97/540/EC: Commission Decision of 22 January 1997 declaring a concentration to be compatible with the common market and the functioning of the EEA Agreement (Case No IV/M.794 - Coca-Cola/Amalgamated Beverages GB) (Only the English text is authentic) (Text with EEA relevance)

• Published date: 09 August 1997
• Subject Matter: concorrenza,Concentrazioni tra imprese,concurrence,Concentrations entre entreprises,competencia,Concentraciones de empresas
• Official Gazette Publication: Gazzetta ufficiale delle Comunità europee, L 218, 9 agosto 1997,Journal officiel des Communautés européennes, L 218, 9 août 1997,Diario Oficial de las Comunidades Europeas, L 218, 9 de agosto de 1997

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97/540/EC: Commission Decision of 22 January 1997 declaring a concentration to be compatible with the common market and the functioning of the EEA Agreement (Case No IV/M.794 - Coca-Cola/Amalgamated Beverages GB) (Only the English text is authentic) (Text with EEA relevance)

Official Journal L 218 , 09/08/1997 P. 0015 - 0042

COMMISSION DECISION of 22 January 1997 declaring a concentration to be compatible with the common market and the functioning of the EEA Agreement (Case No IV/M.794 - Coca-Cola/Amalgamated Beverages GB) (Only the English text is authentic) (Text with EEA relevance) (97/540/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community,

Having regard to the Agreement on the European Economic Area, and in particular Article 57 thereof,

Having regard to Council Regulation (EEC) No 4064/89 of 21 December 1989 on the control of concentrations between undertakings (1), as amended by the Act of Accession of Austria, Finland and Sweden, and in particular Article 8 (2) thereof,

Having regard to the Commission Decision of 13 September 1996 to initiate proceedings in this case,

Having given the undertakings concerned the opportunity to make known their views on the objections raised by the Commission,

Having regard to the Opinion of the Advisory Committee on Concentrations (2),

Whereas:

(1) On 9 August 1996, the Commission received notification of an operation by which Coca-Cola Enterprises Inc. (CCE) would acquire the entire issued share capital of Amalgamated Beverages Great Britain (ABGB), the parent company of the British bottling company, Coca-Cola & Schweppes Beverages Limited (CCSB).

(2) After examination of the notification, the Commission decided on 13 September 1996 that the notified operation fell within the scope of Regulation (EEC) No 4064/89 (the Merger Regulation) and raised serious doubts as to its compatibility with the common market and with the functioning of the EEA Agreement.

I. THE PARTIES

A. CCE

(3) CCE is the world's largest bottler of the products of The Coca-Cola Company (TCCC). CCE was created in 1986 when TCCC began consolidating its US bottling operations and offered 51 % of CCE's shares to the public. In the early 1990s, CCE merged with the Johnston bottling group, the largest independent Coca-Cola bottler in the United States. CCE operates primarily in the United States, where, in addition to bottling TCCC's products (56 % of TCCC's US sales in 1995), it also bottles Dr Pepper, a Cadbury Schweppes product, and distributes several other national brands.

(4) CCE began operating in the EEA in 1993 when it acquired TCCC's bottling and distribution operations in the Netherlands. In 1996 it acquired TCCC's bottling and distribution operations in Belgium and France. CCE is virtually the sole bottler of TCCC products in these countries.

Relationship between CCE and TCCC

(5) TCCC is the largest single shareholder in CCE with some 45 % of its shares. However, there are no formal rights attached to this shareholding, in particular with regard to the composition and voting on the Board. Nevertheless, there are a number of factors which, when assessed cumulatively, lead to the conclusion that TCCC does have the possibility of exercising decisive influence over CCE on a de facto basis within the meaning of Article 3 (3) of the Merger Regulation.

(6) Essentially, TCCC's 45 % shareholding must be regarded as a strategic investment conferring upon it considerable influence over the commercial activities of CCE, given in particular the fact that no other single shareholder holds more than 8 %. An 8 % shareholding is held by the Chief Executive Officer, Mr Johnston, and his family, 9 % of the shares are held by executives and employees of CCE, 28 % by institutional investors, no one of whom individually holds more than just over 5 %, with the remaining 10 % held by the public. No other shareholder has anywhere near the same weight as TCCC in terms of voting rights.

(7) The TCCC shareholding falls only just short of achieving a majority of votes cast in annual general meetings held in recent years (49,79 % in 1994; between 48,09 % and 48,84 % in 1995; and between 48,2 % and 48,8 % in 1996).

(8) The parties argue that, collectively, the financial interests of the other minority shareholders act as an effective counterweight to the interests of TCCC, which may be driven partly by volumes of concentrate sales. However, TCCC has never been outvoted in any Annual Shareholders' Meeting. Taking into account the fact that the remaining capital is widely dispersed and that those shareholdings do not represent homogeneous interests, it is highly unlikely that those shareholders would vote together against TCCC. Furthermore, in considering their financial interests, those shareholders would have to balance any short-term gain against the potential damage to the long-term value of their CCE shares if they voted against TCCC.

(9) The improbability of TCCC failing to find a majority in an Annual Shareholders' Meeting is reinforced by the following considerations: as stated by CCE itself in its 1995 annual report, CCE is the world's largest bottler of TCCC's products. Some 90 % of CCE's turnover worldwide (nearly 100 % in the case of its European operations to date) is derived from the sales of TCCC products. Therefore, CCE's business is inextricably bound up with that of TCCC and is dependent on the latter company. These parties deny any notion that CCE is dependent on TCCC, in particular by drawing parallels with exclusive distribution arrangements. However, it is submitted that the relationship between TCCC and CCE can hardly be equated with an exclusive distribution arrangement, given in particular the 45 % shareholding of TCCC in CCE and the structure of the remaining shareholdings. Moreover, it is inconceivable that CCE would replace Coca-Cola by Pepsi-Cola or any other brand of cola when TCCC remains in such a powerful position in the market place. Moreover, while the fact that CCE buys some 18 to 20 % of TCCC's total output gives it a certain leverage over the latter, and while CCE could inflict serious damage on TCCC if it wanted to, this cannot be equated with the leverage exercisable by TCCC, given the 90 % dependence of CCE.

(10) If TCCC had any difficulty in finding a majority, it could easily purchase a 2 % shareholding on the stock exchange, thus acquiring an absolute majority. The fact that it has not found it necessary to do so is a further indication than it already enjoys practical control.

(11) CCE stresses the fact that it plays an active independent role as bottler on the market. The Commission accepts that TCCC recognizes CCE's expertise in the bottling business and that TCCC does not normally interfere with CCE's operations. Nevertheless, CCE can hardly ignore the fact that the economic balance between itself and TCCC is heavily weighted in TCCC's favour: CCE bottles some 15 to 20 % of TCCC's products worldwide, while some 90 % of CCE's sales are TCCC products. It is clear that TCCC has chosen to set up CCE as its 'anchor bottler` in many parts of the United States and of the European Union. An executive of TCCC stated in a presentation entitled 'How will Recent Bottling Restructuring Produce Benefits` that '[Coca-Cola] and anchor bottlers [of which CCE is the most important] are strategic partners sharing in the common goals of the Coca-Cola system.`

(12) The parties state that CCE's executive compensation structure also ensures its independence from TCCC since it guarantees that executive officers and managers would not encourage volume growth if this was at the expense of CCE's profit. In CCE's 1995 Annual Report, however, it is stated that employees focus on making decisions that will increase the long-term economic value of the company. It is also clear from that report that increased volume is essential to the long-term profitability of CCE.

(13) For all the above reasons, taken together, the Commission concludes that TCCC is in a position to exert decisive influence over CCE and, as such, controls the company within the meaning of Article 3 (3) of the Merger Regulation. The Commission rejects the contention of the parties that it is required to establish control in respect of any single factor individually, standing alone. On the contrary, Article 3 (3) specifically provides that control can be based on a combination of factors, as well as on a single fact.

(14) [ . . . ] (3).

B. ABGB AND CCSB

(15) ABGB is a subsidiary of Cadbury Schweppes plc (CS), which has a 51 % equity shareholding. The remaining 49 % interest is held by TCCC. Those two companies exercise de facto joint control over ABGB. This is discussed more fully in the assessment of the proposed operation. ABGB is the parent company of CCSB, the bottling company established in 1987 by CS, Coca Cola Export Corporation and TCCC to produce, package, market, distribute and sell soft drinks in Great Britain. The majority of CCSB's soft drinks are produced from concentrates, essences and extracts manufactured by its owners, CS and TCCC.

II. THE OPERATION

GENERAL

(16) Under the proposed transaction, CCE and thus TCCC would acquire sole control of CCSB, by the purchase of all of ABGB's share capital, through a new, wholly-owned subsidiary, Bottling Holdings (Great Britain) Limited (Newco). Newco would purchase CS's 51 % shareholding and the 49 % shareholding in ABGB held by Coca-Cola Holdings (United Kingdom) Limited, which is owned by TCCC.

(17) In addition, new licensing arrangements have been negotiated between CCE and TCCC in respect of TCCC's products and between CCE and CS in respect of CS's products. TCCC has reported to the Commission that its new licensing agreement will be its standard European licensing agreement (Bottler's Agreement). Under...