Proposed Acquisition by Jacobs Douwe Egberts Holdings Asia NL B.V. of Shares of OldTown Berhad

Notifying Parties:

Jacobs Douwe Egberts B.V. (“JDE”)

Notifying Date:

18 December 2017

Summary of transaction:

(i) The names of the merger parties:

• Jacobs Douwe Egberts Holdings Asia NL B.V. (“JDE Asia”); and

• OldTown Berhad (“OT”).

(ii) A description of the transaction:

This sole notification by JDE relates to the proposed acquisition of sole control by JDE over OT, through an acquisition by JDE’s wholly-owned subsidiary, JDE Asia, of the entire issued and outstanding share capital of OT, a public company listed on Bursa Malaysia (the “Transaction”).

(iii) A description of the business activities of the merger parties worldwide and in Singapore:

JDE Asia

JDE Asia is a wholly-owned indirect subsidiary of JDE. JDE is a global coffee company that owns brands in over 27 countries across Europe, Latin America and Australia. It has a very limited presence in Asia. JDE also owns Super Group, Ltd. (“SG”) which manufactures and sells over 160 instant food and beverage products, including instant tea and coffee. JDE acquired SG in June 2017.

OT

OT is a publicly-listed company on Bursa Malaysia, and is active in three business segments:

a) manufacturing of coffee and other beverages, including instant coffee mix, roasted coffee powder, instant milk tea mix and instant chocolate mix;

b) marketing and sales of coffee and other beverages in points of distribution globally, covering modern trade, general trade and other formats; and

c) operation of retail cafes under the “OldTown White Coffee” brand across Australia, China, Hong Kong, Indonesia, Malaysia, and Singapore.

(iv) A description of the overlapping goods or services, including brand names:

The JDE group of companies (“JDE Group^[1]”) and OT overlap in the sale and marketing of instant coffee mixes and other instant beverages in Singapore. Broadly speaking, both provide the following products (the “Overlapping Goods”):

a) instant coffee mix: also known as coffee powder or soluble coffee, instant coffee is produced by the following processes: extraction, filtration and concentration, recovery of aromatic volatiles, dehydration, freeze-drying or spray-drying, aromatisation, and packaging. Instant coffee allows consumers at short notice to rehydrate the coffee by mixing it with hot water. Due to its preparation method, instant coffee has a very long shelf life; and

b) instant milk tea mix: instant milk tea is produced by the following processes: tea selection, extraction, aroma stripping, tea cream processing, concentration, and spray-drying. Milk Tea can be rehydrated for consumption with hot water. Similar to instant coffee mix, instant milk tea can be prepared at short notice, and has a very long shelf life.

(v) A description of substitute goods or services:

In respect of instant coffee products, conventional and non-conventional coffee, single-serve and multi-serve coffee, R&G coffee, and all variants of instant coffee for in-home sales in Singapore are substitutes.

In respect of instant milk tea mixes, tea bags or loose tea leaves may be considered as substitutes.

(vi) The applicant’s views on:

a.             the definition of the relevant market(s);

JDE submit that the relevant markets for the purpose of this notification are:

• at its narrowest, the supply of instant coffee for in-home sales, but that the relevant market may potentially be broader to include the supply of all coffee for in-home sales; and

• at its narrowest, the supply of instant milk tea for in-home sales, but that the relevant market may potentially be broader to include the supply of all milk tea for in-home sales.

b.            the way in which competition functions in this market;

JDE submit that competition in the relevant markets is intense, with the presence of many other major coffee manufacturers, who are able to easily import instant coffee products and/or instant milk tea products into the relevant product markets in Singapore. Competitors compete in branding and image, pricing, and taste.

c.             barriers to entry and countervailing buyer power; and

Barriers to entry

JDE submit it would be relatively quick and easy for an existing manufacturer of instant coffee products and instant milk tea products to enter Singapore, as they may do so directly or through existing distributors in Singapore. In order to enter Singapore and gain shares, a manufacturer would have to invest on various items, such as advertising and promotions, listing fees in the modern trade, marketing support fees, etc, which are not prohibitive.

Retailers are also able to easily enter the supply of instant coffee products and instant milk tea products. Retailers are able to outsource the manufacturing and packing of such products to existing manufacturers and to sell such products under its own brand name, without incurring capital expenditure.

Where a new entrant without existing manufacturing capabilities is looking to enter the supply of instant coffee products and instant milk tea products in Singapore, JDE Asia submit that a new entrant may do so without incurring any manufacturing capital expenditure. A new entrant may enter into agreements with existing manufacturers to create its own private label brand (through either private label or co-packing contracts) and have its instant coffee or instant milk tea products manufactured and packaged by the co-contractor. Hence, a new entrant would not require any manufacturing capabilities to enter the supply of instant coffee products and instant milk tea products in Singapore.

Countervailing buyer power

The landscape for coffee and tea products for in-home sales in Singapore is characterised by strong countervailing buyer power. The main intermediate customers are large, sophisticated retailers such as hypermarkets, supermarkets, and convenience chain stores. Intermediate customers of the merger parties are able to switch suppliers with relative ease based on the availability of various instant coffee and tea products at competitive prices.

d.            the competitive effects of the merger (non-coordinated, coordinated and/or vertical effects, as relevant).

The constraints on the coordinated and non-coordinated effects are: 

a)             global competitors: existing and potential competing global instant coffee and tea manufacturers are able to, and do, supply and distribute instant coffee and tea products in Singapore;

b)            barriers to entry not significant: there are no prohibitive barriers to entry for the import of instant coffee and tea products for sale in Singapore;  

c)             strong countervailing buyer power: manufacturers and sellers of instant coffee and tea products would continue to be constrained by strong countervailing buyer power of large, sophisticated intermediate customers. Accordingly, manufacturers and sellers of instant coffee and tea products would have to price competitively, and provide an innovative range of products to suit consumer preference, to maintain a compelling proposition for intermediate customers and compete; and

 d)            any coordination would be unsustainable in a buyer driven market: Coffee markets are dynamic and subject to change. Consumers are able to switch between different brands of instant tea and coffee products with ease and without any significant costs. As a result of the intense level of market competition, suppliers are required to both constantly innovate on product range and price competitively in order to compete with evolving trends. As these involve qualitative and subjective measures, it would be difficult for competitors to monitor and sustain any coordination.

^[1] The JDE Group comprises entities such as JDE, JDE Asia and Super Group Pte. Ltd.

Decision:

The proposed merger, if carried into effect, will not infringe the Section 54 prohibition. 

Decision Date:

30 January 2018

Read Media Release.

Read the Grounds of Decision.