Hungarian Competition Authority

Vj-62/2001/86

COMPETITION COUNCIL CLEARS ACQUISITION OF KONINKLIJKE NUMICO N.V. BY FRIESLAND COBERCO IN THE DAIRY SECTOR

The Competition Council has decided to approve the proposed acquisition of Koninklijke Numico N.V. (hereinafter "Numico"), Netherlands by Friesland Coberco Dairy Foods Holding N.V. (hereinafter "Friesland"), Netherlands. The clearance is conditional on the obligation of FEH BEHEER I.B.V. (part of the Friesland Group, hereinafter "FB") or its connected undertaking not to acquire more MiZo shares above those already owned, until the submission to the court of the creditors` settlement.

The Parties` Activities and the Operation

• 1.

  Both parties in the operation are active in the dairy industry. Friesland Hungary Kft., a member of the Friesland Group operating in Hungary, is the importer and resaler of the Group`s products ("Completa" non-dairy coffee creamer, "Dutch lady" canned whipped cream, "Frico" cheese) on the territory of Hungary and other Central- and Eastern European states. Its net revenue in 2000 was 2410 million HUF.

• 2.

  Another member of the Friesland Group, FEH BEHEER I.B.V. (hereinafter "FEH") owns 33% minus one of the shares of the milk processing company MiZo Baranya Megyei Tejipari Rt. (hereinafter "MiZo"), which is under liquidation as of 17 February 2000. In the course of the liquidation process, FEH proposed to Vectigalis Rt., acting as liquidator of MiZo, a creditor`s settlement, and the conversion of MiZo into a private limited company. In May 2001, the owner of 16,75% of the shares of MiZo, HP Vállalkozás Szervező Kft. received a credit from Nutricia Magyarország Kft. (part of the Hungarian group of Numico), granting the latter an option to purchase its full stake in MiZo.

• 3.

  Numico`s Hungarian group includes six milk processing undertakings, operating mainly in the Eastern part of Hungary. The aggregate net revenue of the undertakings in 2000 amounted to 54.651 million HUF.

• 4.

  Currently, there are 63 milk processing undertakings in Hungary, however, approximately 80% of the processing is done by 7 groups of undertakings. These undertakings are present with their products, that are distributed in store chains, throughout the country. Each group of undertakings (including Nutricia with a market share of 30% and MiZo, with 10%) produces nearly the whole range of dairy products and there are no obstacles to change their product structure according to the demand. However, there are significant differences in the market shares of these undertakings (See Table 3). Friesland Group is present in the market mainly with canned whipped cream (not produced by Nutricia, which does not have the necessary means for the production) and non-dairy coffee creamer.

• 5.

  There are no reasonable substitutes for the products of milk processing. Within dairy products, separated groups of goods can be distinguished, according to intended use, price and quality. Import of dairy products has increased since 1990, but it is not meritorious.

Concentration

• 6.

  On 6 March 2001 the Parties have agreed that Friesland will acquire the dairy business of Numico. The Parties have also agreed that for 3 years, starting on the day of the closing, members of the Numico Group will not participate in undertakings competing with Friesland and cannot supply former buyers of Friesland competing products.

Competitive Assessment

• 7.

  Although the concentration takes place between foreign undertakings, due to its possible effects on the Hungarian market, it falls within the scope of the Hungarian Competition Act. As the parties` aggregate annual turnover exceeds the thresholds laid down in the Competition Act, the concentration was subject to the authorisation of the Competition Office.

• 8.

  The relevant professional and lobby associations have not raised concerns in connection with the proposed concentration. The main competitors, however, have noted that although the proposed concentration in itself does not raise competition concerns, the possibility that after that Friesland would be able to acquire control over MiZo does.

• 9.

  As all the decisions of the MiZo`s general assembly shall be taken by 75% plus 1 of the votes according to its charter, FEH is able to veto the general assembly`s decisions. During the liquidation process, shareholders may exercise their rights only through the general assembly. Consequently, the proposal and the decision on the creditors` settlement, which is fundamental for the future market presence of MiZo, cannot be reached without the agreement of FEH. At the same time, FEH in itself is not able to reach this decision without the BJ group (including Pannonsajt Kft. under liquidation, MHTT Kft., under liquidation and EHTT Kft., on final settlement) the holder of 25,96% of the shares of MiZo. Taking into account this de facto joint control, the Competition Council deemed that MiZo is an indirect party of the present concentration. Consequently, the Competition Council examined the role that can be played by FEH or the Friesland Group in MiZo. The steps taken by FEH so far in the procedure of the liquidation show that in all probability FEH would like to acquire control over MiZo, if this latter remains on the market. It should be noted in this respect that MiZo is a competitor of Nutricia, that will be acquired by FEH should this concentration be cleared.

• 10.

  If MiZo disappears from the market as a result of the liquidation procedure, the present concentration raises no competition concerns due to the following factors: there is no supplier-buyer link between the parties, FEH is not active in the milk processing sector in Hungary, and the scope of their marketed products is very different. The Competition Council have also examined the possible portfolio effects of the concentration, but it considered that these do not raise concerns. If, however, the outcome of the liquidation procedure is that MiZo remains on the market, its combined market share with Nutricia on the product market of milk processing will amount to 37,25 %, and will be over 40% for most dairy products. In this respect, the Competition Council have found that by creating a link between FEH, Nutricia and MiZo, the operation raised doubts concerning the creation of a dominant position.

The Decision

• 11.

  Taking into account the above, the Competition Council found the operation raises competition concerns only because of the position of FEH in MiZo. The divestiture of the shares currently owned by FEH in MiZo, however, would not be proportional and it would harm the possibility of a creditors` settlement (that would enable MiZo to remain on the market.) Therefore, to remove the competition concerns arising from the operation and to ensure that FEH will not be in sole controlling position of MiZo, the Competition Council cleared the operation, with imposing on FEH or its connected enterprise the obligation not to acquire more MiZo shares above those already owned, until the submission to the court of the creditors` settlement.

• 12.

  The Competition Council found that the ancillary restrictions for a 3 years period contained in the agreement are in accordance with the Competition Act, therefore they are also covered by the present decision.

November 19, 2001. Budapest

dr. Bodócsi András sk.
dr. Berke Barna sk.
Vérné dr. Labát Éva sk.
Szabó Györgyi