Merger Update

The OFT is considering undertakings offered by Unilever in relation to its proposed acquisition of hair and personal care products manufacturer, the Alberto Culver Company.

The OFT concluded that the acquisition would not give rise to competition concerns in relation to a number of categories of personal care products including hair care and hair styling but that it would give rise to a substantial lessening of competition in respect of bar soaps.

The acquisition would result in the loss of a strong competitive constraint on Unilever's Dove brand in the bar soap category. A number of third parties contacted by the OFT during its investigation commented on the closeness of competition between Unilever's Dove brand and Alberto Culver's Simple brand and this was confirmed by the OFT's investigation.

 In order to address the competition concerns raised by the merger, Unilever has offered to divest the bar soaps business of Alberto Culver, which includes the Cidal, Wright's and Simple brands.

The divestment undertaking will be the subject of an upfront buyer requirement, meaning that prior to the OFT deciding whether to accept these undertakings in lieu of a reference to the Competition Commission, it will assess the suitability of the proposed purchaser.

Ali Nikpay, OFT Senior Director and Decision Maker in this case, said:

'We received a number of representations about the impact of this merger on competition in the bar soaps market. After a thorough investigation, we concluded that it did raise competition concerns in this market and we are now considering remedies offered by the parties to resolve these.'

NOTES

1. The Reference Test - The OFT has a duty to make a reference to the Competition Commission if the OFT believes that it is or may be the case that a relevant merger situation has been created; and the creation of that situation has resulted or may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.

2. Under the Enterprise Act 2002 a relevant merger situation is created if two or more enterprises have ceased to be distinct enterprises; and the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million; or as a result of the transaction, in relation to the supply of goods or services of any description, a 25 per cent share of supply in the UK (or a substantial part thereof) is created or enhanced.

3. Undertakings in lieu of reference - under section 73 of the Enterprise Act 2002 the OFT may, instead of making a reference to the Competition Commission, and for the purpose of remedying, mitigating or preventing the substantial lessening of competition concerned, or any adverse effect which may be expected to result from it, accept from such of the parties concerned as it considers appropriate undertakings to take such action as it considers appropriate.

4. The OFT is more likely to accept structural undertakings as undertakings in lieu than behavioural undertakings because they address the change to the market structure that gives rise to the competition concerns. Typically, structural undertakings require the sale of one of the overlapping businesses. These should be capable of being fully separated from the merging parties. In exceptional cases, the OFT will consider other structural or quasi-structural undertakings in lieu of a reference.

5. Undertakings in lieu of reference are appropriate only where the remedies proposed to address any competition concerns raised by the merger are clear cut. Furthermore, those remedies must be capable of ready implementation.

6. Up-front buyer requirement - the OFT considered in this case that a necessary precursor to accepting undertakings in lieu is that the divestiture should be agreed up-front to a suitable buyer approved by the OFT. This means that the OFT will consult publicly on the suitability of the proposed buyer, as well as all other aspects of the draft undertakings, during the public consultation period.

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