Competition Commissioner Neelie Kroes said that the investigation, called for under the EU Merger Regulation, was necessary to ensure that the acquisition of Degussa's Food Ingredients branch (DFI) "will not detrimentally affect customers like food manufacturers and, consequently, European consumers".
Degussa said in a statement yesterday that it "continues to be confident that the detailed examination will dispel the EU Commission's initial reservations, and that the transaction will be successfully concluded."
Both DFI and Cargill are active worldwide in the development, production and sale of several food ingredients such as emulsifiers, pectin and flavours. Lecithin is a natural emulsifier, mainly produced from soy beans and primarily used in the food industry, in particular in the production of chocolate and bakery products.
The merging companies are two of the four leading suppliers of lecithin and would become particularly strong in the field of non-genetically modified (non-GM) lecithin. "This takeover involves two companies that are at the forefront of the production of natural emulsifiers used in particular in food products such as chocolate, bread, and margarine," said Kroes in a statement yesterday.
The market for non-GM lecithin has increased in importance for the European food industry, as regulations 1829/2003 and 1830/2003 require the labelling and traceability for genetically modified food and food ingredients. Indications from food manufacturers suggest that genetically modified lecithin is only a limited substitute for non-genetically modified lecithin.
The Commission said yesterday that its preliminary market investigation showed that the transaction could lead to highly concentrated lecithin markets while reducing further the choice of suppliers for food manufacturers.
At the same time, it said that there are barriers to entry on these markets due to the importance the food industry attaches to the reliability of a high quality and on-time delivery of food ingredients.
However, the EC was quick to point out that the decision to open an in-depth inquiry does not prejudge the final result of the investigation.
The Commission now has 90 working days - until 3 May 2006 - to take a final decision on whether the concentration would significantly impede effective competition within the European Economic Area (EEA) or a substantial part of it.
US ingredients firm Cargill agreed to pay €540 million for the food ingredients unit of German chemical giant Degussa, with sales of €540 million, back in September. The US authorities have already given their clearance for the deal.