The Commerce Commission today cleared the merger of Guinness plc and Grand Metropolitan plc and the creation of a new company, GMG Brands plc.
The merger will take place in the United Kingdom where both companies are registered. They applied for clearance because New Zealand's Commerce Act covers business acquisitions outside New Zealand which affect a market here.
Commission Chairman Dr Alan Bollard said that the Commission was satisfied that the proposed acquisition would not result in any person acquiring or strengthening a dominant position in the markets for the supply to licensed distributors in New Zealand of whisky, gin, vodka and tequila.
There are strong competitors in each of the product markets who would constrain GMG Brands should it increase prices or reduce the quality of its service.
The Commission's Business Acquisitions Guidelines sets market share levels which are described as "safe harbours" - if the merged entity has market shares up to the stated levels, then the Commission considers that dominance concerns are unlikely to arise.
Those levels are 40 percent if there are no other competitors with at least 15 percent market share, and 60 percent if at least one other competitor has 15 percent market share. GMG Brands would be within the safe harbours in all relevant markets except that for vodka, where it would have marginally more than 40 percent, and no competitor would have 15 percent.
In respect of the vodka market, the Commission considered that there is strong competition from companies with significant interests in various spirits markets, including Allied Domecq, and Seagram. That, combined with the aggregation being only slightly above 40 percent, led the Commission to conclude that GMG Brands would not acquire or strengthen dominance in this market.
The Commerce Act prohibits business acquisitions that result in dominance being acquired or strengthened in any market. Parties can apply to the Commission for clearance, which will be given if the Commission is satisfied that dominance is not acquired or strengthened.
Guinness plc
Through its wholly-owned subsidiary, United Distillers Ltd, Guinness owns a number of leading spirits brands including "Johnnie Walker" whisky, "Dewar's" Scotch whisky, and "Gordon's" gin. Through another wholly-owned subsidiary, Guinness Brewing Worldwide Ltd, Guinness brews "Guinness" stout and other beers including "Kilkenny Irish Beer", "Harp" lager, and "Smithwick's" ale. It also has a shareholding in champagne and cognac producer, Moet Hennessy SA. In New Zealand, the distribution of its beer and spirits brands is handled by Allied Liquor Merchants.
Grand Metropolitan plc
Grand Metropolitan, through its wholly-owned subsidiary, International Distributors & Vintners Ltd, produces and markets a number of leading spirits brands including "J&B" whisky, "Smirnoff" vodka, "Bailey's Irish Cream", and "Bombay Sapphire" gin. It also markets and distributes "Jose Cuervo" tequila under licence. In New Zealand its spirits brands are distributed by New Zealand Wines and Spirits Ltd. It also has interests in Entrepreneur Estates Ltd, which owns 2,900 pubs in Great Britain; Pillsbury, which produces a range of refrigerated dough products, frozen foods and other groceries; and the world's second largest hamburger restaurant chain, Burger King.
