Kraft Foods is set to take an even larger share of the global snack market after receiving conditional approval by the European Commission to purchase the biscuit, cereals and snack division of Danone.
The Bloc's mergers authority said Friday that it would provisionally permit the move, after Kraft agreed to divest a number of it European biscuit operations in markets like Hungry and Spain to allay competition fears regarding the sale.
The approval has cleared the way for Kraft to consolidate its position as the world's top biscuit maker, by acquiring snack brands such as LU, Tuc and Price from its biggest rival in the world market, Danone.
Concerns linked to sale
In reviewing the effects of the sale on Kraft's expanded presence in the European snack market, the EC recommended specific changes to how the group operated in Europe.
The Commission highlighted two particular concerns it had related to the deal, stemming from how it would effect the sale of chocolate and biscuits in the bloc.
In terms of the market for chocolate the report found that:
Currently, Danone only sells chocolate confectionery on a national basis with brands like Cha-Cha in Belgium and Blaton in Hungary.
Kraft by comparison, is present throughout the Bloc with its chocolate brands, which include Milka, Côte d'Or, Toblerone, Suchard and some other locally sold products.
In combining these operations, the Commission found that the transaction threatened to impede competition in the Hungarian chocolate market unless some actions were taken by Kraft.
The company agreed therefore to divest the Balaton brand in the country.
By reviewing the implications for biscuit production the Commision found:
There is particular concern surrounding the effects of the sale on biscuit production, as both Kraft and Danone have a significant presence in the market.
Danone is active in the whole of Europe through its LU brand and other biscuit ranges. Kraft Foods meanwhile, currently sells biscuit brands for the region primarily in Iberia with the Fontaneda and Artiach brands.
The sale was therefore judged by the Commission to "significantly" reduce competition in the Spanish market for sweet biscuits, as it would make Kraft an unavoidable trade partner for the country's retailers.
To allay these fears, Kraft agreed to offload a number of its Spanish biscuit brands like Artiach, Chiquilin, Filipinos and Marbú Dorada, alongside one of its Spanish production plants.
"In view of the remedies offered, I am satisfied that competition will remain vigorous after the merger, and consumers of biscuits and chocolate will continue to benefit from choice and competitive prices," stated Competition commissioner Neelie Kroes.
The proposed €5.3bn sale of Danone's biscuit and cereals divisions, excluding its interests in Latin America and India, was announced in September.
"This proposed acquisition makes great sense for Kraft," said Irene Rosenfeld, Kraft chairman and chief executive officer, following the announcement. "This growing, high-margin business will give Kraft another core growth category in Europe, a cornerstone for faster growth in emerging markets, and the best portfolio of iconic biscuit brands in the world," Rosenfeld said.
With the acquisition, Kraft will also gain access to critical emerging markets such as China, Russia, Poland, Indonesia and Malaysia, which will account for 25 per cent of business. The company will also establish footholds in Malaysia and Indonesia.
Kraft has promised to keep Danone's biscuits division in Europe as a distinct unit based in France. Kraft has also said it does not intend to announce the closing of any of the acquired biscuit manufacturing plants in France for at least three years after the transaction is signed.
Danaone, the France-based dairy group, is itself restructuring operations by acquiring nutrition firm Numico as part of moves to extend its presence in higher value and nutritional goods, aided, in part, by the proceeds of the Kraft acquisition.