September 27/Irish Independent-- Kerry Group will appeal the decision of the Competition Authority (CA) to block its 165 million euro acquisition of Breeo Foods from Dairygold, well placed sources said.

The decision follows a publication by the authority of a 148-page document detailing its reasons for blocking the acquisition.

Kerry, which has already paid a non-refundable 20 million euro deposit to Dairygold, officially has a month to lodge its appeal.

In its determination, the CA found that in three of the markets affected by the acquisition the deal would lead to a substantial lessening of competition. The markets involved were those for rashers, non-poultry cooked meats (NPCM) and natural cheese.

The CA said the merger would see the acquisition of the leading brand, Denny, of the second-ranked brand, Galtee and that these two brands would then account for 45-50% of the Irish rashers' market in terms of value.

The CA said there would be no credible alternative brands in the rashers' market that would allow retailers a means of stopping the merged entity from raising prices permanently.

It also said that new entrants would be unable to establish a sufficiently strong presence in the rashers' market within a two-year period to allow them constrain the merged entity from raising prices after the acquisition.

It concluded that despite having a combined market share of 35-40% by value, private label rashers are not considered to be a sufficiently close competitor to Denny or Galtee. "It is essential for retailers to stock the two 'must have' rasher brands,Denny and Galtee," the CA said.

In terms of non-poultry cooked meats, the CA again found that the merged entity will have a market share of 45-50% by value, and that Kerry and Breeo are each other's closest competitor in this market. It said that private labels' share of the non-poultry cooked meats market had declined from under 50% in 2007 and were not considered to be a sufficiently close competitor to Kerry or Breeo.

"There are no credible alternative brands in the non-poultry cooked meats market that would enable retailers to credibly threaten to discipline the merged entity from raising prices post-acquisition," the CA said.

It said new entrants will be unable to establish a sufficiently strong presence within two years to prevent the merged entity from raising prices.

For processed cheese, the post-acquisition market share would climb to 55-60%, it said. Within this, it said, Kerry and Breeo's brands are each other's closest competitor in the slices segment of the market which accounts for about 40% of total sales.

Ruling that there are no credible alternative brands in this segment of the market, the CA said retailers would be unable to constrain the merged entity from permanently raising prices.

It said new entrants would be unable to establish a sufficiently strong presence to affect the market and that private label processed cheese sales were not considered to be a close competitor to Kerry or Breeo's processed cheese products.  

From the September 29, 2008, Prepared Foods e-Flash