are carried out mainly through its subsidiary Pallas, which is active in the island of Ireland (Republic of Ireland and Northern Ireland). Brakes' business is mainly focussed in the United Kingdom (where it is the largest foodservice distributor), France and Sweden, but it also sells in the Republic of Ireland.The companies’ activities mainly overlap in the island of Ireland.

Commission investigation

The Commission examined the effects of the merger on competition in the areas of “delivered wholesale” distribution by full range suppliers to national and independent customers in the island of Ireland. National customers are customers with numerous foodservice outlets spread around the island of Ireland whereas independent customers have a more limited number of foodservice outlets.

The Commission's investigation showed that several full range distributors able to supply national and independent customers on the island of Ireland will remain active in the market after the takeover. These include BWG, Henderson, Lynas and Musgrave. Moreover, it is not difficult for competitors to expand to other geographic areas by opening new warehouses at relatively low cost. The Commission's investigation also found that specialist distributors (focussing on particular food categories such as meat or dairy) can exert a competitive constraint on full range distributors in their areas of specialty.

Data submitted by the companies also showed that Sysco and Brakes are not particularly close competitors in terms of bidding for public and private contracts. National customers, who tend to award contracts through a bidding process (contracts have an average duration of three years) are able to switch once a new tender is launched. Independent customers, who tend to place ad hoc orders, confirmed that it was relatively easy to switch to other distributors.

Finally, the Commission investigated complaints raised during the course of the market investigation that the merged entity could shut out competitors by forcing certain specialist food manufacturers to enter into exclusive arrangements. The Commission concluded that these concerns were unlikely to materialise, because the proposed acquisition will not increase Sysco's spending power on food purchasing to the extent that it would change Sysco's ability or incentives to shut out other players.

The transaction was notified to the Commission on 29 April 2016.

Merger control rules and procedure

The Commission has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the EEA or any substantial part of it.

The vast majority of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has a total of 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II).

More information will be available on the competition website, in the Commission's public case register under the case number M.7986.

Press contacts:

General public inquiries: Europe Direct by phone 00 800 67 89 10 11 or by email

 

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