By Andrew Starke
Japanese brewer Asahi is considering its next move following the national regulator’s decision to block its proposed $360 million acquisition of P&N Beverages due to competition concerns.
Asahi is believed to have flown a delegation of its executives into the country yesterday (March 10) as it decides whether to launch a legal appeal against the ruling.
It must also negotiate an extension of the exclusivity agreement it holds with P&N Beverages or risk a competitor emerging.
Central to the Australian Competition and Consumer Commission’s (ACCC) decision is the desire to see competition maintained in a sector dominated by Asahi-owned Schweppes Australia and Coca-Cola Amatil.
"At the heart of the ACCC's concerns is that the proposed acquisition will remove a vigorous and effective competitor in the markets for the supply of carbonated soft drinks (CSDs) and cordial," ACCC chairman Graeme Samuel said.
Asahi acquired Schweppes Australia, the second largest manufacturer of CSDs in Australia and the largest manufacturer of cordial, in April 2009.
Its products include the Schweppes and Pepsi range of CSDs, as well as the Cottee's range of cordial.
P&N Beverages is the third largest manufacturer of both CSDs and cordial.
P&N also manufacturers CSDs under a number of brands and is the largest supplier of private label soft drinks in Australia.
The ACCC found that P&N's CSDs play an important role as low priced alternatives to the CSDs supplied by Asahi and Coca-Cola Amatil.
The ACCC said it had conducted an extensive investigation of the proposed acquisition, considering information from a wide range of sources, including beverage manufacturers, supermarket retailers, input suppliers, industry groups and other market participants.
Samuel said the ACCC had concluded that P&N's CSDs constrain the price of Schweppes CSDs.
"The proposed acquisition would remove P&N as a vigorous and effective competitor in the CSD market and would result in Asahi and Coca-Cola Amatil being the only remaining significant competitors in the CSD market,” he said.
"Following its extensive investigation, the ACCC concluded that no other CSD supplier is likely to expand sufficiently to replace the lost competitive constraint in the foreseeable future. In particular, other smaller suppliers of CSDs lack the scale, infrastructure and brands to act as a competitive constraint on Asahi post acquisition.
"Since Asahi will face little competition from other suppliers in relation to the lower priced value CSDs, Asahi would have the ability and incentive to increase the price of P&N's branded and private label CSDs post acquisition.
“The proposed acquisition would weaken the constraint provided on the Schweppes range of CSDs, allowing Asahi to also increase the price of its Schweppes range of CSDs.”
Another factor taken into account was that, following the acquisition, Asahi will lose the incentive to supply private label CSDs in competition with P&N.
"P&N has been successful in growing its market share through discounting and product innovation,” said Samuel.
While there are other sources of competition in the cordial market such as Golden Circle and private label cordial, the ACCC concluded that these constraints would be insufficient to replace the competition lost from the removal of P&N.
An exclusivity agreement between Asahi and P&N Beverages expires at the end of this month (March), which would allow owner Peter Brooks to consider other offers.
P&N Beverages is best known for soft drinks brands like Pub Squash, LA Ice Cola, Frantelle spring water and Waterfords mineral water.