Following commitments Theo Müller Group can acquire parts of the dairy business of Royal Friesland Campina

Date of issue:22.02.2023

Following intensive investigations, the Bundeskartellamt has today cleared plans by the Theo Müller Group to acquire brands and production sites for a number of dairy products from Royal Friesland Campina. Among the acquired brands are in particular "Landliebe" and "Tuffi". The project was only cleared subject to commitments made by the parties due to competition law concerns regarding parts of the project.

Andreas Mundt, President of the Bundeskartellamt: "The Theo Müller Group has a strong market position in the dairy sector due to its comprehensive product range and the popularity of its brands. It clearly dominates the markets for rice pudding, fresh dairy drinks and fresh basic dairy drinks. Theo Müller Group's already paramount market position would have become even stronger through the acquisition of these parts of Friesland Campina. However, companies can make commitments under merger control in an attempt to eliminate our competition law concerns. In this case, the commitments are suitable to eliminate all problematic overlaps. The entire "Tuffi" business of Friesland Campina will be sold to an independent third-party dairy. What is more, the Theo Müller Group will grant exclusive, irrevocable brand licences for an unlimited period for the use of the "Landliebe" brand. With these commitments, we ensure that independent third parties take over Friesland Campina's market position in these branches and that competition thus remains intact."

The Theo Müller Group and Royal Friesland Campina are dairies producing milk and dairy products like yoghurts, puddings, dairy drinks (e.g. cocoa and vanilla-flavoured milk), butter, cream and basic dairy drinks like buttermilk or kefir). Theo Müller distributes its products under the "Müller", "Weihenstephan" and "Sachsenmilch" brands. Royal Friesland Campina's best known brands include "Landliebe" and "Tuffi". In 2021 the Theo Müller Group achieved a global turnover of approximately 7 billion euros, while Friesland Campina achieved more than 11 billion euros. Both companies are among Germany's ten largest dairies.

The first important step of the Bundeskartellamt's investigations was to define the relevant markets for various pudding products. In principle the substitutability of products from the perspective of the direct buyers, i.e. food retailers in this case, is key for the market definition. Substitutability from the consumers' perspective was also examined in this case and included in the product market definition. If the direct buyers and consumers consider a product to be substitutable, it will be included in the same market. The Bundeskartellamt surveyed market players and conducted an empirical analysis (event analysis) in order to clarify this important question. In the event analysis, data on price changes and discounts for specific products were examined to check how consumers respond to them and to find out whether the products are actually substitutable (will consumers switch products or not).

As a result, separate product markets for rice pudding, fresh dairy drinks and basic dairy drinks were defined. From a geographic point of view, these markets can be defined as national as import volumes are small. The investigations have shown that the market share of the Müller Group is over 60 per cent in all three problematic areas - fresh dairy drinks, rice pudding and basic dairy drinks, which clearly exceeds the 40 per cent threshold for the presumption of market dominance. The takeover of Friesland Campina brands will only add little market share. However, the additions in combination with the potential of the "Landliebe" and "Tuffi" brands, among other aspects, would have strengthened Theo Müller's market dominance further. However, the commitments made by the parties serve to eliminate all problematic overlaps and even go beyond what would have been required to eliminate the competition law concerns.

Theo Müller committed itself to selling the entire "Tuffi" business to an independent third-party dairy on the one hand and to issuing licences to use the "Landliebe" brand on the other. The licences to sell rice pudding and fresh dairy drinks under the "Landliebe" brand are granted exclusively, irrevocably and for an unlimited period to ensure that the licensee, but not Theo Müller itself, can distribute rice pudding and fresh dairy drinks under the "Landliebe" brand. The licensee can also continue to distribute its existing product range and launch new "Landliebe" branded products to the extent that this is covered by the licence. The takeover of the "Landliebe" brand by a third-party company thus ensures that competition can be maintained on these markets.

In order to assess the effectiveness of the commitments the Bundeskartellamt carried out investigations as part of a market test which confirmed their suitability to eliminate the competition concerns. Both for the "Tuffi" business and the two licences to use the "Landliebe" brand the Bundeskartellamt is aware of parties who have expressed their interest to buy. As an exception the commitments were drawn up as a condition subsequent rather than as a condition precedent in this case, which means that the takeover can be completed immediately after the decision becomes effective. If the parties fail to fulfil the commitments to the extent defined in the Bundeskartellamt's decision, the clearance of the acquisition will be withdrawn and the acquisition will, as a consequence, have to be considered prohibited. It was taken into account that the parties agreed not to appeal the decision or its conditions. However, in doing so the parties specifically have not declared that they necessarily agree with all the facts as established by the Bundeskartellamt in its decision and the conclusions drawn from these facts.

The Theo Müller Group will see some significant additions of market shares with regard to the other dairy products affected by the merger, among them fresh milk, long-life milk, yoghurt, pudding, semolina pudding, curd, butter and cream. The group's combined market shares, however, are still below the 40 per cent threshold for the assumption of market dominance, and the investigations did not reveal any reasons for competition law concerns which could justify a prohibition of acquisitions in these product groups. The acquisition of these product groups can therefore take place without conditions or obligations.

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