The UK's Competition and Markets Authority (CMA) has blocked the merger between cleaning products manufacturer Ecolab and Holchem. The decision follows an in-depth Phase 2 investigation by the CMA, which concluded that the merged organisation is likely to face limited competition from other suppliers. Following the ruling, Ecolab must sell Holchem to a new owner, which must be approved by the CMA.
Ecolab said it strongly disagrees with the CMA’s decision. For the hygiene giant, the merger of the two companies would result "in the increased availability of innovation, better customer service and stronger expertise across the food and beverage industry, leading to better outcomes for consumers".
Douglas Baker, Ecolab’s chairman and CEO, said the company is reviewing the full report provided by the CMA in detail and will carefully consider the options and next steps. "We will continue to do what is right for our customers and associates, and to expand our ability to bring the latest technologies and the highest food safety standards to the food and beverage industry," he said.
The merger of the two companies would result in the increased availability of innovation
Ecolab and Holchem are two of the largest suppliers of cleaning chemicals to food and drink manufacturers in the UK. Ecolab announced the acquisition of Holchem Group Limited, on 5 December 2018. Holchem, a UK-based supplier of hygiene and cleaning products and services for the food and beverage, foodservice and hospitality industries, operates in the UK and Ireland, with sales that were approximately £43 million (US$56 million) at the time of the announcement.
CMA ruling
The CMA deemed the single organisation resulting from the merger is much larger than any of its remaining competitors and would leave only three players of any significant size competing in the UK market. For the UK agency, the Ecolab-Holchem merger could mean food and drink manufacturers face higher prices or a lower quality of service for cleaning chemicals."Food and drink manufacturers place a high value on their cleaning chemical supplier’s reputation and experience in keeping food and drink safe and free from contamination. This merger reduces the choice available to these customers," the CMA explained in a statement.
For the UK agency, the Ecolab-Holchem merger could mean food and drink manufacturers face higher prices or a lower quality of service for cleaning chemicals
While the group of independent CMA panel members considered alternative ways of addressing its concerns about the merger, as set out in their provisional findings published in August, it has concluded that the only effective way of addressing the significant loss of competition is to effectively block the merger.
"We have carried out a thorough investigation analysing a large amount of data from the companies as well as evidence collected from both customers and competitors," said Kirstin Baker, the Inquiry Chair. "We concluded that these two companies compete closely and this deal could have very serious effects – prices could go up or quality standards in crucial support services could get worse."
Baker pointed out that having carefully considered how these issues could be resolved, the CMA "decided that only blocking the merger and requiring Ecolab to sell Holchem would address our concerns".
Both Ecolab and Holchem have four weeks in which they can apply to the Competition Appeal Tribunal (CAT) for a review of the decision. The deadline for Ecolab to sell Holchem is confidential.
The CMA has entered a 12-week phase to develop final undertakings. A draft will be published for consultation, and final undertakings or a final order will be made by the CMA, after which the sale process will begin.
