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The Competition and Markets Authority has ordered Heineken to address competition concerns over 33 local areas across Great Britain, but said the £400m deal raised no competition issues for brewers.
The CMA said this morning Heineken’s deal to buy 1,900 Punch Taverns pubs for £403m will face a more in-depth second phase investigation unless Heineken addresses issues in 33 locations.
The body identified 33 local areas where Heineken and Punch pubs currently compete and therefore Heineken would “not face sufficient competition after the merger, which could lead to price increases or a deterioration in the quality of the service on offer”.
The CMA also investigated concerns the merger would close off an important route to market for brewers that compete with Heineken.
However, it found the pubs being acquired are only represent 4% of the GB market and are therefore not a major route to market for brewers. The CMA said this was backed by evidence from brewers showing that these Punch pubs typically account for only a small proportion of all of their sales to pubs.
The CMA also looked closely at whether the acquisition by Heineken could lead to a reduction in the choice of beer and cider on offer in the Punch pubs. It found any potential reduction would be limited and that Heineken would not have a strong incentive to reduce the range of beer and cider and risk losing business in pubs where this is important to customers.
Andrea Coscelli, CMA acting chief executive and decision maker in the case, said: We have listened very carefully to a range of concerns about this merger. The companies will own less than 10% of all British pubs after any deal, but we are concerned about the loss of competition for pub goers in a number of local areas. Without sufficient competition from rivals, pubs in these areas might be able to raise prices or worsen the service they offer customers.”
Heineken has until 20 June to offer acceptable proposals to address these concerns and avoid the merger being referred to a more in-depth phase 2 investigation.
The brewer has responded this morning saying it intends to offer acceptable undertakings and is “confident” that these will enable the transaction to be approved by the CMA without a Phase 2 referral.
UK MD David Forde said: “We welcome this positive step towards completing our acquisition of Punch A. This decision by the CMA acknowledges that there are only a small number of local areas where competition may be diminished due to our acquisition of the pubs in Punch A. We are confident we can offer the CMA suitable undertakings to satisfy their concerns.”
Morning update
It’s all quiet on the markets this morning, with no new announcements of note in the grocery sector.
Sticking with beer, a release from The Carlsberg Group says the brewer has committed to eliminating carbon emissions and halving water usage at its breweries by 2030 as part of its new sustainability programme – Together Towards ZERO. An intermediate step includes the exclusive use of renewable electricity at its breweries by 2022.
On the markets this morning, the FTSE 100 is back up 0.3% to 7,530.9pts so far, while the pound has taken some ground back in recent hours, edging up to $1.2689.
Ocado has rebounded 1.8% to 275.4p after yesterday’s heavy fall. Also on the rise is Sainsbury’s (SBRY), up 1.6% to 269.2p, Premier Foods (PFD), up 2.5% to 40.5p, Applegreen (APGN), up 2.8% to 453p and Nichols (NCLS), up 1.7% to 1,715.5p.
Early fallers include Devro (DVO), down 1.8% to 219p, Cranswick (CWK), down 1.3% to 2,913p, Tate & Lyle (TATE), down 1.1% to 728p and Hilton Food Group (HFG), down 1.1% to 737.4p.
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A roller-coaster day for the FTSE 100 saw a sharp early drop to under 7,500 before jumping to almost 7,540 over lunchtime and eventually closing back down 0.2% to 7,511.8pts.
It was the second dramatic day in a week for Ocado shares after the online grocer announced it will borrow a further £200m to grow capacity and improve its offering to retailers. The shares plunged 6.7% to 270.5p on fears the extra borrowing suggests Ocado is not growing fast enough to generate its own cash to invest in the business. The share price plunge comes seven days after Ocado announced its first international partnership with a mystery European retailer – news that sent the shares up as high as 340p before falling away.
Other notable movers included Tesco (TSCO) and Booker Group (BOK), which were up 1.5% to 183.5p and 1.8% to 195p respectively on weekend forecasts of strong sales growth in its first quarter trading update this week.
Other major grocery/fmcg companies on the move included B&M European Value Retail (BME), down 1.9% to 350.2p, Greencore (GNC), down 1.6% to 242.4p and Compass Group (CPG), down 1.1% to 1,651p.
Other fallers included FeverTree (FEVR), down 4.6% to 1,636, Hotel Chocolat (HOTC), down 4.1% to 350p, Just Eat (JE), down 3.7% to 657.5p and Premier Foods (PFD), down 2.5% to 39.5p.
Elsewhere, PayPoint (PAY) jumped 2.4% to 947.5p, Tate & Lyle (TATE), rose 1% to 736p and Imperial Brands (IMB) was up 0.7% to 3,589p.
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