DETERMINATION IN MERGER NOTIFICATION M/08/011 – HEINEKEN/SCOTTISH & NEWCASTLE ____________________________ Section 22 of the Competition Act 2002 Proposed acquisition by Heineken N.V. of the assets relating to the business operated by S&N in Ireland, namely, Beamish & Crawford plc Dated: 03/10/2008______________________________________________ CONTENTS SECTION ONE: INTRODUCTION....................................... 1 Introduction.................................................................... 1 Background..................................................................... 1 The Transaction .............................................................. 3 The Undertakings Involved ............................................. 3 Rationale for the Notified Transaction ............................ 3 Phase 1: Preliminary Investigation ................................. 3 Phase 2: Full Investigation ............................................. 6 SECTION TWO: BACKGROUND....................................... 11 Introduction.................................................................. 11 Key Features of the Irish Beer Market........................... 11 Activities of the parties in the Irish beer market........... 13 The activities of the parties’ main competitors in the State ............................................................................. 16 SECTION THREE: RELEVANT PRODUCT AND GEOGRAPHIC MARKETS ...................................................................... 20 Introduction.................................................................. 20 Relevant Product Market............................................... 20 Relevant Geographic Market ......................................... 38 SECTION FOUR: MARKET STRUCTURE ........................... 40 Introduction.................................................................. 40 Measuring Concentration .............................................. 40 Market Structure for the National Lager Markets .......... 41 Market Structure for the National Stout Markets........... 42 SECTION FIVE: COMPETITIVE ANALYSIS - LAGER......... 45 Introduction.................................................................. 45 The Counterfactual........................................................ 45 National Off-trade Lager Market - Market conditions .... 47 Substantial Lessening of Competition in Off-trade Lager ..................................................................................... 59 Authority’s Conclusion: Off-trade Lager Market ............ 64 National On-trade Lager Market- Market Conditions ..... 65 Substantial Lessening of Competition in On-trade Lager80 M/08/011 – Heineken/Scottish & Newcastle 1 The Competition Authority’s Conclusion: Off-trade Lager Market .......................................................................... 91 SECTION SIX: COMPETITIVE ANALYSIS - STOUT .......... 92 Introduction.................................................................. 92 Competitive Assessment ............................................... 93 Substantial Lessening of Competition in On-trade Stout ................................................................................... 104 The Competition Authority’s Conclusion: On-trade Stout Market ........................................................................ 110 SECTION SEVEN: DETERMINATION ............................. 111 Determination............................................................. 111 M/08/011 – Heineken/Scottish & Newcastle 2 SECTION ONE: INTRODUCTION Introduction 1.1 On 12 February 2008 Heineken N.V. (“Heineken”) notified the European Commission (the “Commission”) of the proposed acquisition by Heineken of certain assets (including brands) relating to the businesses operated by Scottish & Newcastle plc (“S&N”) in Belgium, Finland, Ireland, Portugal and the United Kingdom (Case No. COMP/M.4999, Heineken/Scottish & Newcastle ). 1.2 The Competition Authority (the “Authority”) received a copy of the notification by Heineken to the Commission on 14 February 2008. By letter dated 29 February 2008 to the Commission, the Authority, as the Irish competent authority, requested the referral of the part of the concentration concerning Ireland, pursuant to Article 9(2)(a) and (b) of the Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the “ECMR”). 1.3 On 3 April 2008, the Commission made a partial referral of Case No. COMP/M.4999, Heineken/Scottish & Newcastle , to the Authority 1. In particular, the referred transaction is the proposed acquisition by Heineken of the assets relating to the business operated by S&N in Ireland, namely, Beamish & Crawford plc (“B&C”) (the “Proposed Transaction”). The remaining part of the transaction notified to the Commission was cleared on the same date. 1.4 In accordance with section 18 (13) of the Competition Act, 2002 (the “Act”), the referral of the Proposed Transaction to the Authority by the Commission constitutes a notification under Section 18 (1) of the Act. Section 18(14) provides that the date on which the Authority receives the referral from the Commission shall; be deemed to be the date of the notification. The Authority received the referral on 3 April 2008. On 29 April 2008, Heineken made a submission to the Authority setting out the pertinent Irish aspects of the case using a format similar to an Irish merger notification. Background 1.5 The Proposed Transaction is part of a wider transaction which involved the following steps: (i) the acquisition (through a public offer) of all the shares of S&N by Sunrise Acquisitions Limited (“Bidco”), a company jointly controlled by Heineken and Carlsberg A/S (“Carlsberg”) and created for the purposes of this transaction; and, 1 The Commission’s referral decision may be accessed at: www.ec.europa.eu/comm/competition/mergers/cases/decisions/m4999_20080403_20230_en.p df . This will be referred to as “the Referred Decision.” M/08/011 – Heineken/Scottish & Newcastle 1 (ii) the subsequent division of the S&N’s businesses between Heineken and Carlsberg according to the terms of an agreement between Heineken and Carlsberg. 1.6 Pursuant to Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings (the “Jurisdictional Notice”), each of Heineken and Carlsberg’s proposed acquisitions of the S&N businesses constituted a separate concentration 2. Therefore, Heineken and Carlsberg’s proposed acquisitions were notified separately to the Commission. 1.7 The proposed acquisition by Carlsberg of certain assets relating to the businesses operated by S&N in Estonia, France, Greece, Latvia and Lithuania, Belarus, China, Kazakhstan, Russia, Ukraine, Uzbekistan and Vietnam was notified by Carlsberg to the Commission on 1 February 2008 and was cleared on 7 March 2008 (Case No. COMP/M.4952, Carlsberg/Scottish & Newcastle ). 1.8 The proposed acquisition by Heineken of the remaining assets relating to the businesses operated by S&N in Belgium, Finland, Ireland, Portugal and the United Kingdom was notified separately by Heineken to the Commission on 12 February 2008 (Case No. COMP/M.4999, Heineken/Scottish & Newcastle ). On 3 April 2008, the Commission referred the Proposed Transaction to the Authority and cleared the remaining part of the transaction (see paragraphs 1.1 to 1.3 above). 1.9 The Commission’s referral of the Proposed Transaction to the Authority had some implications with regard to the first step of the wider transaction (i.e. the acquisition by Bidco of S&N). Under the Act, the acquisition by Bidco (company jointly controlled by Carlsberg and Heineken) of S&N (and therefore B&C) before a determination was made by the Authority with regard to the Proposed Transaction would have resulted in an unlawful implementation of the Proposed Transaction. To avoid this undesirable scenario, Heineken, S&N, B&C and Credit Suisse Securities (USA) LLC (the “Bank”) entered into an agreement prior to the acquisition by Bidco of S&N (the “Subscription and Option Agreement”). 1.10 Under the Subscription and Option Agreement, S&N ceased to have control over B&C. One new voting share in the capital of B&C was issued and allotted to the Bank and the shares formerly held by S&N in B&C were reclassified as non-voting shares. Consequently, at the time of completion of the acquisition by Bidco of S&N, control of B&C did not pass to Heineken. The Bank undertook to hold the voting share pending the decision of the Authority. 2 According to paragraphs 30-32 of the Jurisdictional Notice, where the subsequent break-up of assets is agreed between the parties in a legally binding way (i.e., division of S&N assets between Heineken and Carlsberg) and is certain to take place within a short time period after the first step (i.e., acquisition by Bidco of S&N), “only the acquisitions of the different parts of the undertaking in the second step will constitute concentrations, whereby each of these acquisitions by different purchasers will constitute a separate concentration” (paragraph 32). M/08/011 – Heineken/Scottish & Newcastle 2 The Transaction 1.11 The Proposed Transaction consists of the acquisition of sole control by Heineken of B&C. The assets to be acquired include the brewery and the brands of B&C. The Undertakings Involved The Acquirer: Heineken 1.12 Heineken is the holding company of the Heineken group. Heineken is listed on the Euronext Amsterdam Stock Exchange. The shares in Heineken are