Sonoco under investigation amid competition concerns after Weidenhammer acquisition

Sonoco and Weidenhammer both manufacture and supply composite cans for food products such as gravy granules, chocolate powder, crisps, crackers and coffee.

Largest manufacturer and supplier of composite cans

As part of the Mergers, Competition, Preventing and reducing anti-competitive activities and Business and enterprise division, CMA found, as a result of the transaction which was completed on October 31, 2014, the merged company will be the largest manufacturer and supplier of composite cans for food products in the UK.

The merged company would be the only credible supplier of this type of packaging for some customers and the CMA found it would only continue to face competition from two other smaller producers of composite cans for food products in the UK.

The CMA is concerned a lessening of competition may result in higher prices or a reduction in choice or quality for customers.

“The transaction combines the number one and two players for the supply of composite cans for food products in the UK and will reduce the choice of suppliers available to brand owners, licensees and retailers​,” said Sheldon Mills, senior director, Mergers, CMA.

Ability to raise prices

“End customers and retailers prefer composite cans over a range of other packaging formats for certain types of products. As such, the evidence available at this stage does not show that the parties face a significant threat from other producers of composite cans for food or other types of packaging such as flexible plastics or cartons​.

“This loss of competition may give the newly-merged company the ability to raise prices to customers and ultimately this could feed into higher retail prices for a range of everyday food products​.

“Unless Sonoco offers undertakings that resolve these concerns, it will be necessary to investigate the transaction in greater detail​."

Phase 2 investigation

Roger Schrum, vice president, Investor Relations & Corporate Affairs, Sonoco Products Company, told FoodProductionDaily it is disappointed by the CMA decision considering the transaction previously received regulatory approval in Germany and other countries.  

"The CMA decision only relates to Sonoco and Weidenhammer operations in the UK which are small and face competition from other packaging companies and formats," he said.

"We continue to review the CMA decision to decide what actions we may follow in the future. However, as the UK operations affected are quite small, we do not anticipate that this development will have any material impact on the Weidenhammer transaction as a whole."

The transaction will be referred for an in-depth phase 2 investigation unless Sonoco offers acceptable undertakings to address the CMA’s competition concerns in a clear-cut manner.

All the CMA’s functions in phase 2 merger inquiries are performed by inquiry groups chosen from the CMA’s panel members. The appointed inquiry group are the decision makers on phase 2 inquiries.

Its panel members come from a variety of backgrounds, including economics, law, accountancy and/or business. The membership of an inquiry group usually reflects a mix of expertise and experience (including industry experience).

The inquiry group may extend the 24-week period within which it is required to publish its report by no more than eight weeks if it considers that there are special reasons why the report cannot be published within that period.