Kerry Purchase Refused
Kerry shares fell 2.6% to 18.50 euros. The stock has declined 15% this year, reducing its market value to 3.2 billion euros.
It is only the third time that the authority has blocked a proposed merger, since the provisions of the Competition Act regarding merger control came into effect in January 2003 and followed a full investigation by its mergers division.
The Competition Authority is required by the Competition Act 2002 to publish the determination within one month.
It will publish its determination on or before September 27.
Reox chief executive Jerry Henchy hailed the proposed deal when it was announced last March as the beginning of an exciting new chapter for the business.
Chairman Flor Riordan said the company was naturally disappointed at the Competition Authority decision.
It believed the sale of the business to Kerry Foods was a good proposition for Breeo, its shareholders and staff, Irish consumers and the consumer foods market in this country.
He said Reox will review the detail of the Competition Authority's decision.
Riordan said it is business as usual for Breeo Foods. The sale process was triggered by an unsolicited approach in October 2007 to buy the business.
The subsequent offer from Kerry Foods represented compelling value for Reox shareholders and the board of Reox Holdings plc was duty bound to consider it, and upon consideration, it decided to proceed with a sale.
"Breeo remains an exceptionally strong business proposition with its portfolio of consumer foods brands including Dairygold, Galtee, Shaws, Roscrea, Mitchelstown, Calvita and Sno.
"Over the last five years the business has undergone a significant restructuring which has improved its operational efficiency and transformed it from a raw material processor to a customer focused retail business driven by innovation and new product development.
"These improvements will ensure the business remains competitive and delivers strong returns to share-holders in future years."
"Our focus in Reox Holdings is to secure long-term sustainable competitive performance and deliver maximum value to our shareholders across our portfolio of businesses, and on that basis, Reox Holdings will continue to operate the profitable Breeo Foods business," he added.
"Reox Holdings will continue to build on Breeo's position in the market and exploit opportunities which will arise to maximise shareholder value through the business," he said.
Kerry Group is set to lose 20 million on the proposed acquisition of Reox's Breeo Foods business.
Kerry agreed to pay Reox 20 million in a non-refundable deposit when negotiating the purchase of the company, whose brands include Dairygold, Galtee rashers and sausages, Shaw's cooked meats, Calvita and Mitchelstown cheese and Sno yogurts. Kerry already owns brands such as Denny, Dawn, Ballyfree, Charleville, Cheesestrings, and Low Low.
The 20 million cheque will come as a significant boost to Breeo and its owners Reox as it faces a challenging environment in the sector. It is equal to around one year's profits based on its average profit over the last three years.
Kerry has the option of challenging the decision in the High Court, something which has never been done before in a case like this.
Industry sources raised the question of whether the authority had fully taken into account the prevalence of own-brand labels in this market and the fact that branded goods such as those of Kerry and Breeo might find it tougher in the future to compete against lower-cost labels often processed outside the country.
The Kerry proposal followed months of negotiations, and it was seen as a tough sale process. Reox insisted that it did not put Breeo up for sale but responded to an initial approach from Ion Equity. At that point, Kerry Group got involved.
It is not expected to seek another buyer for the business, but the collapse of this deal will come as a blow to the group's overall plans.
From the September 2, 2008, Prepared Foods e-Flash