EU Opens In-depth Investigation Into Coffee JV Between DEMB And Mondelez

(RTTNews) - The European Commission said that it has opened an in-depth investigation to assess whether a proposed joint venture between coffee manufacturers Douwe Egberts Master Blenders 1753 B.V. or "DEMB" of the Netherlands and Mondelez International, Inc (MDLZ) of the US was in line with the EU Merger Regulation.

Both companies own popular brands: DEMB owns L'Or, Douwe Egberts, Senseo and Merrild while Mondelez owns Carte Noir, Jacobs, Gevalia, and Tassimo.

The Commission said it has concerns that the proposed transaction may reduce competition for various coffee formats in Austria, France, Denmark and Latvia and for single-serve systems in multiple Member States.

The opening of an in-depth investigation does not prejudge the outcome of the investigation. The Commission now has 90 working days, until 6 May 2015, to take a decision.

The proposed transaction would combine in a joint venture the operating subsidiaries and substantially all the material assets of DEMB and its subsidiaries with Mondelez International's coffee businesses. The post-merger entity will operate under the name of Jacobs Douwe Egberts.

According to the Commission, the proposed transaction also reduces the number of key players in single-serve systems. The deal would bring together DEMB's Senseo and Mondelez' Tassimo systems, which are two of the four leading systems in Europe (being the other two Nestlè's Dolce Gusto and Nespresso).

The Commission has concerns that this would lead to higher prices for customers of machines and consumables and to less innovation. Although DEMB and Mondelez do not sell coffee machines, they provide price support to purchasers of machines with the aim of increasing lucrative follow-on sales of pads and capsules.

In order to address the competition concerns identified by the Commission, the companies offered commitments. Having tested these commitments with market players, the Commission concluded that they were insufficient to remove the concerns raised.

The Commission noted that it will now investigate in-depth the proposed transaction in order to determine whether or not these initial concerns are confirmed. The Commission will in particular examine the competition between single-serve systems.

In May, Mondelez announced a deal with D.E Master Blenders 1753 B.V., whereby the two companies would combine their coffee businesses to create a pure-play coffee company with annual sales of more than $7 billion.

As for its coffee business deal with D.E. Master Blenders, Mondelez would receive after-tax cash proceeds of about $5 billion and a 49 percent interest in the new company, which would go under the name Jacobs Douwe Egberts and be based in the Netherland.