Jurisdiction - Australia
Reports and Analysis
Australia – ACCC Conditionally Clears Nestle/Pfizer Deal, Ahead Of Overseas Authorities.

29 November, 2012

 

On 22 November 2012, the Australian Competition and Consumer Commission (ACCC) announced it would not oppose the proposal by Nestlé SA to acquire the global infant nutrition business of Pfizer Inc (the transaction), subject to court enforceable undertakings.
 
The ACCC concluded its review prior to the competition authorities of larger jurisdictions (in particular, the United States and EU). This decision might signal a new trend for the Australian regulator, which has ‘stood down’ or suspended reviews in some past matters until overseas authorities have concluded their processes, particularly where remedies are required.
 
The parties and the remedy
 
Both Nestlé and Pfizer have a strong presence in global infant nutrition markets and the transaction has been, or is being, considered by a number of competition authorities throughout the world.
 
In Australia, Nestlé’s key brands include NAN and Lactogen, while Pfizer supplies the S-26 and SMA brands. A key concern of the ACCC was the removal of a close competitor and the reduction of major suppliers of infant nutrition products in Australia from three to two (the other major player being Nutricia, part of the French-based Group Danone).
 
Nestlé has agreed:
 
  • to grant an exclusive 10 year licence for Pfizer’s S-26 / SMA brand portfolio to an independent purchaser;
  • not to re-introduce or licence to a third party the licensed portfolio for a further 10 years;
  • not to introduce products with the same or non-material variations to the formulations of the licensed products for 20 years; and
  • not to disparage the purchaser of the licensed portfolio or make any reference to the divested brands when Nestlé is marketing a new infant nutrition product for 5 years.
 
The undertakings are intended to facilitate a new third player to enter the Australian infant nutrition market and become a viable, independent and long-term competitor. Global players such as Abbott Laboratories, Heinz or Bayer do not currently have a significant presence in the Australian market.
 
The 20 year time period during which Nestlé is restricted in its use of the licensed brands gives the new player an opportunity to establish a foothold in the Australian market and introduce its own brands, thus overcoming the barriers to expansion identified by the ACCC.
 
A permanent divestiture of the brands was not required, the ACCC concluding that the licence and re-branding remedy proposed by Nestlé adequately addressed the competition concerns.
 
Semi-structural remedies of this sort are not entirely without precedent in Australia. In a domestic milk merger in 2008, as part of a broader divestiture package, the ACCC also accepted an undertaking to licence certain milk brands for a period of 2 years.
 
Impacts for global mergers?
 
Multi-jurisdictional mergers often pose multi-faceted competition problems. Finding a solution (or several solutions) to those concerns is key to getting the deal through. Sometimes a global remedy will solve the concerns of several regulators, but this is not always possible, or indeed necessary.
 
In some past deals, the ACCC held back its review until overseas regulators resolved their concerns, in cases accepting exactly the same commitment or remedy.
 
The ACCC’s willingness to come to a decision ahead of other jurisdictions on this occasion was likely influenced by the fact that the remedies stand alone as an Australian solution. Meanwhile for the parties, the solution offers sufficient flexibility to continue to deal with other competition authorities.
 
Earlier this year, the ACCC also showed willingness to come to an early conclusion in a global merger, when it unconditionally cleared the Glencore/Xstrata merger in July. The European Commission subsequently imposed conditions on its clearance in late November.
 
Meanwhile, the ACCC continues to review the global Hertz/Dollar Thrifty merger, which received conditional clearance in the US on 16 November.

 

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